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Fastenal's (FAST) Q1 Earnings Meet Estimates, Margins Down

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Fastenal Company (FAST - Free Report) delivered strong results in the first quarter of 2018 owing to higher market demand, growth in industrial vending business and existing Onsite locations. Sales through vending devices consistently grew at a strong double-digit pace in the quarter, due to the increase in the installed base and higher revenue per device.

Earnings & Sales Detail

Fastenal’s adjusted earnings of 61 cents per share in the first quarter of 2018 were in line with the Zacks Consensus Estimate. Earnings surged 30.6% year over year.

Net sales of $1.19 billion surpassed the Zacks Consensus Estimate of $1.18 billion. Sales grew 13.2% year over year on the back of higher underlying market demand, growth in industrial vending business and existing Onsite locations. The acquisition of Manufacturers Supply Company (Mansco) contributed 1.3% to sales.

Fastenal’s daily sales grew 13.2% in the quarter, lower than the 14.8% increase in the prior-year quarter.

On a monthly basis, daily sales improved 13.1% in March, 14.8% in February and 12% in January, compared with a rise of 8.4%, 6.1% and 3.8%, respectively, in the prior-year quarter.

Daily sales of Fastener products (used mainly for industrial production and accounting for approximately 35% of the company’s first-quarter sales) rose 11.8% in the quarter, 3.7% of which came from the acquisition of the Mansco business.

Non-fastener product Daily sales (used mainly for maintenance and represented 65% of the quarterly sales) increased 14.5% year over year.

Fastenal Company Price, Consensus and EPS Surprise

 

Vending Trends and Other Growth Drivers

As of Mar 31, 2018, Fastenal operated 73,561 vending machines, up 14.2% year over year. During the quarter, the company signed 5,679 machine contracts, up 4.5% year over year.

Fastenal signed 100 new Onsite locations during the quarter, up 56.3% from 64 signings a year ago. As of Mar 31, 2018, the company had 678 active sites, up 55.1%. Additionally, the company signed 36 new national account contracts in the first quarter (representing 50.3% of its total revenues in the quarter). Daily sales to its national account customers grew 17.3% in the quarter on a year-over-year basis.

Margins Decline

Gross margin of 48.7% in the first quarter of 2018 declined 73 basis points (bps) year over year, due to changes in product and customer mix, the addition of Mansco (which has a lower gross profit product mix than the company), higher product and freight expenses.

Operating margin contracted 50 bps year over year to 19.8% in the quarter, owing to an improvement in operating and administrative expenses and offset by a decline in gross profit.

Financials

Cash and cash equivalents were $137.1 million as of Mar 31, 2018, up from $116.9 million as on Dec 31, 2017. Long-term debt was $391.9 million, up from $412 million at the end of 2017.

Zacks Rank & Stocks to Consider

Fastenal has a Zacks Rank #2 (Buy). A few better-ranked stocks in the Zacks Retail-Wholesale sector are Nordstrom, Inc. (JWN - Free Report) , Buckle, Inc. (BKE - Free Report) and The Gap, Inc. (GPS - Free Report) .

All three companies carry a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Nordstrom is expected to see 15.5% growth in fiscal 2018 earnings.

Buckle surpassed earnings in all of the past four quarters with an average beat of 9.1%.

The Gap expects earnings growth of 23.5% in fiscal 2018.

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