GWW — A closer look at doubling earnings

When a profit figure doubles, the previous year's starting point deserves a look.

Industrial supplier $GWW reported third-quarter sales of $5.2 billion on November 4, up 11.3% from a year earlier. Reported earnings per share rose from $6.12 to $12.42. Adjusted earnings per share rose a less dramatic 22.8% to $12.54; the prior-year adjustment removes a loss associated with exiting the U.K. market.

Sales grew 14.9% on Grainger's daily, organic constant-currency measure, which adjusts for the U.K. exit and exchange rates. The comparable measure grew 13.7% in the second quarter. Both are year-over-year growth rates, so the comparison points to a faster pace rather than a sequential change in sales dollars.

Management said its North American high-touch business benefited from volume growth and pricing, while freight costs pressured its gross margin. More sales are helpful, but retaining enough margin after delivering products is what turns that demand into profit.

Watch volume growth and the North American segment's gross margin in the next report. Together, they can show whether the stronger demand is translating into durable earnings.