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    GWW
    Earnings call· Jun 2026(Q2 FY26)

    W.W. GRAINGER Q2 FY26 earnings call GWW

    Aug 4, 2026 Source

    Executive summary

    W.W. Grainger Q2 FY26 — Strong Performance and Raised Full-Year Outlook

    W.W. Grainger delivered strong Q2 FY26 results, driven by robust sales growth in both High Touch and Endless Assortment segments and effective operational execution. Despite some gross margin pressures from mix and freight, core operating profitability remained solid, leading to a raised full-year outlook. Management is focused on maintaining price-cost neutrality and leveraging strategic investments, while also navigating a CFO transition.

    Highlights

    6

    • Company reported sales were up 10.3%, or 13.7% on a daily organic constant currency basis.

    • Diluted EPS finished the quarter up over 20% to $12.01.

    • Operating cash flow came in at $444 million, enabling $341 million returned to shareholders.

    • High Touch Solutions segment sales grew 11.7% on a daily constant currency basis.

    • Endless Assortment segment sales increased 20.6% on a daily organic constant currency basis.

    • Operating margin was strong at 16.1%, up 120 basis points year-over-year.

    Concerns

    5

    • Gross margin was impacted by mix headwinds from higher volume of lower-margin products and project-related spend.

    • Private label cost headwinds and unfavorable freight costs affected High Touch gross margin.

    • MonotaRO's $45 million pre-buy benefit has fully subsided, leading to expectations of slower growth in the second half.

    • Anticipated mix headwinds and cost timing pressures (inflation) are partially offsetting improved sales leverage in the updated guidance.

    • Operating margins are expected to be down sequentially in Q3, projected to be in the mid-15% range, largely due to the lap of tariff refunds.

    Guidance & targets

    8
    CategoryTargetConfidence
    Full-year Daily Organic Constant Currency Sales Growth
    11.5% to 13%
    high materiality
    High
    Full-year Operating Margin
    15.8% to 16.2%
    high materiality
    High
    Full-year Diluted EPS
    $45.50 to $47.25
    high materiality
    High
    Full-year Operating Cash Flow
    Slight increase at midpoint
    medium materiality
    Medium
    Q3 Sales
    North of $5 billion
    medium materiality
    High
    Q3 Operating Margins
    Mid-15% range
    medium materiality
    High
    September Pricing Actions Annual Impact
    Add ~1 point annually
    medium materiality
    High
    Full-year Price Contribution
    ~4%
    medium materiality
    High

    Segment performance

    2
    SegmentRevenueYoYQoQMargin
    High Touch Solutions
    Sales growth was 11.9% on a reported basis or 11.7% on a daily constant currency basis, driven by strong volume growth and healthy price contribution, benefiting from project-based spend. Gross profit margin finished at 41.8%, up 80 bps YoY, driven by AIFA tariff refunds and slightly positive mix, though mix was less favorable than expected due to higher volume of lower-margin products and project-related spend. Private label cost headwinds and unfavorable freight partially offset gains. Operating margin was up 70 bps versus the prior year.
    MRO market demand: continued to improveBroad-based acceleration across nearly all customer groupsStrong contributions from manufacturing and government sectorsOutsized growth in contractor and retail end markets (data center activities)
    		—11.7%—17.3%
    Endless Assortment
    Sales increased 13.5% on a reported basis or 20.6% on a daily organic constant currency basis, normalizing for the closure of Zoro U.K. and depreciated Japanese yen. Zoro U.S. saw strong growth from core B2B customers and improved customer retention. MonotaRO achieved strong sales with continued growth from enterprise customers and solid acquisition/repeat purchase rates from SMBs, benefiting from a pre-buy ahead of anticipated shortages due to the Middle East conflict, which has now subsided. Operating margins increased by 160 bps, with MonotaRO margins at 14% (up 80 bps) and Zoro margins at 7.6% (up 180 bps), both benefiting from healthy top-line leverage.
    Zoro U.S. daily sales growth: 18.4%MonotaRO local currency growth: 24%MonotaRO pre-buy impact: ~$45M (petroleum-related products)Higher customer retention rates (Zoro)
    		—20.6%—11.5%

    Operational metrics

    18
    Total Company Sales Growth
    10.3%YoY
    Q2 FY26

    Company reported sales for the quarter.

