W.W. Grainger, Inc. (GWW) Q4 2025 Earnings Call Transcript
Access earnings results, analyst expectations, report, slides, earnings call, and transcript.
Overview
The earnings call presents a mixed outlook. While there is optimism in revenue growth and digital channel expansion, there are concerns about inflation, margin pressures, and muted market conditions. The Q&A section reveals management's cautious tone, with no significant growth expected. Although gross margins were better than expected, they are projected to decline. The sentiment is neutral as positive aspects are counterbalanced by uncertainties and lack of strong growth indicators.
Key Financial Performance
Total Company Sales Growth 4.5% on a reported basis or 4.9% on a daily organic constant currency basis. Reasons: Continued share gain from High-Touch Solutions U.S. business and significant top-line improvement in Endless Assortment segment.
Total Sales $17.9 billion. Reasons: Growth driven by High-Touch Solutions U.S. business and Endless Assortment segment.
Operating Margin 15% for the year. Reasons: Managed strong margins despite LIFO headwinds.
Adjusted EPS Growth 1.3% or $39.48 per share. Reasons: Solid top-line performance and margin management.
ROIC 39.1%. Reasons: Strong operational performance.
Operating Cash Flow $2 billion. Reasons: Strong cash generation allowed $1.5 billion to be returned to shareholders through dividends and share repurchases.
High-Touch Solutions Segment Sales Growth 2.2% on a reported basis or 2.1% on a daily constant currency basis. Reasons: Strong performance with contractor and manufacturing customers, offset by slower growth in other areas and government end market softness.
High-Touch Solutions Segment Operating Margin 15.8%, down 120 basis points year-over-year. Reasons: Payroll and higher-than-expected healthcare costs, marketing investment, and softer top line due to government shutdown.
Endless Assortment Segment Sales Growth 14.3% on a reported basis or 15.7% on a daily organic constant currency basis. Reasons: Strong growth from Zoro U.S. and MonotaRO, improved customer retention rates, and increased web traffic for MonotaRO.
Endless Assortment Segment Operating Margin 10.6%, up 200 basis points. Reasons: Favorability across the segment, gross margin flow-through, and healthy top-line leverage.
MonotaRO Sales Growth 18.4% growth in local days local constant currency. Reasons: Growth with enterprise customers, strong repeat rates, and increased web traffic from a competitor's cyber outage.
Zoro U.S. Sales Growth 16%. Reasons: Strong growth from core B2B customers and improved customer retention rates.
Gross Margin (Total Company) 39.5%, down 10 basis points year-over-year. Reasons: Segment mix headwinds from faster-growing Endless Assortment.
Diluted EPS (Q4) $9.44, down 2.8% year-over-year. Reasons: Increased SG&A expense due to unforeseen healthcare costs and softer top line in High-Touch Solutions segment.
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Operating Highlights
Net SKU Growth: Achieved net assortment growth of over 85,000 SKUs, the largest in nearly a decade, including new categories like data center support and factory automation products.
AI and Machine Learning: Leveraged AI and machine learning to optimize marketing investments and improve seller effectiveness, with plans to expand these capabilities in 2026.
KeepStock Enhancements: Developed new customer-facing tools for KeepStock, with broader rollout planned for 2026 to improve user experience and procurement cost savings.
Exit from U.K. Market: Streamlined portfolio by exiting the U.K. market, including Cromwell divestiture and Zoro U.K. closure.
Endless Assortment Growth: Zoro achieved high-teen sales growth, while MonotaRO grew 25% with enterprise customers and expanded same-day shipping in Japan.
Distribution Network Expansion: Progressed on three new facilities in the U.S. and Japan, including a new DC in Portland and a highly automated DC in Mito, Japan.
Seller Coverage Expansion: Added 110 new sellers in 2025, bringing the total to over 300 since 2022, with plans to expand to two more regions in 2026.
AI and Data Investments: Invested heavily in AI and data capabilities to enhance marketing, seller tools, and customer insights.
Focus on High-Touch Solutions: Continued to prioritize High-Touch Solutions segment, achieving 250 basis points of volume outgrowth in 2025.
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Risk or Challenges
Macroeconomic Uncertainty: The company faced challenging macroeconomic conditions in 2025, including soft MRO market demand and a government shutdown, which impacted sales and operations.
Tariff Dynamics: Shifting tariff dynamics caused cost pressures and inflation, leading to price increases and impacting competitiveness in certain product categories.
Supply Chain Challenges: The company is investing in new distribution centers and supply chain capacity, but ongoing challenges in inventory and transportation solutions were noted, particularly in certain markets like Florida and Canada.
Regulatory and Tax Changes: Recent federal tax law changes and lapsing of one-time tax planning initiatives are expected to increase the effective tax rate in 2026, impacting financial performance.
