Grainger Q2 sales up 5.6% to $4.6bln, EPS rises 2.2% to $9.97

• Grainger Q2 sales up 5.6% to $4.6 billion, 5.1% on constant currency basis • Operating margin down 50 bps to 14.9% • Diluted EPS up 4.8% to $9.97 • Operating cash flow $377 million, $336 million returned to shareholders • Lowered FY25 guidance to $38.50 to $40.25 adjusted diluted EPS

Grainger Inc. (NYSE: GWW) reported its second-quarter 2025 results on August 1, showing strong sales growth but facing significant margin pressure from tariff challenges. The industrial supply company's stock plunged 11.02% in pre-market trading, reflecting investor concerns about the company's reduced profit guidance despite higher sales projections.

The company reported quarterly sales of $4.6 billion, representing a 5.1% increase on a daily, constant currency basis. However, operating margin contracted by 50 basis points to 14.9%, and the company lowered its full-year profit outlook due to tariff-related headwinds. Quarterly diluted earnings per share (EPS) increased to $9.97, up 4.8% from the prior year. Operating cash flow was $377 million, with $336 million returned to shareholders through dividends and share repurchases.

Grainger's High-Touch Solutions segment, which includes U.S. and Canadian operations, reported sales of $3.54 billion, up 2.5% year-over-year. The Endless Assortment segment, which includes MonotaRO and Zoro, demonstrated exceptional growth with sales increasing 19.7% to $929 million. The company's operating margin in the Endless Assortment segment expanded by 200 basis points to 9.9%, showing strong operational leverage as it scales.

Grainger has implemented a phased strategy to address tariff challenges, beginning with initial pricing actions in May 2025 and continuing with further adjustments planned for September. Management expects to achieve price-cost neutrality over time, though near-term headwinds are anticipated in Q3 and Q4.

Despite the tariff challenges, Grainger raised its full-year sales guidance while lowering profit projections. The revised outlook projects sales of $17.9-18.2 billion (previously $17.6-18.1 billion), representing growth of 4.4% to 5.9%. However, gross profit margin is now expected to be 38.6-38.9%, down from the previous range of 39.1-39.4%. Similarly, operating margin guidance was lowered to 14.7-15.1% from 15.1-15.5%. Most notably, diluted EPS guidance was reduced to $38.50-40.25 from the previous range of $39.00-41.50.

The market reaction to Grainger's Q2 2025 results suggests investors are focusing on the reduced profit guidance rather than the sales growth. The company maintains strong fundamentals with a 40.3% return on invested capital (ROIC) and continues to return capital to shareholders. However, the near-term profit outlook has clearly dampened investor sentiment.

References:
[1] https://www.investing.com/news/company-news/grainger-q2-2025-slides-strong-sales-growth-overshadowed-by-tariff-headwinds-93CH-4165865
[2] https://www.morningstar.com/news/pr-newswire/20250801cg41386/grainger-reports-results-for-the-second-quarter-2025