GWW · Q3 2025 Earnings

Cautious

W. W. Grainger

Reported October 31, 2025

30-second summary

Q3 revenue grew 6.1% YoY to $4.66B with non-GAAP EPS of $10.21 and operating margin of 15.2% — at the top of the new FY range — but Grainger lowered the FY sales midpoint by ~$150M, cut the EPS high end by $0.50 (midpoint held at $39.375), and now expects LIFO inflation headwinds to persist "over the next couple quarters" into 2026 rather than fade. Management also announced exits from Cromwell (UK) and Zoro UK to focus entirely on North America and Japan, and the Q4 implied operating margin steps down to ~14.5% on a combination of government shutdown drag (~1pt per week of revenue impact), divestiture, and incremental tariff cost. The operational print was the cleanest part of this report; the forward setup is harder than Q2 implied.

Headline numbers

EPS

Q3 FY2025

$10.21

Revenue

Q3 FY2025

$4.66B

+6.1% YoY

Gross margin

Q3 FY2025

38.6%

Free cash flow

Q3 FY2025

$0.34B

Operating margin

Q3 FY2025

15.2%

Key financials

Q3 FY2025

Metric	Q3 FY2025	YoY	Q2 FY2025	QoQ
Revenue	$4.66B	+6.1%	$4.55B	+2.3%
EPS	$10.21	—	$9.97	+2.4%
Gross margin	38.6%	—	38.5%	+10bps
Operating margin	15.2%	—	14.9%	+30bps
Free cash flow	$0.34B	—	$0.20B	+67.8%

Guidance

Guidance is issued for the full year only, refreshed each quarter. Prior and new below are the same FY updated this quarter.

New guidance

Metric	Period	Guide	YoY
Revenue YoY growth (daily, organic constant currency)	Q4 FY2025	—	—

Changes to prior guidance

Metric	Period	Prior guide	New guide	Δ	Result
Net Sales	FY2025	$17.9 - $18.2 billion	$17.8 - $18.0 billion	−$0.1B at low end, −$0.2B at high end	Lowered
Adjusted Diluted EPS	FY2025	$38.50 - $40.25	$39.00 - $39.75	−$0.50 at high end (midpoint reaffirmed at $39.375)	Lowered
Sales Growth (reported daily, organic constant currency)	FY2025	4.5% - 6.0%	4.4% - 5.1%	−0.1 to −0.9 percentage points	Lowered
Adjusted Operating Margin	FY2025	14.7% - 15.1%	15.0% - 15.2%	+0.3 to +0.1 percentage points	Raised
CapEx (cash basis)	FY2025	$0.55 - $0.65 billion	$0.625 - $0.675 billion	+$0.075B at low end, +$0.025B at high end	Raised
High-Touch Solutions - N.A. Adjusted Operating Margin	FY2025	16.5% - 16.9%	16.9% - 17.0%	+0.4 to +0.1 percentage points	Raised
Endless Assortment Adjusted Operating Margin	FY2025	9.2% - 9.6%	9.2% - 9.5%	−0.1 percentage points at high end	Lowered

Reaffirmed unchanged this quarter: Gross Profit Margin (38.9% - 39.1%), Operating Cash Flow ($2.10 - $2.20 billion), Share Buyback ($1.05 - $1.15 billion), Effective Tax Rate (~23.8%)

Other KPIs

Q3 FY2025

Segment	Q3 FY2025
High-Touch Solutions - N.A. Gross Margin	41.1%
Endless Assortment Gross Margin	increased 60 bps YoY
High-Touch Solutions - N.A. Adjusted Operating Margin guidance	16.9% - 17.0%
Endless Assortment Adjusted Operating Margin guidance	9.2% - 9.5%
Daily, constant currency sales growth	5.4%
Operating Cash Flow (9M 2025)	$1.620 billion
Capital Expenditures (9M 2025)	$558 million
Shareholder Returns (Q3 2025)	$399 million

Management tone

Q1 anchor (inferred): tariff impact as manageable timing → Q2: "transitory" LIFO/price-cost framing with H2 recovery → Q3: LIFO headwind extends into 2026, UK exit announced, off-cycle November pricing taken.

The duration of the LIFO/inflation headwind was extended from a back-half timing issue to a multi-quarter, multi-year condition. Q2 management leaned on "transitory" and "accounting and timing"; Q3 the framing is explicit: "we now anticipate the inventory accounting dynamics from LIFO will persist over the next couple quarters until inflation cools." The shift from "transitory" to "next couple quarters" — paired with the unprompted analogy to the 2022 inflation peak — signals management has lower confidence in a clean recovery timeline than the Q2 commentary implied.

