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Fastenal (FAST) Down 4.2% Since Last Earnings Report: Can It Rebound?

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It has been about a month since the last earnings report for Fastenal (FAST). Shares have lost about 4.2% in that time frame, underperforming the S&P 500.

Will the recent negative trend continue leading up to its next earnings release, or is Fastenal due for a breakout? 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 catalysts.

Fastenal (FAST) Q1 Earnings & Sales Top Estimates

Fastenal Company reported first-quarter 2019 results, wherein earnings and sales surpassed the respective Zacks Consensus Estimate, courtesy of higher market demand, and growth in industrial vending business and existing Onsite locations.

Earnings & Sales Detail

Fastenal reported earnings of 68 cents per share in the quarter, beating the consensus mark by 1.5% and increasing 11.9% from 61 cents reported a year ago.

Moreover, net sales of $1.31 billion surpassed the consensus mark of $1.3 billion. Sales also grew 10.4% year over year on the back of higher underlying market demand, and growth in industrial vending business, existing Onsite locations and construction.

The company’s daily sales growth was recorded at 12.2%, lower than the 13.2% increase in the prior-year quarter, due to the one fewer selling day in the current period.

On a monthly basis, daily sales improved 12.7% in March, 10.5% in February and 13.3% in January compared with 13.1%, 14.8% and 12%, respectively, in the prior-year months.

Daily sales of Fastener products (mainly used for industrial production and accounting for approximately 34.8% of first-quarter sales) rose 11.8% year over year.

Non-fastener products’ daily sales (mainly used for maintenance and representing 65.2% of the quarterly sales) increased 12.7% year over year.

Vending Trends and Other Growth Drivers

As of Mar 31, 2019, Fastenal operated 83,410 vending machines, up 13.4% year over year. During the quarter, the company signed 5,603 machine contracts, up 1.3% year over year.

Fastenal signed 105 new Onsite locations during the quarter, up from 100 signings in the prior-year period. As of Mar 31, 2019, the company had 945 active sites, up 39.4% from the comparable year-ago period. It signed 59 new national account contracts in the first quarter (accounting for 52.7% of the total revenues). Daily sales to national account customers increased 16.9% on a year-over-year basis during the quarter.

Higher Costs Hurting Gross Margin

Gross margin of 47.7% in the first quarter of 2019 contracted 100 bps year over year due to changes in product and customer mix, inflation, and higher freight expenses.

However, operating margin expanded 20 bps year over year to 20% in the quarter, owing to an improvement in operating and administrative expenses.

Financials

Cash and cash equivalents were $185.4 million as of Mar 31, 2019, up from $167.2 million on Dec 31, 2018. Long-term debt at the end of the quarter was $484.6 million, down from $497 million at 2018-end.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed a downward trend in fresh estimates.

VGM Scores

At this time, Fastenal has a nice Growth Score of B, though it is lagging a lot on the Momentum Score front with a D. Following the exact same course, 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 C. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. Notably, 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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