January 26, 2009 / 3:42 PM / 9 years ago

WRAPUP 2-Grainger, Applied Industrial see weak '09 sales

* W.W. Grainger, Applied Industrial see weak ‘09 sales

* Grainger: taking actions in anticipation of weak sales

* Applied Industrial: prior forecast “unattainable”

* Companies’ quarterly profit tops Street view (Adds analysts’ comments, details)

By Bhaswati Mukhopadhyay

BANGALORE, Jan 26 (Reuters) - U.S. industrial distributors W.W. Grainger (GWW.N) and Applied Industrial Technologies Inc (AIT.N) forecast bleak sales for fiscal 2009 on a slowdown in industrial activity and a deepening credit crisis, even as they posted a better-than-expected quarterly profit.

Applied Industrial slashed its outlook for the year ending June 2009 for the second time in three months, saying its prior forecast was “unattainable.” [ID:nWNAB3450]

“Though prices of steel, scrap and fuel have fallen, and in some cases dramatically, we have not seen any movement by our suppliers to reduce their prices to us,” Applied Industrial said.

The distributor of bearings, power transmission components and industrial rubber products said consumer demand continues to decline, and there are inventory adjustments occurring throughout the supply chain. [ID:nBNG313865]

Grainger also said it would not be providing its 2009 outlook at this time. [ID:WNAB3502]

However, shares of Applied Industrial rose as much as 16 percent while those of Grainger were up as much as 2 percent.

“This is the way we have seen several stocks react,” analyst Elliott Schlang of Soleil Securities-Great Lakes Review said.

Once companies acknowledge that the new economic environment will be substantially worse than what had been anticipated and get more realistic about their outlooks, the stocks start reacting positively, Schlang said.

The analyst, who has a “hold” rating on Applied Industrial stock, said he would keep that rating until the North American economy improves.

MACRO TRENDS WORSEN Grainger, which had in November expected 2009 revenue in the range of a 5 percent decline to a 5 percent growth, said on Monday the macroeconomic trends have deteriorated since then.

“Based on our sales run rate in January, we are somewhat below the low end of this range, so we are implementing actions in anticipation of weak sales results,” Grainger Chief Executive Jim Ryan said in a statement.

The U.S. manufacturing sector remained mired in a deep slump in December, despite a slight upward revision to factory data, according to data released by an industry group.

The Institute for Supply Management said its index of national factory activity came in at 32.9 versus the 32.4 it originally reported for December. Both figures, nevertheless, indicate a deep contraction in U.S. manufacturing. [ID:nN21480565]

Grainger, which distributes lighting, motors, janitorial supplies to maintain and repair buildings, said it was not providing sales and earnings forecast for the year due to the “great uncertainty” in the economy.

Analyst Brent Rakers of Morgan Keegan & Co said Grainger did not reset expectation since there is so much of uncertainty.

“They (Grainger) felt it was a disservice to investors if they tried to come up with a guidance range,” said the analyst, who rates both Grainger and Applied Industrial “outperform”.

However, Applied Industrial’s second-quarter profit of 38 cents a share beat analysts’ average estimate of 34 cents, while Grainger’s fourth-quarter profit of $1.47 a share, excluding a write down of 8 cents, came in 13 cents above estimates.

Nuts and bolts distributor Fastenal Co (FAST.O), and tools and industrial services provider MSC Industrial Direct Co Inc (MSM.N) are some of the key competitors of Grainger and Applied Industrial. (Editing by Himani Sarkar and Deepak Kannan)

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