Fastenal Beats Estimates

Fastenal Co. (FAST - Analyst Report) reported a profit of $79.5 million in the first quarter of 2011, up 42% from $56.0 million in the year-ago quarter. This translates into earnings of 54 cents per share, which has surpassed the year-ago earnings of 38 cents per share by 42.1%. Reported earnings also beat the Zacks Consensus Estimate of 51 cents per share.

Net sales for the quarter totaled $640.6 million, up 23% year over year driven by an improvement in sales to the company’s manufacturing customers as well as non-residential construction customers of the company.

Fastenal’s first quarter sales also exceeded the Zacks Consensus Estimate of $626 million. During the quarter, daily sales to the manufacturing customers increased 15.5% and that to the non-residential construction customers rose 17.7%.

During the quarter, Fastenal opened 37 stores, leading to a total of 2,522 stores as of March 31, 2011. The company intends to open 150 to 200 stores during 2011, which is equivalent to an annualized rate of 6.0% to 8.0%.

Fastenal recorded average store sales of $74,400 per month in this quarter versus $62,700 per month in the first quarter of 2010. The company aims to push its average store sales to $125,000 per month going forward.

Gross profit rose 25.4% to $333.4 million in the quarter from $265.9 million in the prior year. However, gross margin spiked marginally to 52.0% from 51.1% in the corresponding quarter of 2010.

Dividend Payment

Fastenal announced to pay a cash dividend of 26 cents per share on April 28, 2011 to shareholders of record at the close of business as of April 12, 2011.

Financial Position

Fastenal had cash and cash equivalents of $124.8 million as of March 31, 2011, compared with $178.8 million as of March 31, 2010. Inventories were $576.5 million compared with $507.2 million at the end of the first quarter in 2010.

During the first three months of 2010, net cash provided by operating activities was $74.3 million, down from $79 million in the prior-year period. The failure to generate cash flow was attributed to increases in trade accounts receivable and inventories.

Our Take

Fastenal has a wide customer base spanning across various markets, which protects its market position in tough economies. Further, it has employed a hub and spoke model along with the opening of new stores and service centers to ensure efficient customer service in all aspects.

However, the fluctuations in diesel fuel and gasoline prices may pose considerable threat to the company’s margins in the coming quarters. Taking into account the above conditions, we have a long-term Neutral recommendation on the stock.

Based in Winona, Minnesota, Fastenal is a leading national distributor of industrial and construction supplies and operates stores in Canada, Mexico, the Dominican Republic, Puerto Rico, Singapore, China, and in all the 50 states in the U.S. The company’s key competitors include MSC Industrial Direct Co. Inc. (MSM - Snapshot Report), W.W. Grainger, Inc. (GWW - Analyst Report) and The Home Depot, Inc. (HD - Analyst Report).

Read the full analyst report on FAST

Read the full analyst report on HD

Read the full analyst report on GWW

Read the full analyst report on MSM