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Fastenal (FAST) to Report Q3 Earnings: What's in the Cards?

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Fastenal Company (FAST - Free Report) is scheduled to report third-quarter 2018 results on Oct 10, before the opening bell.

The company surpassed the Zacks Consensus Estimate by 12.1% in the last reported quarter. However, its earnings were in line with the consensus mark in three of the trailing four quarters, resulting in an average beat of 3.03%.

Fastenal is expected to benefit from its core product offerings like Onsite Locations/vending machines/managed inventory. Meanwhile, continued construction tailwinds are also expected to act as a major growth catalyst. However, higher product and freight expenses, along with changes in product and customer mix raise concerns.

Let’s take a look at the factors that might affect the company’s results in the third quarter.

Vending Machines to Drive Growth: Over the past few quarters, Fastenal’s sales have been driven by an increased installation of industrial vending machines. Sales through vending machines grew at or near a double-digit pace in each of the trailing four quarters of 2017. Then again, sales through vending devices continued to grow at a pace of more than 20% in the second quarter of 2018, primarily due to higher installed base.

Onsite Locations to Boost Sales: A consistent increase in the number of on-site locations is likely to strengthen Fastenal’s market share and boost quarterly numbers. Sales growth through Onsite was 22% in 2017. As of Jun 30, 2018, the company had 761 active sites, up 56.6% year over year. The trend is expected to continue in the third quarter of 2018 as well. Fastenal aims to achieve 360-385 onsite signings in 2018, reflecting an increase from 270 signings in 2017.

Solid End-Market Demand: Robust construction market, especially the non-residential one, has been acting as a major tailwind for Fastenal’s performance over the past few quarters. The trend is likely to be carried forward in the third quarter of 2018 as well.

The company is expected to report impressive top- and bottom-line growth in the third quarter, courtesy of sustained strength in most of its end markets, as well as strong momentum in vending machine installations and onsite locations. The Zacks Consensus Estimate for revenues is pegged at $1.27 billion, implying 12.3% year-over-year growth.

Gross Margin Pressure: We are apprehensive about Fastenal’s changes in product and customer mix, which have been hurting the gross margin for quite some time now. Freight and product cost inflation also added to the woes. That said, Fastenal remains optimistic about its performance in the second half of the year, given improved pricing expectation as well as reasonable gross margin comparisons through the rest of 2018.

Overall, the consensus estimate for earnings is pegged at 67 cents, reflecting an improvement of 34% on a year-over-year basis.

Fastenal Company Price and EPS Surprise

 

Fastenal Company Price and EPS Surprise | Fastenal Company Quote

Here is What Our Quantitative Model Predicts:

Fastenal does not have the right combination of the two key ingredients — a positive Earnings ESP and a Zacks Rank #3 (Hold) or higher — to increase the odds of an earnings beat. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Earnings ESP:  Fastenal has an Earnings ESP of -0.21%.

Zacks Rank: The company carries a Zacks Rank #2 (Buy), which increases the predictive power of ESP. However, we also need to have a positive ESP to be confident about an earnings surprise.

Stocks to Consider

Here are some 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:

eBay Inc. (EBAY - Free Report) has an Earnings ESP of +0.91% and a Zacks Rank #2. The company is expected to report quarterly numbers on Oct 17, 2018.

Advance Auto Parts, Inc. (AAP - Free Report) has an Earnings ESP of +3.49% and a Zacks Rank #1. The company is expected to report quarterly results on Nov 13, 2018.

Chico's FAS, Inc. (CHS - Free Report) has an Earnings ESP of +29.41% and a Zacks Rank #3. The company is expected to report quarterly numbers on Nov 20, 2018.

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