International strategy pivoted from selective expansion to North America-and-Japan-only. Q2 still framed Endless Assortment's UK build-out as a growth lever. Q3 announced exit: "With this planned divestiture, we are now focused entirely on growing up North America and Japanese businesses where we can deliver the greatest long-term impact." Combined Cromwell and Zoro UK represent $40M of Q4 revenue with immaterial operating loss — the financial impact is modest, but the strategic signal is that international diversification is no longer part of the thesis.

Pricing posture shifted from "stay on cycle, accept being upside-down" to "take off-cycle action when costs warrant it." Q2 management was deliberate about adhering to the May/September pricing cadence and accepting margin compression to preserve customer trust. Q3 saw an unplanned November 1 increase on High-Touch customers to recover tariff costs that emerged after September pricing was set. Q4 revenue assumes "more than three points of price contribution" — the highest pricing reliance in recent memory. Management still claims no price fatigue, but the willingness to deviate from cycle is itself a signal of cost pressure intensity.

The Q3 operational beat was real, but management refused to extrapolate. Gross margin guidance was raised, operating margin guidance was raised, HTS-NA margin guidance was raised. Yet when Morgan Stanley pressed whether LIFO normalization would unlock gross margin expansion toward 40%, management declined to commit — citing offsetting mix, freight, and tariff cost inflation. The asymmetry is notable: management is willing to bank the upside in this year's guide but unwilling to project it forward.

Recurring themes management leaned on this quarter:

Tariff-driven inflationary pressure persisting longer than initially expectedLIFO inventory accounting headwinds extending into 2026Price-cost timing management and supplier negotiationsEndless Assortment segment momentum offsetting High-Touch challengesStrategic portfolio rationalization (Cromwell/UK exit)Long-term earnings framework resilience despite near-term noise

Risks management surfaced:

Government shutdown impact on public sector salesContinued inflationary pressure into 2026 from supplier cost cycleTariff landscape uncertainty and further Section 232 expansion risksSegment mix headwinds in high-touch solution businessMRO market remaining muted due to inflationary environment

Q&A highlights

Christopher Snyder · Morgan Stanley

If LIFO headwinds of ~70 basis points abate, will the maintained 39% gross margin target expand to ~40%? What other factors beyond LIFO could impact margin trajectory?

Management confirmed LIFO creates headwinds but noted gross margins will improve as price becomes more favorable. However, product mix, freight, and other cost inflation (including tariffs) create offsetting pressures, so they're not projecting gross margin expansion beyond current guidance due to uncertainty on tariffs and cost inflation.

39% gross margin maintained through LIFO headwindsLIFO estimated ~70 basis points headwindMultiple factors (mix, freight, tariffs) offset LIFO benefit

Sabrina Abrams · Bank of America

Gross margins significantly beat expectations. Can you explain the LIFO timing impact, inventory reductions, and supplier negotiations that drove the outperformance?

Management attributed outperformance to LIFO estimation complexity and positive revisions from supplier negotiations that pushed cost increases into prior periods. Additional benefits came from price-cost improvements, favorable mix, and freight tailwinds.

$52 million LIFO reserve adjustment quantified by analyst (confirmed by management)Over 1,000 supplier negotiations ongoingBenefits from price-cost and favorable freight mix

Nigel Coe · Wolf Research

Confirmed LIFO impact of ~$52 million this quarter. Will 2026 see more moderate LIFO impact? Also, how should we think about price elasticity and customer price fatigue?

Management confirmed $52M LIFO charge estimate. For 2026, additional LIFO impacts are expected due to ongoing cost increases mid-cycle. Management has not seen price fatigue and emphasized pricing is small relative to customer expense bases, though acknowledged potential challenges could emerge.

$52 million LIFO impact confirmed for Q3More cost increases expected in 2026 requiring additional pricing cyclesNo evidence of price fatigue to date; pricing small relative to customer costs

David Manchay · Baird

For Cromwell held-for-sale: what are the revenue and operating income impacts? Clarify timing of pricing actions—are September and November increases capturing all 2025 opportunities?

Combined Cromwell and Zorro UK represent $40 million in Q4 revenue with immaterial operating losses. Pricing actions: September 1 increase is normal cycle; November 1 increase is off-cycle on high-touch customers driven by tariff-related cost increases after September pricing was set. January 1 represents next contract pricing opportunity.