    Total Company Sales Growth
    13.7%YoY
    Q2 FY26

    On a daily organic constant currency basis.

    Operating Margin
    16.1%up 120 bps YoY
    Q2 FY26

    Gross margin flow through and leverage in endless assortment contributed to results.

    Diluted EPS
    $12.01up over 20% YoY
    Q2 FY26

    Inclusive of the impact of tariff refunds recognized in the period.

    Capital Returned to Shareholders
    $341 million
    Q2 FY26

    Total amount returned through dividends and share repurchases.

    Gross Margin
    39.5%up 100 bps YoY
    Q2 FY26

    Benefited from expansion in both segments and EPA tariff refunds.

    EPA Tariff Refund Benefit
    $43 million
    Q2 FY26

    The majority of this benefit was recognized in Q2 as a reduction to cost of goods sold, with a small remainder expected in subsequent quarters.

    EPA Tariff Refund Benefit
    23 bps
    FY26

    Full-year impact of tariff refunds on gross margin.

    Price Contribution to Sales Growth
    ~4%
    FY26

    Expected to be at the high end of the 3% to 4% range due to September pricing actions.

    Pricing Actions Impact
    ~1 point
    Annually

    Impact of September pricing actions, translating to ~40 bps for the balance of the year.

    Sales Growth
    11.7%YoY
    Q2 FY26

    On a daily constant currency basis.

    Sales Growth
    20.6%YoY
    Q2 FY26

    On a daily organic constant currency basis, normalizing for Zoro U.K. closure and depreciated JPY.

    Sales Growth
    18.4%YoY
    Q2 FY26

    On a daily basis.

    Sales Growth
    24%YoY
    Q2 FY26

    In local constant currency.

    Pre-buy Impact
    ~$45 million
    Q2 FY26

    Pre-buy of petroleum-related products ahead of anticipated shortages due to Middle East conflict.

    Project Spend Impact on Growth Rate
    ~90 bps
    FY26

    Project spend increased High Touch growth rate by approximately 90 basis points this year.

    Direct Data Center Revenue Exposure
    <1%
    Current

    Direct exposure to data centers, though broader ecosystem impact is larger.

    SKU Count Optimization
    —
    Past year

    SKU pruning focused on non-selling items; now growing SKU count modestly, not as fast as in the past.

    Industry KPIs

    4
    MetricValueDetails
    Daily sales rate13.7%%
    End market growth mixbroad-based acceleration
    Market volume mro market benchmarkcontinued to improve
    Contract vs spot large customer mixStrong growth

    Risks & headwinds

    5
    Mix headwinds from higher volume of lower-margin products and project-related spendQ2 FY26, expected to continue in H2 FY26

    Impacted gross margin, less favorable mix than expected.

    Mitigation: Focus on overall profitability, as these projects have strong contribution margins.

    Private label cost headwinds and unfavorable freight costsQ2 FY26, expected to continue

    Impacted High Touch gross margin.

    Mitigation: September pricing actions to recover freight costs; private brand strategy with Grainger branded items.

    Inflationary pressures from rising freight and Middle East-related product costsOngoing, addressed by September pricing

    Expected to take additional pricing actions in September.

    Mitigation: September pricing actions to maintain price-cost neutrality and address known cost increases.

    MonotaRO pre-buy benefit subsiding, leading to slower growthH2 FY26

    ~$45 million pre-buy in Q2 FY26.

    Mitigation: Reflected in updated guidance for slower growth in the back half of the year.

    Operating margins expected to be down sequentially in Q3 FY26Q3 FY26

    Mid-15% range for total company in Q3.

    Mitigation: Primarily due to the lap of tariff refunds, not a fundamental business issue; expected to pick up with stronger supplier rebates by year-end.

