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W.W. Grainger (GWW) - Get W.W. Grainger Inc. Report said Friday that its fourth-quarter earnings could come in as much as 45% below Wall Street's expectations.

Analysts surveyed by

First Call/Thomson Financial

projected earnings of 54 cents a share in the fourth quarter. Chicago-based Grainger said it would release its final earnings numbers later this month.

Trading of Grainger shares was halted Friday morning until 9:48 a.m. EST. The stock was down 2 1/2, or 6%, to 42 9/16 in Friday morning trading. (Grainger settled down 11/16, or 2%, to 44 3/8.)

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Andrew Jeffrey, an analyst with

Robertson Stephens

in San Francisco, doubted Friday's announcement will be the end of the bad news from Grainger. "The company's explanations and guidance are incredulous at this point," said Jeffrey, who regards the company's problems as more systemic. The sector as a whole will likely see its margins eroded as more and more business-to-business e-commerce companies increase efficiencies in the industrial-supplies distribution category, Jeffrey said. "This is just the first manisfestation of that," he said.

While consensus estimates for W.W. Grainger's 2000 earnings hover at $2.50, Jeffrey said he projects earnings closer to $2 per share. He rates the stock long-term attractive; Robertson Stephens has not done any underwriting for the company.

Grainger, a maintenance and operating supply distributor, attributed the shortfall to inventory problems and higher operating expenses. The Chicago-based company said it had installed a new inventory system that resulted in system slowdowns and transaction processing disruptions, causing inventory shrinkage to be greater than expected.

The higher operating expenses are due to the company's Internet initiatives as well as higher employee compensation costs -- also a result of the installation of the new system.

"We have taken the necessary steps to correct the problems and have completed the rollout of the new system to our 370 branches and six zone distribution centers,'' Richard L. Keyser, Grainger's chairman and chief executive, said in a statement.