Fastenal (FAST) Reports In-Line Q1 Earnings, Revenues Beat

Fastenal Company’s (NASDAQ:FAST) earnings of 46 cents per share in the first quarter of 2017 came in line with the Zacks Consensus Estimate. Earnings grew 6.2% year over year.

Sales Detail

Net sales of $1,047.7 million surpassed the Zacks Consensus Estimate of $1,033 million by 1.4%. Sales also grew 6.2% year over year driven by higher units owing to increase in sales at existing store locations and growth in industrial vending business and existing Onsite locations.

Fastenal’s daily sales grew 6.2% in the quarter, higher than the 2.7% increase in the fourth quarter of 2016.

On a monthly basis, daily sales increased 8.4% in March, 6.1% in February and 3.8% in January 2017 compared with 0.0%, 2.6% and 3.3%, respectively, in the year-ago comparable periods.

Sales of fastener products (used mainly for industrial production and accounting for approximately 35.6% of the company’s first quarter sales) increased 0.8% in the quarter. Non-fastener product sales (used mainly for maintenance and represented 64.4% of the quarterly sales) increased 9.4%.

Vending Trends and Other Growth Drivers

As of Mar 31, 2017, Fastenal operated 64,430 vending machines, up 13.3% year over year. During the quarter, the company signed 5,437 machine contracts, up 17% 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 64 new Onsite locations during the quarter, up 33.3% from 48 signings a year ago. As of Mar 31, 2017, the company had 437 active sites, representing an increase of 51.2%.

Additionally, Fastenal signed 43 new national account contracts in the first quarter (representing 48.4% of its total revenues in the quarter). Net sales from its national account customers grew 9.2% in the quarter year over year.

Margins Decline

Gross margin of 49.4% in the first quarter of 2017 declined 40 basis points (bps) year over year. The decline stemmed from unfavorable customer mix and product mix. Its major growth initiatives (i.e. Onsite locations, non-fastener products, national accounts) tend to have lower gross profits. Moreover, higher freight expenses due to increased business activity and expenses related to the final stage of a new inventory tracking system add to the woes.

Operating margin also declined 10 bps year over year to 20.3% in the quarter mainly due to lower gross profit level.

Financials

Cash and cash equivalents were $134.3 million as of Mar 31, 2017, up from $112.7 million as of Dec 31, 2016. Long-term debt was $354.1 million, down from $379.5 million at the end of 2016.

2017 Outlook

The company plans to continue opening stores in 2017 to sustain and improve its network, and drive growth.

Zacks Rank & Other Key Picks

Fastenal carries a Zacks Rank #2 (Buy).

Other stocks worth considering in the same space are Tecnoglass Inc (NASDAQ:TGLS) , BMC Stock Holdings, Inc. (NASDAQ:BMCH) and Builders FirstSource, Inc. (NASDAQ:BLDR) .

Tecnoglass carries a Zacks Rank #1 (Strong Buy). You can see the complete list of today's Zacks #1 Rank stocks here.

Tecnoglass is expected to witness 23.3% growth in 2017 revenues.

BMC, a Zacks Rank #2 stock, expects earnings growth of 52.9% in 2017.

Builders FirstSource, also a Zacks Rank #2 company, expects earnings growth of 28.1% in 2017.

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