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Fastenal (FAST) Up 19.5% Since Last Earnings Report: Can It Continue?

A month has gone by since the last earnings report for Fastenal (FAST). Shares have added about 19.5% in that time frame, outperforming the S&P 500.

Will the recent positive trend continue leading up to its next earnings release, or is Fastenal due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important drivers.

Fastenal (FAST) Stock Gains on Q3 Earnings and Sales Beat

Fastenal Company reported third-quarter 2019 results, 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.
 

How Have Estimates Been Moving Since Then?

It turns out, fresh estimates flatlined during the past month.

VGM Scores

At this time, Fastenal has a nice Growth Score of B, a grade with the same score on the momentum front. However, the stock was allocated a grade of D on the value side, putting it in the bottom 40% for this investment strategy.

Overall, the stock has an aggregate VGM Score of B. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Fastenal has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.


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