    What to watch in Q3 FY26

    5

    Full-year Daily Organic Constant Currency Sales Growth

    Next quarter (Q3 FY26 results)
    Current13.7% (Q2 actual)
    Target11.5% to 13% (FY26 guide)

    Why it matters

    To assess if the company maintains strong sales momentum and achieves its raised full-year target, especially with moderating MonotaRO growth and project-related tailwinds.

    We are raising our guidance to reflect the strong sales momentum, along with the impact of tariff refunds. On the top line, this translates to expected daily organic constant currency sales growth between 11.5% and 13%...

    Q&A highlights

    6

    Clarification on remaining tariff refund benefits in Q3/Q4 and the offsetting factors that led to a smaller full-year gross margin raise despite the Q2 refund impact.

    The vast majority of tariff refunds were booked in Q2, with immaterial amounts expected in H2. The full-year gross margin benefit from tariffs (23 bps) is largely offset by mix headwinds (higher volume of lower-margin project sales) and continued freight/Middle East-related cost pressures, leading to a net 15 bps benefit.

    “If you look at it on a full year basis, the tariff refunds account for, call it, 23 basis points on the year. That was offset by what you hear us talk about higher volume on lower gross margin products or project-based sales that we're incurring with some of our new large customers as we ramp. That offsets that. So that nets to about 15 basis points.”

    asked by David Manthey · answered by Deidra Merriwether

    2 min read7 chapters

    Detailed Narrative

    01

    Strong Q2 Performance and Market Demand

    Grainger reported strong Q2 FY26 results with total sales up 10.3% (13.7% daily organic constant currency) and diluted EPS up over 20% to $12.01. The company observed continued strength in demand across most end markets, with broad-based acceleration in manufacturing and government sectors, and outsized growth in contractor and retail end markets, particularly benefiting from data center activities.

    02

    Gross Margin Dynamics and Tariff Refunds

    Gross margin was 39.5%, up 100 bps YoY, benefiting from a 90 bps tailwind from EPA tariff refunds. However, mix (higher volume of lower-margin products and project-related spend) and private label cost headwinds, along with unfavorable freight costs, partially offset these gains. The majority of the $43 million tariff refund was recognized in Q2, with a small remainder expected in subsequent quarters.

    03

    Pricing Strategy and Inflationary Pressures

    Management maintains a strategy of price-cost neutrality. May pricing actions were net neutral, but September pricing actions are planned to address ongoing inflationary pressures from rising freight and Middle East-related product costs, as well as minor adjustments for Section 232 and 301 tariffs. These actions are expected to add about 1 point to annual pricing, bringing full-year price contribution to around 4%.

    04

    Segment Performance Highlights

    High Touch Solutions delivered 11.7% daily constant currency sales growth, driven by volume and price, with operating margin at 17.3% (up 70 bps). Endless Assortment sales grew 20.6% daily organic constant currency, with Zoro U.S. up 18.4% and MonotaRO up 24% in local currency. Endless Assortment operating margins increased 160 bps to 11.5%.

    05

    MonotaRO Pre-buy and Outlook

    MonotaRO experienced a pre-buy of approximately $45 million in petroleum-related products due to anticipated shortages from the Middle East conflict. This behavior has subsided, and the updated guidance reflects slower growth for MonotaRO in the second half as this benefit moderates. No pre-buy activity was observed in the U.S. or for Zoro.

    06

    Data Center Impact on Growth

    While direct exposure to data centers is less than 1% of revenue, the company sees a broader ecosystem impact, showing up in construction and general manufacturing strength. Project spend, partly driven by data centers, increased the High Touch growth rate by about 90 basis points this year, contributing to revenue tailwinds but also gross margin headwinds due to lower-margin project sales.

    07

    CFO Transition

    Deidra Merriwether will step down as CFO effective September 4, 2026, to pursue another opportunity. Laurie Thompson, VP Controller and Principal Accounting Officer, has been appointed interim CFO effective September 5. A search for a permanent CFO will commence immediately, with management expressing confidence in the interim leadership.

    AI-generated summary of the company’s earnings call. Not investment advice.