Why W.W. Grainger Stock Tumbled 11% on Tuesday

By Rich SmithMarketsFool.com

What happened

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Shares of industrial parts and appliances supplier W.W. Grainger (NYSE: GWW) sank below $200 on Tuesday, falling 11.4% to close at $197.57.

So what

Reporting earnings for its fiscal first quarter, Grainger missed analyst estimates for both sales and earnings. The company booked $2.54 billion in revenue during Q1, versus the $2.56 billion Wall Street had expected. The earnings miss was even bigger. Whereas analysts had posited profit of $3.01 per share, the most Grainger could produce was $2.93.

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Relative to the year-ago quarter, sales increased 1%, while profit decreased 2%.

Image source: Getty Images.

Now what

Grainger attributed the divergent results from "U.S. strategic pricing actions" taken during the quarter -- namely, price cuts and bulk discounts it had implemented -- which proved more popular than the company expected with its customers. In response, CEO D.G. Macpherson promised to "pull forward" additional price cuts, which it had planned to implement in 2018, into Q3 2017.

The result, says management, will be to lower sales expectations for this year, and profits as well. Sales are now expected to grow only 1% to 4% this year, and profit should come in somewhere between $10 and $11.30 per share.

Both numbers being significantly below previous guidance (2% to 6% growth in sales and $11.30 to $12.40 had been forecast), investors are obviously unhappy with the change. Management thinks they'll change their minds as lower prices attract more business from existing customers and win new business as well.

Time will tell if management's right about that.

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Rich Smith has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.