Industrial distributor W.W. Grainger posted an 18 percent drop in quarterly profit, hurt by weak demand across all end markets and geographies, and said it had not seen an indication of an economic turnaround.

We have yet to see any sign of a pick-up in demand, Bill Chapman, director of investor relations, said in a recorded message.

He said sales trends experienced in the second quarter were continuing into July.

The good news is that the steep decline that began in the 2008 fourth quarter has moderated for now and things have not gotten worse, Chapman added.

The company, whose lower quarterly profit beat analysts' expectations, said its results indicated that it was gaining market share during the recession and that it was selectively investing for growth.

On Monday, rival Fastenal Co posted lower-than-expected quarterly results, hurt by weak sales at its industrial production business.

Grainger expects gross profit margin for the year to be above 2008 and said capital expenditures should pick up in the back half of the year.

It said the budget crisis at many states in the United States, which accounts for about 90 percent of Grainger's business, may affect its sales to customers going forward.

The company said it was on track to achieve incremental sales of $70 million to $100 million and cost reductions of $20 million to $30 million from the integration of its Lab Safety Supply unit with its U.S. branch-based business.

It also said it was on track to meet projected headcount reductions of up to 400 positions. It has eliminated 298 jobs to date with severance expense of $8 million, or 5 cents a share, through the second quarter.

In June, Grainger said it planned to increase its stake in Japan's MonotaRO Co Ltd to 53 percent through an investment of $4 million.

Q2 PROFIT BEATS STREET

For the second quarter, Grainger's net income was $92.5 million, or $1.21 a share, compared with of $113.2 million, or $1.42 a share, a year ago.

Revenue fell 13 percent to $1.53 billion.

Analysts on average were expecting earnings of $1.14 a share, before special items, on revenue of $1.53 billion, according to Reuters Estimates.

Grainger, which has no exposure to the European market, said U.S. sales fell 12 percent, with sales dropping across all customer end markets except the government sector.

Government sales were up low single digits while heavy manufacturing was down almost 30 percent, the company said.

Shares of Grainger were up 45 cents at $83.03 Wednesday afternoon on the New York Stock Exchange. (Reporting by A.Ananthalakshmi in Bangalore; Editing by Aradhana Aravindan)

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