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Why Is Fastenal (FAST) Up 5.1% Since Last Earnings Report?

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It has been about a month since the last earnings report for Fastenal (FAST - Free Report) . Shares have added about 5.1% in that time frame, outperforming the S&P 500.

Will the recent positive trend continue leading up to its next earnings release, or is Fastenal due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important drivers.

Fastenal (FAST - Free Report) Q3 Earnings Beat, Revenues Miss

Fastenal Company reported third-quarter 2020 results, wherein the bottom line topped the Zacks Consensus Estimate, courtesy of higher demand for personal protective equipment (“PPE”) products. However, revenues missed the same. It pointed out that activity levels throughout the period remained below those that existed prior to the onset of the pandemic and related mitigation efforts.

Earnings & Sales in Detail

The company reported earnings of 38 cents per share, which beat the consensus mark of 37 cents by 2.7%. The reported figure also increased from the year-ago profit level of 37 cents per share.

Net sales for the reported period were $1,413.3 million, missing the consensus mark of $1,416 million by 0.2% but increasing 2.5% from the year-ago figure of $1,379.1 million. Increased demand for PPE products more than offset the decline in the traditional business.

It reported daily sales growth of 2.5%, lower than 10.3% and 6.1% increase registered in second-quarter 2020 and third-quarter 2019, respectively.

The company pointed out that based on trends in vending dispenses and hub picks during the period, it believes that there was a gradual sequential improvement in general business activity in each month of the quarter. This was apparent not only from the sales trend, but also from improving signings and activity levels among growth drivers.

On a monthly basis, daily sales improved 2.2%, 2.5% and 2.6% for September, August and July compared with 5.8%, 6.3% and 6.1%, respectively, in the comparable months of the prior year.
Daily sales of Fastener products (mainly used for industrial production and accounting for 30.5% of second-quarter sales) declined 6.9% year over year. This reflects continued softness of manufacturing and construction markets. Nonetheless, the metric improved from the second quarter’s decline of 16.4%.

Sales of safety products (accounting for 23.8% of third-quarter sales) grew 34.4% on a daily basis. Sales of the remaining products (accounting for 45.7% of third-quarter sales) declined 2.3% year over year on a daily basis.

Vending Trends and Other Growth Drivers

As of Sep 30, 2020, Fastenal operated 94,395 vending machines, up 6.9% year over year. During the first nine months of 2020, the company signed 12,961 machine contracts, down from 16,713 reported in the year-ago period.

Fastenal signed 187 new Onsite locations during the first nine months of 2020. The metric was 283 in the first nine months of 2019. As of Sep 30, 2020, the company had 1,236 active sites, up 14.9% from the comparable year-ago period. Daily sales to national account customers (representing 53.8% of total revenues) increased 1.7% on a year-over-year basis for the quarter.

Margins

Gross margin of 45.3% for the quarter contracted 190 bps from the prior-year period due to the impact of product mix, as lower-margin safety sales increased sharply as a proportion of its total sales in comparison with higher-margin fastener sales.

Nonetheless, operating margin expanded 10 bps year over year to 20.5% for the quarter.

Operating and administrative expenses (including gains from sales of property and equipment) — as a percentage of net sales — declined 200 bps year over year to 24.8% for third-quarter 2020, owing to the company’s ability to leverage employee as well as general corporate expenses.

Financials

Cash and cash equivalents were $331.8 million as of Sep 30, 2020, up from $174.9 million on Dec 31, 2019. Long-term debt at quarter-end was $365 million, up from $342 million at 2019-end.

In the first nine months of 2020, cash provided by operating activities totaled $780.8 million, up 32.3% from the comparable year-ago period. Fastenal returned $430.2 in dividends to shareholders in the first nine months of 2020 compared with $372.3 in the corresponding period of 2019.

How Have Estimates Been Moving Since Then?

It turns out, fresh estimates flatlined during the past month.

VGM Scores

Currently, Fastenal has a strong Growth Score of A, though it is lagging a lot on the Momentum Score front with a C. Charting a somewhat similar path, 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 B. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

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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