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Fastenal (FAST) Stock Slips Despite Q3 Earnings & Sales Beat

Zacks

Fastenal Company FAST announced third-quarter 2018 results, wherein earnings and sales beat the Zacks Consensus Estimate. Higher market demand, coupled with growth in industrial vending business and existing Onsite locations are encouraging. Sales through vending devices grew at a strong double-digit pace in the quarter, courtesy of an increase in the installed base and higher revenues per device. However, gross margin suffered owing to inflationary pressures. Shares of Fastenal slipped 4.7% in the pre-market trading session, following the earnings release.

Earnings & Sales Detail

Fastenal’s adjusted earnings of 69 cents per share beat the Zacks Consensus Estimate of 67 cents. Earnings surged 38% from 50 cents a year ago. Discrete tax items and a lower tax rate benefited earnings per share by 12 cents.

Net sales of $1.28 billion surpassed the Zacks Consensus Estimate of $1.27 billion. Sales grew 13% year over year on the back of higher underlying market demand, along with growth in industrial vending business and existing Onsite locations.

Fastenal’s daily sales grew 13% in the quarter, slightly lower than 13.6% increase in the prior-year quarter.

On a monthly basis, daily sales improved 13.5% in September, 13.7% in August and 12% in July compared with 15.3%, 12.8% and 12.9%, respectively, in the prior-year months.

Daily sales of Fastener products (mainly used for industrial production and accounting for approximately 34.7% of third-quarter sales) rose 10.8% in the quarter.

Non-fastener product daily sales (mainly used for maintenance and representing 65.3% of the quarterly sales) increased 14.9% year over year.

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, 2018, Fastenal operated 78,706 vending machines, up 14% year over year. During the quarter, the company signed 5,877 machine contracts, up 23.2% year over year.

Fastenal signed 88 new Onsite locations during the quarter, up 8.6% from 81 signings in the prior-year quarter. As of Sep 30, 2018, the company had 828 active sites, up 49.2% from a year ago. Additionally, the company signed 41 new national account contracts in the third quarter (representing 51.5% of the total revenues in the quarter). Daily sales to national account customers increased 18% in the quarter on a year-over-year basis.

Higher Costs Hurting Gross Margin

Gross margin of 48.1% in the third quarter of 2018 contracted 100 basis points (bps) year over year due to changes in product and customer mix, inflation, as well as higher product and freight expenses.

However, operating margin expanded 30 bps year over year to 20.5% in the quarter, owing to an improvement in operating and administrative expenses.

Financials

Cash and cash equivalents were $129.7 million as of Sep 30, 2018, up from $116.9 million on Dec 31, 2017. Long-term debt was $387.5 million, down from $412 million at the end of 2017.

Zacks Rank & Other Stocks to Consider

Fastenal currently has a Zacks Rank #2 (Buy). Other top-ranked stocks in the Zacks Retail-Wholesale sector include Advance Auto Parts, Inc. AAP, The Home Depot, Inc. HD and AutoZone, Inc. AZO. While Advance Auto Parts sports a Zacks Rank #1 (Strong Buy), Home Depot and AutoZone both carry a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank stocks here.

Advance Auto is expected to witness an earnings growth rate of 29.6% in 2018.

Home Depot is expected to report earnings growth of 28.3% in the current year.

AutoZone surpassed earnings estimates in all the past four quarters, with an average of 6.61%.

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