Grainger's upgraded guidance fails to impress The Street, despite continued strong earnings

Grainger released strong second quarter figures today with 8% revenue growth and a 12% increase in net earnings. In addition Grainger raised their 2007 EPS forecast from $4.70-$4.85 to $4.75-$4.90. Grainger's failure to raise the low end of their EPS forecast caused the stock to crash 4.18% today - which I believe has created an excellent buying opportunity for a stock which should reach $115 by year end.

Grainger's press release detailed progress toward the companies market expansion - with many of the expansion cities experiencing 10-12% growth year over year. The press release also noted that Mexican sales rose 26% with U.S. sales rising 8% (5% related to market expansion efforts and 3% organic growth). 8% revenue growth domestically is impressive and points to good execution of their marketing expansion and underlying strength in the US economy. Historically Grainger's sales have been tied to the health of the U.S. economy but these results reflect the potential for Grainger to grow the business through improved branch locations, targeted advertising and greater cost control. It will be interesting to see if Grainger's numbers will be able to weather any future dips in the ISM Manufacturing Index during the next year or if their sales will continue to move in lock-step with the index.

Strong Profts continue for MRO suppliers

During the last two and half weeks MSC and Fastenal have reported strong quarterly earnings numbers indicating continued strength in the MRO market. MSC's net sales increased 30.7% with approximately 74% of the growth stemming from the 2006 acquisition of J&L. Comments from MSC CEO David Sandler indicate a sense of optimism in the industry noting that "We are especially pleased with our financial performance, despite the prevalent softness of the industry reflected in seven months of weak ISM index reports. Although market conditions have not changed, the two most recent ISM index reports show more optimism in the market. We are not currently seeing that optimism reflected in our ordering rates from customers, however, history shows that if the trend in the ISM continues, we should see improving business conditions in the upcoming months."

The ISM manufacturing report for the last two months stood at 55% and 56% respectively. Figures greater than 50% indicate market expansion.

MSC's gross profit margin of 53% during the most recent quarter also reflects the company's ability to pass along increased prices to customers.

Fastenal was able to grow sales by 13% and profit by 15% in the most recent quarter according to their quarterly report which was released Thursday.