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What Fastenal's (FAST) Strategic Efforts Mean for the Stock

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Fastenal Company's (FAST - Free Report) is expected to benefit from its prime focus on boosting e-commerce and full-line industrial supplier. Also, it has been banking on strong industrial vending business, Onsite locations and cost-saving efforts. This apart, the company is well positioned in terms of liquidity to overcome any unforeseen situation in the near term. Let’s delve deeper.

Focus on Strategies to Overcome Top-Line Woes

Slower end-market activity has been a concern for the company. In May 2021, average daily sales or ADS fell 3.2% versus 1.2% growth registered in April. In fact, Fastenal’s overall May sales of $477.2 million were down 3.2% year over year. Moreover, the company expects second quarter revenues be flat to slightly down due to the convergence of accelerating demand in the traditional markets, share gains and safety and the absence of $350-$360 million in surge sales.

To mitigate these headwinds, Fastenal has been emphasizing on virtual platforms to boost customers’ engagement. The company has slashed hundreds of branches since 2013 in favor of vending machines and online sales, in response to changes in customer dynamics. During the first-quarter 2021, daily sales through e-commerce increased 35.5% year over year. In fact, revenues attributable to e-commerce represented 12.2% of total revenues. The growth is likely to continue, given changing customer dynamics.

Moreover, Fastenal has gradually expanded from a fastener distributor to a full-line industrial supplier. It has expanded its product lines to include an internal manufacturing division, government sales, Internet sales, metalworking and industrial vending. Fastenal has also built a national accounts team, which is dedicated to servicing corporate customers. These initiatives are gaining traction and will help the company to achieve profitability in the future.

Cost-Reduction Efforts & Other Initiatives Bode Well

The Zacks Rank #3 (Hold) company intends to reduce costs arising from tariffs and freight expenses. It has undertaken various cost-control measures like automating warehouses, increasing delivery efficiency through its trucking network and selling more private-level products with higher margins.

Amid the current market situation, wherein people are indulging in less human contact to avoid the virus, Fastenal’s Industrial vending business is a boon for the company. These machines help customers in controlling inventory and administrative costs, while reducing product consumption. Notably, the non-fastener product line has benefited significantly from its initiatives pertaining to industrial vending.

At the start of 2021, Fastenal disclosed a weighted FMI or Fastenal Managed Inventory measure that combines the signings, installations, and sales of FAST Vend and FAST Bin into a standardized machine equivalent unit based on the expected output of each type of device. In first-quarter 2021, the company signed 4,683 weighted FMI devices, almost in line with 4,692 signed in the prior-year quarter.

Also, its Onsite locations — in which a mini-Fastenal shop is located in a customer’s plant — are helping it serve customers better. As of Mar 31, 2021, the company had 1,285 active sites, up 9% from the comparable year-ago period. First-quarter 2021 daily sales through Onsite locations (excluding sales transferred from branches to new Onsites) increased at a mid-to-high single-digit rate from a year ago. The increased number of Onsite locations is likely to expand Fastenal’s market share.

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Shares of Fastenal — which shares space with Builders FirstSource, Inc. (BLDR - Free Report) , Beacon Roofing Supply, Inc. (BECN - Free Report) and Lumber Liquidators Holdings, Inc. (LL - Free Report) in the same industry — have surged 35.9% in the past year compared with the Zacks Building Products - Retail industry’s 33% rally. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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