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Fastenal (FAST) Tops Q2 Earnings & Revenues, Margins Improve

Zacks

Fastenal Company’s FAST earnings of 52 cents per share in the second quarter of 2017 surpassed the Zacks Consensus Estimate of 50 cents by 4%. Earnings also grew 13.4% year over year.

Sales Detail

Net sales of $1,121.5 million surpassed the Zacks Consensus Estimate of $1,110 million by 1%. Sales grew 10.6% year over year driven by higher units owing to improvement in underlying market demand and growth in industrial vending business and existing Onsite locations.

Fastenal’s daily sales grew 10.6% in the quarter, higher than the 6.2% increase in the first quarter of 2017.

On a monthly basis, daily sales increased 13% in June, 9.7% in May and 8.9% in April, compared with 0.0%, 1.1% and 3.8%, respectively, a year ago.

Sales of fastener products (used mainly for industrial production and accounting for approximately 36.1% of the company’s second-quarter sales) increased 7.9% in the quarter, 3.6% of which came from the acquisition of the Manufacturers Supply Company ('Mansco') business. Non-fastener product sales (used mainly for maintenance and represented 63.9% of the quarterly sales) increased 12.2%.

Vending Trends and Other Growth Drivers

As of Jun 30, 2017, Fastenal operated 66,577 vending machines, up 14.1% year over year. During the quarter, the company signed 4,881 machine contracts, up 0.3% year over year.

After a soft 2013, vending trends improved through 2014, 2015 and 2016 as management’s efforts to enhance the quality of signings/installs paid off.

Fastenal signed 68 new Onsite locations during the quarter, up 54.5% from 44 signings a year ago. As of Jun 30, 2017, the company had 486 active sites, representing an increase of 45.9%.

Additionally, Fastenal signed 51 new national account contracts in the second quarter (representing 47.8% of its total revenues in the quarter). Net sales from its national account customers grew 13.2% in the quarter on a year-over-year basis.

In order to better serve its customers, Fastenal introduced additional product Stock Keeping units (SKUs) in many of its branches at the end of 2015 and through much of 2016. This initiative is referred to as Customer Service Project 16 (CSP 16). In the second quarter of 2017, products added as part of various CSP initiatives accounted for 15% of net sales, and daily sales of these products grew 12.3% year over year.

Margins

Gross margin of 49.8% in the second quarter of 2017 improved 30 basis points (bps) year over year. The upside was driven by improvement in supply chain initiatives, including relative growth in the sales of Fastenal brands, increased discipline in purchasing throughout the organization, and more efficient utilization of fleet. However, changes in product and customer mix continued to adversely affect gross profit, as did the addition of Mansco.

Operating margin improved 60 bps year over year to 21.2% in the quarter, mainly driven by higher gross profit and lower operating and administrative expenses.

Fastenal Company Price, Consensus and EPS Surprise

Fastenal Company Price, Consensus and EPS Surprise | Fastenal Company Quote


Financials

Cash and cash equivalents were $115.1 million as of Jun 30, 2017, up from $112.7 million as of Dec 31, 2016. Long-term debt was $436.2 million, up from $379.5 million at the end of 2016.

Zacks Rank & Other Key Picks

Fastenal carries a Zacks Rank #2 (Buy).

A few other top-ranked stocks in the Retail-Wholesale sector are Dave & Buster's Entertainment, Inc. PLAY, McDonald's Corporation MCD and The Home Depot, Inc. HD.

Dave & Buster's sports a Zacks Rank #1 (Strong Buy), while the other two companies carry a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank stocks here.

Dave & Buster's is expected to see 23.2% growth in fiscal 2018 earnings.

McDonald's is likely to witness 12.3% earnings growth in 2017.

Home Depot expects earnings growth of 12% in fiscal 2018.

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