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Fastenal Company (FAST Quick QuoteFAST - Free Report) delivered strong results in the second quarter of 2018 owing to higher market demand, growth in industrial vending business and existing Onsite locations. Sales through vending devices grew at a strong double-digit pace in the quarter, courtesy of increase in the installed base and higher revenues per device. However, margins declined due to inflationary pressures.

Earnings & Sales Detail

 

Fastenal’s adjusted earnings of 74 cents per share beat the Zacks Consensus Estimate of 66 cents. Earnings surged 42.6% year over year.

 

Net sales of $1.27 billion surpassed the Zacks Consensus Estimate of $1.26 billion. Sales grew 13.1% year over year on the back of higher underlying market demand, growth in industrial vending business and existing Onsite locations.

 

Fastenal’s daily sales grew 13.1% in the quarter, lower than the 13.2% increase in the prior-year quarter.

 

On a monthly basis, daily sales improved 13.5% in June, 12.5% in May and 13.4% in April, compared with a rise of 13%, 9.7% and 8.9%, respectively, in the prior-year quarter.

 

Daily sales of Fastener products (used mainly for industrial production and accounting for approximately 35% of second-quarter sales) rose 11.1% in the quarter.

 

Non-fastener product Daily sales (used mainly for maintenance and representing 65% of the quarterly sales) increased 14.8% year over year.

 

Vending Trends and Other Growth Drivers

 

As of Jun 30, 2018, Fastenal operated 76,069 vending machines, up 14.3% year over year. During the quarter, the company signed 5,537 machine contracts, up 13.4% year over year.

 

Fastenal signed 81 new Onsite locations during the quarter, up 19.1% from 68 signings in the prior-year quarter. As of Jun 30, 2018, the company had 761 active sites, up 56.6%. Additionally, the company signed 43 new national account contracts in the second quarter (representing 50.7% of total revenues in the quarter). Daily sales to its national account customers grew 19.1% in the quarter on a year-over-year basis.

 

Margins Decline

 

Gross margin of 48.7% in the second quarter of 2018 declined 110 basis points (bps) year over year due to changes in product and customer mix, inflation and higher product as well as freight expenses.

 

Operating margin was flat year over year to 21.2% in the quarter, owing to an improvement in operating and administrative expenses.

 

Financials

Cash and cash equivalents were $135.5 million as of Jun 30, 2018, up from $116.9 million as of Dec 31, 2017. Long-term debt was $422.5 million, up from $412 million at the end of 2017.

 

Zacks Rank & Stocks to Consider

 

Fastenal has a Zacks Rank #3 (Hold). A few better-ranked stocks in the Zacks Retail-Wholesale sector are Ascena Retail Group, Inc., Urban Outfitters, Inc (URBN Quick QuoteURBN - Free Report) and Vera Bradley, Inc (VRA Quick QuoteVRA - Free Report) .

 

All three companies sport a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

 

Ascena Retail surpassed earnings in two of the past four quarters with an average beat of 61.1%.

 

Urban Outfitters expects earnings growth of 49.1% in the current year.

 

Vera Bradley surpassed earnings in all of the past four quarters with an average beat of 39.4%.

 

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