Fastenal (FAST) August Sales Consistent With Market Pattern

Fastenal Company (NASDAQ:FAST) came out with August 2019 sales report, wherein average daily sales grew 6.3% to $21.6 million compared with 6.1% and 7% growth registered in July and June, respectively. In the year-ago period, daily sales grew 13.7%. Notably, daily sales on a seasonal basis increased 3.9% versus the company’s benchmark (historical five-year average) of 3.7%. Hence, after missing normal seasonal patterns in June and July, Fastenal beat the seasonality by 20 basis points in August.

On an organic constant-currency basis, average daily sales were up 6.5% from 6.2% in July. Foreign exchange impacted August sales by 20 basis points. Meanwhile, net sales grew just 1.6% year over year to $475.6 million. The figure was down from 11.2% net sales growth in July.

This modest growth rate in daily sales is consistent with management’s softer macro outlook, general market slowdown and inventory destocking seen across the industrial space.

During the second-quarter earnings call, Fastenal acknowledged the fact that overall activity in end-markets served slowed down in the quarter. This offset the continued double-digit growth of vending and onsite locations, as well as sales to National Account customers.

To offset tariffs placed on products sourced from China, Fastenal has successfully raised prices. However, those increases were not sufficient to counter general inflation in the marketplace.

The company has been undertaking additional steps in third-quarter 2019 to counter cost pressure and the incremental tariffs that were levied on China-sourced products in May 2019. However, continued tepid growth might result in a modest decline in the current Zacks Consensus Estimate for third-quarter earnings of 36 cents (indicating 2.9% year-over-year growth).

From End-Market Perspective, Product Lines & Customer Channel

From end-market perspective, manufacturing sales grew 8.8% during the month, lower than 13.3% growth in the corresponding year-ago period. Again, non-residential construction grew by a meager 1.4%, lower than 18.5% growth reported in August 2018.

Fastenal derives sales from fastener and other product lines. Fasteners growth improved to 4.6% from 1.8% in July but slowed from 10.8% in August 2018. Non-fasteners grew 7.5%. It slowed down from 8.7% in July and 16% in the year-ago period.

In terms of customer channel, National account growth was an impressive 12%, given the fact that 66% of the top 100 accounts are expanding. Meanwhile, non-national accounts remained flat year over year in the month.

Negative customer/product mix, as a result of increased growth of lower-margin national accounts and lower proportion of higher margin fasteners, has been impacting Fastenal’s gross margin since the past three years. However, contributions from industrial vending and Onsite locations are encouraging.

Fastenal — a Zacks Rank #4 (Sell) stock — remains optimistic about its performance in the forthcoming quarters, given improved pricing expectation. Since the beginning of 2019, shares of Fastenal have gained 20.7%, underperforming its industry’s 29.7% growth.

Key Picks

Some better-ranked stocks in the Zacks Retail-Wholesale sector include BMC Stock Holdings, Inc. (NASDAQ:BMCH) , Builders FirstSource, Inc. (NASDAQ:BLDR) and America's Car-Mart, Inc. (NASDAQ:CRMT) . While BMC sports a Zacks Rank #1 (Strong Buy), the other two stocks carry a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

BMC and Builders FirstSource’s earnings surpassed estimates in all the trailing four quarters, with the average being 31.5% and 26.6%, respectively.

America's Car-Mart has an expected earnings growth rate of 19.1% for the current year.

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