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Factors Shaping the Fate of Fastenal's (FAST) Q2 Earnings

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Fastenal Company (FAST - Free Report) is scheduled to report second-quarter 2020 results on Jul 14, before the opening bell.

In the last reported quarter, the company’s earnings and sales beat the Zacks Consensus Estimate by 2.9% and 0.2%, respectively. On a year-over-year basis, earnings and revenues grew 2.9% and 4.4%. The growth was driven by higher unit sales, primarily related to growth drivers, with notable contributions from industrial vending and Onsite locations. Also, higher sales of certain products in the latter part of the quarter related to the coronavirus pandemic contributed to the increase.

Trend in Estimate Revision

For the quarter to be reported, the Zacks Consensus Estimate for earnings per share has increased 2.9% to 35 cents over the past 30 days. The estimated figure indicates a decline of 2.8% from the year-ago quarter. Nonetheless, the consensus mark for revenues is pegged at $1.44 billion, suggesting a 5.5% increase from the year-ago reported figure of $1.37 billion.

Fastenal Company Price and EPS Surprise

Fastenal Company Price and EPS Surprise

Fastenal Company price-eps-surprise | Fastenal Company Quote

Key Factors to Note

Soft End-Market Demand: This national wholesale distributor of industrial and construction supplies is likely to have witnessed lower end-market demand in the quarter to be reported. The company has been experiencing a slowdown in various end-markets served owing to slower global growth rate and trade war/geopolitical uncertainties. Also, the recent economic slowdown resulting from coronavirus-led shutdowns is likely to have weighed on June sales. Underlying industrial demand is still quite below pre-COVID-19 levels.

The Zacks Consensus Estimate for daily sales is pegged at $23.67 million, which indicates a sequential increase of 10.6%. Notably, the company registered better-than-expected average daily sales growth rate of 14.8% in May, higher than 6.7% registered in April 2020 and 9.7% in the year-ago period. The upside was led by notable gains in safety products.

Demand is gradually recovering after a big plunge in April, benefiting from the reopening of the economy and pent-up demand in May and June. Safety/cleaning supplies provided a hedge against a decline in non-pandemic products (read more: Fastenal May ADS Up 14.8%, Safety Products Hold Key).

Margins Under Pressure: Fastenal’s changes in product and customer mix have been hurting gross margin for quite some time now. Increased concentration of lower-margin non-fastener products, reduced daily sales, price/cost deficit and higher freight expense are expected to have affected its second-quarter margins.

To offset the tariffs placed on products sourced from China to date, Fastenal has been successfully raising prices. However, those increases were not sufficient to counter general inflation in the marketplace. Although the company has been undertaking additional steps to counter cost pressure and incremental tariffs, the above-mentioned headwinds are likely to have put pressure on the bottom line.

What the Zacks Model Unveils

Our proven model predicts an earnings beat for Fastenal in the quarter to be reported. The combination of a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) increases the changes of an earnings beat. This is exactly the case here as you will see below.

Earnings ESP: The company has an Earnings ESP of +7.89%. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Zacks Rank: Currently, Fastenal carries a Zacks Rank #1.

You can see the complete list of today’s Zacks #1 Rank stocks here.

Other Stocks to Consider

Here are some other companies in the Zacks Retail-Wholesale sector, which according to our model have the right combination of elements to post an earnings beat in their respective quarters to be reported:

Beacon Roofing Supply, Inc. (BECN - Free Report) has an Earnings ESP of +0.48% and a Zacks Rank #3.

Advance Auto Parts, Inc. (AAP - Free Report) has an Earnings ESP of +25.65% and a Zacks Rank #3.

Builders FirstSource, Inc. (BLDR - Free Report) has an Earnings ESP of +11.11% and holds a Zacks Rank #2.

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