Healthcare Costs: Unforeseen healthcare costs above the normal run rate increased SG&A expenses, affecting operating margins.
Competitive Pressures: The company faces competitive pressures, particularly in the Endless Assortment segment, where competitors' cyber outages temporarily benefited MonotaRO but highlight vulnerabilities in the competitive landscape.
Government Market Softness: Year-over-year softness in the government end market, exacerbated by the government shutdown, impacted sales in the High-Touch Solutions segment.
Tariff-Related Inflation: Tariff-related inflation caused LIFO inventory valuation headwinds, negatively affecting gross margins.
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Guidance & Outlook
Revenue Expectations: The company expects revenue to be between $18.7 billion and $19.1 billion in 2026, translating to daily organic constant currency sales growth of 6.5% to 9%.
High-Touch Solutions Segment: Daily constant currency sales growth is expected to be between 5% and 7.5%. The company anticipates continued demand pressure due to tariff-related price increases but expects industry-specific tailwinds in certain areas of the economy.
Endless Assortment Segment: Daily organic constant currency sales are anticipated to grow between 12.5% and 15%, driven by strong performance in Zoro and MonotaRO.
Operating Margins: Total company operating margins are expected to range between 15.4% and 15.9%, reflecting improvements in both segments and a 45 basis points tailwind from the exit of the U.K. market.
Capital Expenditures: The company plans to invest $550 million to $650 million in 2026, focusing on supply chain initiatives, new facilities in the U.S. and Japan, and ongoing technology and data investments.
EPS Growth: Expected EPS for 2026 is projected to be between $42.25 and $44.75 per share, representing over 10% growth at the midpoint.
Tax Rate: The effective tax rate in 2026 is expected to be approximately 25%, about 130 basis points unfavorable versus the prior year adjusted rate.
Supply Chain Investments: The company is making progress on three new facilities in the U.S. and Japan, with the Northwest DC set to start operations in 2026, Houston DC inbound operations expected in the second half of 2027, and MonotaRO's new DC in Japan scheduled for 2028.
AI and Machine Learning: The company plans to leverage AI and machine learning to optimize marketing investments, improve seller effectiveness, and enhance customer insights in 2026.
KeepStock Program: A broader rollout of new customer-facing tools is anticipated in 2026, aimed at improving user experience and driving procurement cost savings.
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Shareholder Return Plan
Dividends: Grainger returned $1.5 billion to shareholders through dividends and share repurchases in 2025. The company anticipates high single to low double-digit annual increases in dividends for 2026.
Share Repurchase: Grainger repurchased shares as part of the $1.5 billion returned to shareholders in 2025. The company plans to repurchase approximately $1 billion worth of shares in 2026.
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Key Q&A
Q:What drives the company's cautiousness for the year overall despite strong January performance?
A:The company plans conservatively and does not plan for growth that hasn't been seen yet. January's strong performance was partly due to a competitive outage in Japan, which added a tailwind. The company is confident in its 7.5% growth target for the year but acknowledges market variability.
Q:Can you provide an update on digital channels and their share of order origination?
A:EDI/ePro is now the largest share at around 40%, with G-com and KeepStock also growing. Most contract customers now use a combination of ePro and KeepStock, which enhances customer stickiness and value.
Q:What is the tone of conversations with large customers, particularly in rate-sensitive end markets?
A:The tone has not changed much, with no panic but also no significant tailwinds from volume. Price increases are helping revenue, but optimism and pessimism vary by industry. Overall, the mood is okay but not expecting significant market growth.
Q:What is driving the acceleration in medium customer growth?
A:The acceleration is partly due to favorable comps and focused efforts in marketing and merchandising. While there is some traction, it is not a huge inflection point, but the company expects to continue growing midsize customers faster than the rest.
Q:What caused the better-than-expected gross margins in Q4 and the sequential decline in Q1?
A:Q4 gross margins benefited from softer-than-expected LIFO costs and price increases. Q1 gross margins are expected to decline sequentially due to LIFO costs shifting into Q1 and accounting methodologies related to the Grainger Sales Meeting, which create a headwind on gross margins but are neutral at the operating margin level.
Q:What are the key factors affecting the 2026 margin guide?
A:Factors include the faster growth of EA compared to High-Touch (a 10 basis point headwind), the U.K. market exit (a tailwind), and various puts and takes in High-Touch, such as the Grainger Sales Meeting, price/cost dynamics, and LIFO tailwinds in the second half, contributing to a 30 basis point difference from 2025 to 2026.
Q:What is behind the differential in HTS's current trend line versus long-term expectations?
