Grainger to Buy Brazilian AnFexio - Analyst BlogMonday, April 09, 2012
W.W. Grainger Inc. (GWW), in line with its expansion plans in Latin America, is buying the Brazilian supply company AnFreixo SA from Brazilian industrial conglomerate Votorantim Group.
AnFreixo is a leading distributor of maintenance, repair and operating (MRO) supplies to more than 2,000 customers in Brazil. It generated sales of approximately $37 million in 2011. A major portion of the sales were to its parent company, Votorantim. Following the acquisition, Grainger will continue to supply Votorantim under a long-term supply agreement.
Brazil is the largest MRO market in Latin America and the deal marks Grainger’s entry into this lucrative space. Most of Grainger’s customers have operations in Brazil, and they depend on Grainger for the smooth running of their operations and the safety of their employees. This acquisition accentuates Grainger’s continued focus on meeting its business needs in Latin America.
The company has a physical presence in Colombia, Costa Rica, Dominican Republic, Mexico, Panama, Puerto Rico and Trinidad. Grainger has also served businesses throughout the region for more than 20 years through its export business, which includes representatives in Brazil, Chile, El Salvador, Peru and Venezuela.
Recently, Grainger reported year-over-year sales growth of 18% in February 2012, an upsurge from January sales growth of 17%, and highest so far in 2012. This also supersedes the 2011 peak of 16%.
Acquisitions added 5 percentage points to growth and organic sales increased 13% with higher volume contributing 12 percentage points and pricing, adding 3 percentage points. The company expects sales growth in the range of 10%–14% in 2012. It expects EPS in the band of $9.90–$10.65 for the full year.
Grainger remains focused on expanding its product offerings and growing the share of its private label products. In addition, E-commerce, which is one of Grainger’s most efficient channels and also considered to be the most profitable, is reportedly growing twice as fast as other channels. Moreover, the company expects the Fabory acquisition to provide a better earnings leverage in the next quarters.
Currently, the shares of Grainger have a Zacks #2 Rank, implying a short-term Buy recommendation. It competes with companies like Applied Industrial Technologies Inc. (AIT) and WESCO International Inc. (WCC).
Illinois-based Grainger is a leading North American distributor of material handling equipment including safety and security supplies, lighting and electrical products, power and hand tools, and pumps and plumbing supplies. The company’s services comprise inventory management and energy efficiency solutions.
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