W.W. Grainger Inc. saw its stock slip to a five-year low last month after it directed two prominent analysts to lower their second-quarter and full-year earnings projections for the company.
Grainger — a direct marketer of maintenance, repair and operating supplies for businesses — said the second-quarter earnings estimates of Goldman Sachs analyst Martin Sankey and former Robert W. Baird & Co. analyst Jeffrey Germanotta were too high based on Grainger's profitability projections for this year.
The analysts removed Grainger from their lists of recommended “buy” stocks in early June. Grainger itself did not issue any warnings to the public regarding its earnings for the second quarter and the year. The company said it would report its second-quarter earnings during the week of July 17.
“We did not release any negative news, but we guided the estimates of some of the analysts that cover us for the quarter and for the year,” said Dileep Gangolli, manager of investor relations at Grainger, Chicago.
He said Sankey's opinion in particular “caused a lot of volume in the beginning of the month,” referring to the large amount of trading that drove Grainger's stock down in June.
Sankey said he does not comment for the press. Germanotta, who at press time had left Robert W. Baird & Co. but had not yet started at William Blair & Co, could not be reached for comment.
Grainger's stock closed at just over $32 per share July 3, a decline of 22.5 percent from its May 30 closing price of $41.38. The stock slipped below $30 during June for the first time since 1995 (accounting for a split in 1998).
Although some analysts still recommend the stock with a “moderate buy” rating, the consensus estimate for the company's earnings for the second quarter has slipped in the past few months. Analysts' earnings estimates for this year and next year also have declined.
The consensus estimates for Grainger's earnings in the second quarter have slipped to 46 cents per share, down from 50 cents per share three months ago. The full-year consensus estimate has slipped to $1.97 per share, from $2.13, and the fiscal 2001 consensus has fallen to $2.37, from $2.51.
Goldman Sachs adjusted its estimates to $1.90 and $2.20 for this year and fiscal 2001, respectively, down from $2.10 and $2.50.
At about the same time that Grainger urged the analysts to lower their estimates, the company said it would merge one of its Web sites, OrderZone.com, with an office supply company. As part of the transaction, Grainger agreed to acquire a 40 percent stake in Works.com.
Some industry watchers criticized the agreement because the customers for OrderZone and Works.com, which sells office supplies such as desks, computers, copy machines and telephones, were thought to be too different. Both companies, however, maintained that many of their customers would appreciate a one-stop ordering platform where they could obtain both back-end parts such as drainage pipes and safety gear and front-end supplies such as desks and computers.
Several stocks on the DM News Portfolio rebounded during June, however, including four that doubled their share price as of July 3, including: Exchange Applications, which was up about 118.5 percent for the month, to $26.63, but was well off its 52-week high of $74.75; Newport Corp., which was up 116.6 percent, to $112.44; NetCreations, which was up 101 percent, to $48.50; and RMH Teleservices, which was up 107.3 percent, to $14.25.
Portfolio value: If $1,000 had been invested in each of the 100 companies in the DM News Portfolio at the beginning of the year — for newly public companies when the stock first closed — the value would be $95,080, a decline of 4.92 percent.