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Bear of the Day

Fastenal (FAST - Free Report) reported second quarter EPS on Tuesday July 12 and missed the Zacks Consensus by 3-cents, or 6.25%. Earnings were down 5.4% compared to the year-ago quarter while revenues were up 1.6% year over year to $1.01 billion.

Gross margins were 49.5% and also disappointed analysts as they contracted 80 bps vs. 50.3% in 2Q15. Operating margins were 20.6%, which contracted 100 bps vs. 22.6% a year ago. Analysts responded quickly and unison to the report by lowering EPS estimates for this year and next.

The Zacks Consensus for 2016 profit estimates fell from $1.82 to $1.76 while 2017 projections were knocked down from $1.96 to $1.88. Respectively, these new EPS estimates represent flat growth for this year and only 6.77% for next year.

Global Uncertainty Clouds Outlook

Fastenal is strongly associated with the threaded screws, bolts, and other fasteners that give the company its namesake, but it also sells industrial and construction supplies grouped into ten other product lines including tools, metal cutting tools, fluid transfer components and accessories for hydraulic and pneumatic power, material handling and storage products, janitorial and paper products, electrical supplies, welding supplies, safety supplies, and raw materials.

The company has over 2,600 branches throughout the US, Canada, Mexico and Europe along with 13 distribution centers.

CEO Daniel Florness suggested that the industrial economy likely showed incremental weakening Q2. Management spoke about the Construction segment in particular where they saw a slowdown in their energy customers in both May and June.

This is clearly an effect of energy companies holding off on projects that are typically seen in the spring and summer.

Moreover, Fastenal is witnessing projects that were still going on from a year ago not being replaced. Management also estimated that several temporary plant shutdowns impacted the month of June by ~1.0% revenue growth.

Trading at 23 times next year's EPS projection, Fastenal is neither a value play nor a growth play. Keep your eye on the Zacks Rank to let you know when that changes.

Kevin Cook is a Senior Stock Strategist for Zacks Investment Research where he runs the Tactical Trader portfolio.


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