A:Factors include government exposure, a pause in seller additions a few years ago, and adjustments to seller performance. Improvements in seller effectiveness, on-site performance with KeepStock, marketing, merchandising, and net contracts are expected to drive improvement.
Q:What improvements have been seen in Endless Assortment repeat rates?
A:Significant increases in repeat rates have been achieved over the last 18 months due to changes in customer acquisition, marketing, service communication, and delivery promises.
Q:What is the guidance for organic ADS in Q1?
A:The guidance for organic ADS in Q1 is 7.5%.
Q:What is the explanation for the trend of market share contraction over the past five years?
A:The market has been relatively stable in manufacturing activity over the long term, with declining employment. The company's earnings algorithm focuses on consistent share gains, price increases, and expense management to navigate a slow-growth market.
Q:How does the company measure success in digital investments?
A:The company tracks metrics like conversion rates and conducts surveys to understand competitiveness and digital journey factors. They are well-measured in this space.
Q:Has the company priced for all tariff increases, and what is the outlook for future tariffs?
A:The company has passed through all known tariffs and corrected for some rolled-back Chinese tariffs. Future unknown tariffs or rollbacks are not included in the outlook.
Q:What is the level of price embedded in the 2026 guide, and is there customer pushback?
A:The 2026 guide includes a price increase of over 3%, with 2.5% to 3% from wrap and run-rate price. There has been no significant customer pushback, and elasticity is as expected.
Q:What are the moving parts behind the sequential decline in Q1 gross margins?
A:Factors include LIFO costs, the Grainger Sales Meeting (a 20 basis point drag), private label business impacts, and normal seasonality recovery. These factors result in a decline from 39.5% in Q4 to 39.1% in Q1.
Q:What progress has been made with Zoro branded private label products?
A:Early success has been seen with good repeat rates among core business customers, but the impact on margins is not material at this point.
Q:Review of Unclear Management Responses
A:Management avoided providing specific details on certain topics, such as the exact changes in customer acquisition strategies for Endless Assortment, the detailed metrics for digital investment success, and the precise impact of Zoro branded private label products on margins. Additionally, some responses included vague language, such as 'good things' or 'significant increases,' without providing concrete data or examples.
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Earnings Word Cloud
The most frequently occurring keywords in this quarter's earning call
AI
Assortment segment
Endless Assortment
FX headwind
Japan
KeepStock
LIFO
Solutions segment
UK market
Zoro UK
ability share
asset
capacity
closure Zoro
currency sale
distribution
effectiveness
effort
engine ability
exit UK
experience
government shutdown
initiative
machine learning
marketing investment
merchandising
midpoint
multifactor model
offer
outgrowth
product category
segment currency
segment progress
seller
tax
technology
tool
GWW Transcript
W.W. Grainger, Inc. (GWW) Q4 2025 Earnings Call Transcript
Unknown2-3
The earnings call presents a mixed outlook. While there is optimism in revenue growth and digital channel expansion, there are concerns about inflation, margin pressures, and muted market conditions. The Q&A section reveals management's cautious tone, with no significant growth expected. Although gross margins were better than expected, they are projected to decline. The sentiment is neutral as positive aspects are counterbalanced by uncertainties and lack of strong growth indicators.
W.W. Grainger, Inc. (GWW) Q3 2025 Earnings Call Transcript
Unknown10-31
The earnings call presents a mixed outlook. While there is growth in the Endless Assortment segment and potential margin improvements, challenges such as LIFO headwinds, government shutdown impacts, and muted MRO market conditions temper the positive aspects. The Q&A reveals cautious optimism but lacks specific guidance on key issues. The overall sentiment leans neutral, as positive developments are counterbalanced by uncertainties and headwinds.
W.W. Grainger, Inc. (GWW) Q2 2025 Earnings Call Transcript
Positive8-1
The earnings call highlights strong performance in key segments and positive future guidance. The Endless Assortment segment showed significant sales and margin growth, supported by strategic pricing and SKU optimization. Despite LIFO accounting impacting short-term results, management's decision to delay price increases aims to maintain customer relationships, which is viewed positively. The dividend increase and investment in long-term projects further bolster confidence. However, some uncertainties remain, particularly around tariffs and pricing, but these are being actively managed. Overall, the sentiment is positive, with expectations of improved margins and earnings.
Earnings call transcript: WW Grainger beats Q1 2025 EPS expectations
Unknown5-1
The earnings call showed mixed signals: modest revenue growth and positive shareholder returns, but declining operating margins and tariff concerns. The Q&A highlighted uncertainties in sourcing and pricing strategies due to tariffs, but management's resilience and strategic adjustments offer some reassurance. The 10% dividend increase is a positive indicator. Overall, the balanced positives and negatives suggest a neutral stock movement prediction.
GWW Slides
GWW Report
Frequently Asked Questions
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