$40 million combined revenue impact from Cromwell and Zorro UK in Q4September 1 price increase (normal cycle)November 1 price increase (off-cycle, cost-driven)January 1 next contract pricing opportunity

Ryan Merkle · William Blair

Quantify the Q4 government shutdown impact on revenue. Why the off-cycle November price increase when you typically adhere to national account pricing cycles?

Government shutdown impact: approximately 1 percentage point of total company growth per week of shutdown duration (6 weeks = ~0.5 point; sustained = 1+ point). November pricing was response-based to tariff cost increases discovered post-September pricing; not speculative. Management is matching costs with price increases based on market conditions.

~1 percentage point revenue impact per week of government shutdownOver 1,000 supplier negotiations underwayNovember price increase tied to documented tariff cost increases post-September pricing

Answers to last quarter's watch list

Q3 operating margin vs. the ~14.5% guide. Q3 printed 15.2% — at the top of the new FY range and ~70 bps above the Q2 guide. The operational execution exceeded the cautious Q2 setup; FY operating margin guide was raised to 15.0–15.2%. However, Q4 implied operating margin steps back down to ~14.5% per management, so the beat is in this quarter, not the trajectory.

Resolved positively

September pricing realization. Q4 revenue is built on "more than three points of price contribution," and management took an additional off-cycle November 1 increase on High-Touch customers to capture post-September tariff costs. Realization is tracking, but management is now relying on additional unplanned pricing waves to hit the number — a different dynamic than a single September action delivering 2.0–2.5% annualized.

Continue monitoring

High-Touch N.A. growth trajectory. HTS-NA accelerated to +3.4% YoY from +2.5% in Q2 and the segment's FY operating-margin guide was raised to 16.9–17.0%. Modest improvement, with most of the lift coming from pricing rather than volume; MRO market remains "muted" per management commentary. Status: Resolved positively (margin); Continue monitoring (volume)

Gross-margin path back to the FY 38.6–38.9% range. Q3 gross margin was 38.6%, and the FY guide was raised to 38.9–39.1% — implying Q4 needs to step up sequentially to land in the band. The 39% stabilization target was reaffirmed as the long-term framework anchor. However, management explicitly said the LIFO headwind persists into 2026, so the path back is now slower than Q2 implied. Status: Resolved positively (this quarter); Continue monitoring (durability)

Tariff cost developments and 2026 setup. Management's framing on 2026 hardened materially: further inflationary pressure expected, LIFO headwinds extending into 2026, additional pricing cycles needed. The 2026 setup looks harder than the Q2 commentary implied.

Resolved negatively

What to watch into next quarter

Q4 operating margin vs. the ~14.5% implied guide and the 15.0–15.2% FY range. A Q4 print below 14.5% would mean shutdown drag and tariff cost pressure exceeded the model; a print at or above 14.5% combined with the strong Q3 keeps the FY guide intact.

2026 preliminary framing on LIFO, pricing, and HTS-NA volume. Management committed only to "LIFO persists over the next couple quarters." The first quantitative read on 2026 cost cycle, expected pricing waves, and HTS-NA volume assumption will be the key signal.

Government shutdown duration and recovery. ~1pt of growth per week of shutdown was the disclosed sensitivity. If the shutdown extends materially, Q4 sales likely come at or below the low end of the new $17.8B FY floor.

Whether the gross margin can step up to the new 38.9–39.1% FY range in Q4 without further one-time LIFO benefit. Q3's 38.6% included a $52M favorable LIFO reserve adjustment from supplier negotiations. A Q4 print below 38.9% would suggest the underlying run-rate, excluding favorable one-time items, is weaker than the FY guide implies.

Pricing realization vs. the "more than three points" Q4 assumption. If actual realization undershoots and management has to take a third off-cycle action in early 2026, the price-cost dynamic worsens going into the next fiscal year.

Endless Assortment margin trajectory. The high end of the FY operating-margin guide was clipped 10 bps to 9.5% despite 18.2% revenue growth. Watch whether Q4 prints inside the new band or signals further compression as the segment scales.

Sources

W. W. Grainger Q3 2025 earnings press release (Form 8-K Exhibit 99.1), filed October 31, 2025 — https://www.sec.gov/Archives/edgar/data/277135/000027713525000145/gww8kex991q32025.htm
W. W. Grainger Q3 2025 earnings call commentary and Q&A (referenced via management remarks and analyst exchanges)

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