Grainger Raises 2026 Earnings Outlook After Q3 Sales Rise 11.3%

W.W. Grainger Inc. raised its full-year 2026 adjusted earnings outlook after third-quarter sales and profit increased at double-digit rates, supported by strong growth in both its High-Touch Solutions and Endless Assortment businesses. The industrial distributor now expects adjusted diluted earnings per share of $47.00 to $48.00, compared with its previous range of $45.50 to $47.25.

For the quarter ended September 30, Grainger reported sales of $5.18 billion, up 11.3% from $4.66 billion a year earlier. Daily, organic constant-currency sales rose 14.9%, excluding currency movements and sales from businesses exited in the comparable period.

Adjusted operating earnings increased 18.2% to $836 million, while adjusted operating margin expanded 90 basis points to 16.1%. Adjusted diluted EPS rose 22.8% to $12.54 from $10.21. On a GAAP basis, diluted EPS was $12.42, compared with $6.12 in the prior-year quarter, which included costs associated with Grainger’s exit from the U.K. market.

Adjusted gross margin increased 20 basis points to 38.8%. Margin expansion in Endless Assortment and the benefit from the U.K. exit more than offset modest pressure in High-Touch Solutions–North America. Adjusted selling, general and administrative expenses declined as a share of sales to 22.7% from 23.4%, contributing to the improvement in operating margin.

Grainger generated $661 million of operating cash flow and $546 million of free cash flow during the quarter. It returned $396 million to shareholders through dividends and common-stock repurchases. Adjusted return on invested capital was 43.3%, and the net leverage ratio stood at 0.5 times as of September 30.

High-Touch Solutions posts strong volume growth

High-Touch Solutions–North America sales increased 13.8% to $4.14 billion, with both healthy pricing and strong volume growth contributing. Volume and product mix added 10.5 percentage points to daily sales growth, while price and customer mix contributed 3.3 points.

The segment’s adjusted operating earnings rose 14.4% to $714 million. Adjusted operating margin edged up 10 basis points to 17.3% as sales leverage more than offset higher payroll and benefits costs, including incentive compensation, as well as marketing investment. Gross margin declined 30 basis points to 40.8% because of freight pressure and slightly unfavorable mix, while price and cost were roughly neutral.

In the U.S. business, daily sales rose 13.9%. Large-customer sales increased 18%, while mid-sized-customer sales advanced 14%. Grainger reported growth across its listed customer end markets, ranging from mid-single-digit gains in government and warehousing to low-30% growth in retail. Contractors rose in the mid-20% range, while manufacturing and commercial services increased in the mid-teens.

Canadian sales increased 13.8% on a daily basis and 15.6% in constant currency and local selling days.

Endless Assortment margin expands

Endless Assortment sales rose 11.9% to $1.05 billion and increased 19.3% on a daily, organic constant-currency basis. Zoro U.S. daily sales climbed 25.2%, while MonotaRO sales grew 13.6% in constant currency and local selling days.

Segment adjusted operating earnings increased 32.6% to $122 million. Adjusted gross margin expanded 90 basis points to 31.0%, benefiting from a change in Zoro’s discount strategy and favorable product mix. Sales leverage and the higher gross margin lifted adjusted operating margin by 190 basis points to 11.7%.

The segment also continued to expand its digital reach. Total registered users increased 10% year over year, while Zoro U.S. active stock-keeping units rose 8% to 13.8 million.

Full-year outlook increased

Grainger now forecasts 2026 sales of $19.8 billion to $20.0 billion, up from its prior projection of $19.4 billion to $19.7 billion. That represents reported growth of 10.1% to 11.6% and daily, organic constant-currency growth of 13.0% to 14.5%.

The company expects an adjusted operating margin of 16.0% to 16.2%, compared with its previous range of 15.8% to 16.2%. Its adjusted gross-margin forecast is 39.4% to 39.6%, versus 39.3% to 39.6% previously. Grainger said the outlook reflects continued execution amid improving maintenance, repair and operations market demand, with third-quarter outperformance partly offset by additional freight pressure.

Full-year operating cash flow is projected at $2.35 billion to $2.45 billion, compared with the prior range of $2.25 billion to $2.40 billion. Capital expenditures are expected to be $575 million to $625 million, while common-stock repurchases are forecast at $975 million to $1.03 billion.

Grainger’s guidance assumes an effective tax rate of about 24.7%, a yen-dollar exchange rate of 158 and no change to tariff rates in effect as of November 3, 2026.

Inflation, freight and tariffs remain key uncertainties

Grainger implemented pricing actions in its U.S. High-Touch Solutions business in September to address product-cost inflation, higher fuel and freight costs tied to conflict in the Middle East, and changes to Section 232 and Section 301 tariffs. The company said those actions covered all known product-cost inflation and tariff effects, while it continues to assess the 2027 cost environment with suppliers.

Management expects to consider ongoing freight pressure in January pricing actions. For the fourth quarter, Grainger anticipates a larger-than-normal sequential increase in gross-margin percentage as favorable supplier rebates more than offset continued freight pressure. The company cautioned that the inflationary and geopolitical environment remains fluid.

Other risks identified in the presentation include supply disruptions, competitive pricing pressure, changes in customer or product mix, currency fluctuations, economic and political conditions, technology and cybersecurity failures, regulatory matters, transportation disruptions and further changes in global trade policy.