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Can Fastenal Company (FAST) Pull a Surprise in Q2 Earnings?


Fastenal Company FAST is slated to report second-quarter 2017 results on Jul 12, before the opening bell.

Last quarter, the company’s earnings met the Zacks Consensus Estimate. The company surpassed expectations in only one of the last four quarters, the average being a negative 0.80%.

Let’s see how things are shaping up prior to this announcement.

Factors to Consider

Increased installation of industrial vending machines is expected to boost sales and profits in the to-be-reported quarter as it is one of the primary growth drivers for Fastenal. The company is also increasing the proportion of safety supplies in its total revenue that will likely help it to drive its top line.

We are also encouraged by Fastenal’s acquisition of certain assets of industrial and fastener supply distributor — Manufacturer's Supply Company (Mansco) in Mar 2017. This ensures Fastenal’s presence in markets where it has not meaningfully contributed in the past.

Moreover, a continual increase in the number of on-site locations is likely to expand Fastenal’s market share and contribute to the quarterly results.

However, we are apprehensive about Fastenal’s unfavorable product mix, pricing and competitive pressure that are hurting the gross margin for quite sometime now. Gross margin in the first quarter of 2017 contracted 40 bps to 49.4% from the prior-year quarter due to a change in customer and product mix, higher freight costs, and expenses related to an inventory tracking initiative for international markets. The trend is likely to continue in the to-be-reported quarter.

Notably, management believes that the second quarter of 2017 will see lower operating cash flows. For the quarter, the Zacks Consensus Estimate for earnings stands at 50 cents, reflecting a 10.6% year-over-year increase. Meanwhile, the estimate for revenues is pegged at $1.10 billion, implying 8.7% growth.

Earnings Whispers

Our proven model does not conclusively show that Fastenal is likely to beat earnings this quarter. That is because a stock needs to have both a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) for this to happen. That is not the case here as you will see below.

Zacks ESP: Fastenal has an Earnings ESP of 0.00%. That is because both the Most Accurate estimate and the Zacks Consensus Estimate are pegged at 50 cents. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Fastenal Company Price and EPS Surprise

Fastenal Company Price and EPS Surprise | Fastenal Company Quote

Zacks Rank: Fastenal has a Zacks Rank #3, which increases the predictive power of ESP. However, the company’s 0.00% ESP makes surprise prediction difficult.

Meanwhile, we caution against stocks with a Zacks Ranks #4 or 5 (Sell-rated stocks) going into the earnings announcement, especially when the company is seeing negative estimate revisions.

Stocks to Consider

Here are some companies in the Retail-Wholesale sector that, according to our model, have the right combination of elements to post an earnings beat this quarter:

McDonald's Corporation MCD has an Earnings ESP of +4.94% and a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank stocks here.

The company is slated to release quarterly results on Jul 25.

America's Car-Mart, Inc. CRMT has an Earnings ESP of +11.11% and a Zacks Rank #3. The company is expected to release quarterly results on Aug 17.

Abercrombie & Fitch Company ANF has an Earnings ESP of +8.82% and a Zacks Rank #3. The company is expected to release quarterly results on Aug 29.

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