Fastenal (FAST) Stock Gains On Q3 Earnings And Sales Beat

Fastenal Company’s (NASDAQ:FAST) shares gained almost 4% following its third-quarter 2019 earnings release, wherein the top and bottom lines surpassed the respective Zacks Consensus Estimate despite witnessing slower activity levels.

Earnings & Sales in Detail

Fastenal reported earnings of 37 cents per share in the quarter, beating the consensus mark by 5.7%. The reported figure also increased 8.8% from the year-ago profit level of 34 cents.

Net sales of $1.38 billion surpassed the consensus mark of $1.37 billion and grew 7.8% year over year. The growth was driven by higher unit sales, primarily related to growth drivers, with notable contributions from industrial vending and Onsite locations.

The company’s daily sales growth was recorded at 6.1%, lower than 7.9% and 13% increase in second-quarter 2019 and the prior-year quarter, respectively, as end-market activity slowed down in the quarter.

On a monthly basis, daily sales improved 5.8%, 6.3% and 6.1% in July, August and September compared with 13.5%, 13.7% and 12%, respectively, in the prior-year months.

Daily sales of Fastener products (mainly used for industrial production and accounting for approximately 33.7% of first-quarter sales) rose 3% year over year.

Non-fastener products’ daily sales (mainly used for maintenance and representing 66.3% of the quarterly sales) increased 8% year over year.

Vending Trends and Other Growth Drivers

As of Sep 30, 2019, Fastenal operated 88,327 vending machines, up 12.2% year over year. During the quarter, the company signed 5,671 machine contracts, down from 5,877 a year ago.

Fastenal signed 84 new Onsite locations during the quarter, down from 88 signings in the prior-year period. As of Sep 30, 2019, the company had 1,076 active sites, up 30% from the comparable year-ago period. It signed 50 new national account contracts in the third quarter (representing 53.5% of the total revenues). Daily sales to national account customers increased 10.2% on a year-over-year basis during the quarter.

Higher Costs Hurting Gross Margin

Gross margin of 47.2% in the quarter contracted 90 basis points (bps) year over year due to changes in product and customer mix, and inflation.

Also, operating margin contracted 10 bps year over year to 20.4% in the quarter, owing to lower gross margin.

Financials

Cash and cash equivalents were $191.2 million as of Sep 30, 2019, up from $167.2 million on Dec 31, 2018. Long-term debt at the end of the quarter was $442 million, down from $497 million at 2018-end.

Company’s Views

Fastenal, which currently carries a Zacks Rank #3 (Hold), 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. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

To offset tariffs placed on products sourced from China to date, Fastenal — which shares space with Builders FirstSource, Inc. (NASDAQ:BLDR) , Tecnoglass Inc. (NASDAQ:TGLS) and BMC Stock Holdings, Inc. (NASDAQ:BMCH) in the Zacks Building Products – Retail industry — has successfully raised prices.

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