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Fastenal Company (FAST) Up 4% Since Earnings Report: Can It Continue?

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It has been about a month since the last earnings report for Fastenal Company (FAST - Free Report) . Shares have added about 4% in that time frame.

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

Second-Quarter 2018 Results

Fastenal Company delivered strong results in the second quarter of 2018 owing to higher market demand, growth in industrial vending business and existing Onsite locations. Sales through vending devices grew at a strong double-digit pace in the quarter, courtesy of increase in installed base and higher revenues per device. However, margins declined due to inflationary pressures.
 
Earnings & Sales Detail
 
Fastenal’s adjusted earnings of 74 cents per share beat the Zacks Consensus Estimate of 66 cents. Earnings surged 42.6% year over year.
 
Net sales of $1.27 billion surpassed the Zacks Consensus Estimate of $1.26 billion. Sales grew 13.1% year over year on the back of higher underlying market demand, growth in industrial vending business and existing Onsite locations.
 
Fastenal’s daily sales grew 13.1% in the quarter, lower than the 13.2% increase in the prior-year quarter.
 
On a monthly basis, daily sales improved 13.5% in June, 12.5% in May and 13.4% in April compared with a rise of 13%, 9.7% and 8.9%, respectively, in the prior-year quarter.
 
Daily sales of Fastener products (mainly used for industrial production; accounting for approximately 35% of second-quarter sales) rose 11.1% in the quarter.
 
Non-fastener product daily sales (mainly used for maintenance; representing 65% of the quarterly sales) increased 14.8% year over year.
 
Vending Trends and Other Growth Drivers
 
As of Jun 30, 2018, Fastenal operated 76,069 vending machines, up 14.3% year over year. During the quarter, the company signed 5,537 machine contracts, up 13.4% year over year.
 
Fastenal signed 81 new Onsite locations during the quarter, up 19.1% from 68 signings in the prior-year quarter. As of Jun 30, 2018, the company had 761 active sites, up 56.6%. Additionally, the company signed 43 new national account contracts in the second quarter (representing 50.7% of the total revenues). Daily sales to its national account customers grew 19.1% in the quarter on a year-over-year basis.

Decline in Margins
 
Gross margin of 48.7% in the second quarter of 2018 declined 110 bps year over year due to changes in product and customer mix, inflation, and higher product as well as freight expenses.
 
Operating margin was flat year over year to 21.2% in the quarter, owing to an improvement in operating and administrative expenses.
 
Financials
 
Cash and cash equivalents were $135.5 million as of Jun 30, 2018, up from $116.9 million on Dec 31, 2017. Long-term debt was $422.5 million, up from $412 million at the end of 2017.
 

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed an upward trend in fresh estimates. There have been two revisions higher for the current quarter.

Fastenal Company Price and Consensus

 

VGM Scores

At this time, FAST has a strong Growth Score of A, though it is lagging a lot on the momentum front with a C. Following the exact same course, the stock was also allocated a grade of C on the value side, putting it in the middle 20% 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.

Based on our scores, the stock is more suitable for growth investors than those looking for value and momentum.

Outlook

Estimates have been trending upward for the stock and the magnitude of these revisions looks promising. It comes with little surprise FAST has a Zacks Rank #2 (Buy). We expect an above average return from the stock in the next few months.


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