Industrials

Brooke Sutherland is a Bloomberg Gadfly columnist covering deals. She previously wrote an M&A column for Bloomberg News.

W.W. Grainger Inc. is almost 90 years old and at least in one respect, it's showing its age.

The seller of motors, tools and other industrial supplies hired a new CEO in October, but D.G. Macpherson has signaled he wants to keep up with old habits, including Grainger's tradition of shunning the open conference calls that typically accompany quarterly earnings releases. Instead, Grainger releases a canned podcast that doesn't allow time for questions. Analysts have to reach out directly on an individual basis with any inquiries.

This strategy is unusual, particularly in the wake of the 2000 adoption of the U.S. Securities and Exchange Commission's Regulation Fair Disclosure, which prohibits companies from selectively disclosing material information. Conference calls aren't legally mandatory (nor are press releases for that matter), but many companies just see the practice as an easy way to demonstrate a commitment to transparency and to provide as much information as they can to the investing community. 

Among members of the S&P 500, the vast majority -- more than 490 of them -- regularly hold conference calls with a Q&A session to discuss their earnings, according to a Bloomberg Gadfly analysis. The absence of calls or Q&A is more common among smaller companies, but while you may not have heard of it, Grainger isn't exactly bite-sized. With a market value of $13 billion, the company is in the same league size-wise as Macy's Inc., Best Buy Co. and J.M. Smucker Co.

Hold the Line
These companies either don't have earnings conference calls, or don't publicly and regularly take questions
Source: Bloomberg, analysts, company filings, company transcripts, company spokespeople.
Tiffany did take questions when discussing its results for the fourth quarter of 2015.

Some companies that hold a question forum do so in quirky ways. Wal-Mart Stores Inc., for example, releases pre-recorded commentary on its results and then holds separate calls -- one with the media, the transcript of which can be found online, and then a private one between analysts and Wal-Mart's investor-relations team. The dialogue between the company and its analysts is usually the most valuable and interesting part of any corporate call  so it's frustrating for journalists to be shut out of that. That’s a different story for a different date, though.

At least at Wal-Mart, analysts get the benefit of hearing each others’ questions. Not so at Grainger, and that makes covering the company more difficult, says Deane Dray, an analyst at RBC who’s tracked the Illinois-based company for over a decade. Analysts miss out on hearing what their peers are paying attention to, as well as the cadence and crispness of management’s answers to those questions -- all of which can be contributing factors to their mosaic of understanding about a company.

There doesn’t seem to be much benefit for Grainger in continuing this antiquated approach to earnings commentary nor is there a clear logic behind it.

All of the company's major U.S. industrial supplier peers, including Fastenal Co., have traditional earnings calls. And it’s not like Grainger never does Q&A. It publicly fields inquiries at bank-hosted conferences and at its annual analyst day. This year’s took place earlier this month, where (in an ironic twist) Macpherson was asked by Dray if he would start letting analysts put forth questions as a group on an earnings call. The answer was no, or at least not right now,  but CFO Ronald Jadin pointed out that senior leadership does invest a great deal of time talking with analysts and investors. Ok… if you’re willing to make management so available for questions, why not do so in a more public format where everyone can benefit from the information?

Tough Times
Margin pressures and a weak industrial environment have weighed on Grainger's stock
Source: Bloomberg

At the very least, it would probably be a time-saver for management because they wouldn’t have to answer the same questions multiple times. But there may also be a financial benefit. A study first published in 2014 by a group of professors found that the absence of questions on earnings calls resulted in downward pressure on companies' stock price. The study focused on firms that offered Q&A and either drew no questions, or received a paltry few -- but it's logical that the same conclusions would extend to companies that don’t offer Q&A at all, lead author Shuping Chen of the University of Texas at Austin said in an interview.

There is an argument that conference calls are generally a waste of time and that most questions are dumb. It's a fair criticism, but even redundant transparency can be useful, particularly when it comes to messaging around contentious issue.

In Grainger's case, the biggest threat to its business is Amazon.com Inc. and the internet giant's plans to do to industrial distribution what it did to bookstores and brick-and-mortar retailers. Most times Grainger held a public-question forum this year, someone asked about Amazon or the threat to margins from e-commerce competition. I'm not suggesting talking more about the Amazon threat is going to make it go away, but investors would probably feel more comfortable if they got a chance to hear from the company on a more frequent basis about how it's responding to this issue.

Old habits may die hard but in this case, there's incentive for Grainger to get with the times.

This column does not necessarily reflect the opinion of Bloomberg LP and its owners.

To contact the author of this story:
Brooke Sutherland in New York at bsutherland7@bloomberg.net

To contact the editor responsible for this story:
Beth Williams at bewilliams@bloomberg.net