Key Points
Global Industrial's stock sold off heavily after its earnings came up short of expectations.
However, the company's margin profile improved nicely during the quarter.
Management believes Global Industrial's margins should keep improving in the upcoming quarter as well.
Shares of industrial distributor Global Industrial (NYSE: GIC) are down 17% as of noon ET on Wednesday, according to data provided by S&P Global Market Intelligence.
Global Industrial reported third-quarter earnings that fell shy of analysts' expectations, and the stock got punished.
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Despite this reaction, it wasn't a bad quarter for the industrial products distributor. Revenue inched higher for the second quarter in a row. More importantly, operating income and earnings per share rose by 18% and 9%, as the company's overall margin profile continued improving.
Is Global Industrial turning things around?
Global Industrial distributes products in categories like storage and shelving, janitorial and maintenance, safety and security, material handling, carts and trucks, and more for its more than 400,000 industrial customers.
It is unique in the sense that 40% of its sales come from private-label products, which offer higher margins. Furthermore, the company now generates about 60% of its sales online, which helps it compete with bigger peers.
Image source: Getty Images.
That said, Global Industrial's operating margin dropped from 9% in 2022 to 6% this year, causing its stock to mostly trade sideways. However, after announcing a new CEO early in 2025, the company quit relying as heavily on offering discounts on products, which helped margins rebound in the last two quarters.
Some good signs
While Wall Street wasn't happy that Global Industrial didn't meet their expectations, I'm encouraged by the company's gross margin and operating margin improving 160 basis points and 90 basis points. These results occurred despite a challenging tariff environment, as well.
With management guiding for continued margin expansion in the fourth quarter of the year, Global Industrial is an interesting dividend stock with its 3.6% yield. While it may not offer immense growth, it only trades at 17 times earnings.
Josh Kohn-Lindquist has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.