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Fastenal’s (FAST) Q3 Earnings in Line, Gross Margin Down

Zacks

Fastenal Company’s FAST earnings of 50 cents per share in the third quarter of 2017 were in line with the Zacks Consensus Estimate. Earnings also grew 13.4% year over year.

Sales Detail

Net sales of $1.13 billion were in line the Zacks Consensus Estimate. Sales grew 11.8% 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 13.6% in the quarter, better than the 10.6% increase in the second quarter of 2017.

On a monthly basis, daily sales increased 15.3% in September, 12.8% in August and 12.9% in July, compared with 2.8%, 0.3% and 2.1%, respectively, a year ago.

Sales of fastener products (used mainly for industrial production and accounting for approximately 35.6% of the company’s third-quarter sales) increased 12.1% in the quarter, 3.8% of which came from the acquisition of the Manufacturers Supply Company (Mansco) business. Non-fastener product sales (used mainly for maintenance and represented 64.4% of the quarterly sales) increased 14.6%.

Fastenal Company Price, Consensus and EPS Surprise

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


Vending Trends and Other Growth Drivers

As of Sep 30, 2017, Fastenal operated 69,058 vending machines, up 14.3% year over year. During the quarter, the company signed 4,771 machine contracts, in line with the year-ago figure.

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 81 new Onsite locations during the quarter, up 97.6% from 41 signings a year ago. As of Sep 30, 2017, the company had 555 active sites, representing an increase of 47.6%.

Additionally, Fastenal signed 42 new national account contracts in the third quarter (representing 48.7% of its total revenues in the quarter). Net sales from its national account customers grew 17.3% in the quarter on a year-over-year basis.

Margins

Gross margin of 49.1% in the third quarter of 2017 declined 20 basis points (bps) year over year owing changes in product and customer mix, the addition of Mansco (which has a lower gross profit product mix than the company), disruption owing to the recent hurricanes and commodity inflation.

Operating margin improved 20 bps year over year to 20.2% in the quarter, mainly driven by lower operating and administrative expenses.

Financials

Cash and cash equivalents were $133.4 million as of Sep 30, 2017, up from $112.7 million as of Dec 31, 2016. Long-term debt was $432 million, up from $379.5 million at the end of 2016.

Zacks Rank & Key Picks

Fastenal carries a Zacks Rank #3 (Hold).

A few better-ranked stocks in the industry are Lumber Liquidators Holdings, Inc LL, Beacon Roofing Supply, Inc. BECN and The Home Depot, Inc. HD.

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

Lumber Liquidators is expected to see 73% growth in 2017 earnings.

Beacon Roofing is likely to witness 4.6% earnings growth in fiscal 2017.

Home Depot expects earnings growth of 13.3% in fiscal 2018.

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