It has been about a month since the last earnings report for Fastenal (FAST - Free Report) . Shares have added about 7.6% 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 catalysts.
Fastenal Q3 Earnings & Sales Beat Estimates
Fastenal Company announced third-quarter 2018 results, wherein earnings and sales beat the Zacks Consensus Estimate. Higher market demand, coupled with growth in industrial vending business and existing Onsite locations are encouraging. Sales through vending devices grew at a strong double-digit pace in the quarter, courtesy of an increase in the installed base and higher revenues per device. However, gross margin suffered owing to inflationary pressures.
Earnings & Sales Detail
Fastenal’s adjusted earnings of 69 cents per share beat the Zacks Consensus Estimate of 67 cents. Earnings surged 38% from 50 cents a year ago. Discrete tax items and a lower tax rate benefited its earnings per share by 12 cents.
Net sales of $1.28 billion surpassed the Zacks Consensus Estimate of $1.27 billion. Sales also grew 13% year over year on the back of higher underlying market demand, along with growth in industrial vending business and existing Onsite locations.
Fastenal’s daily sales grew 13% in the quarter, slightly lower than 13.6% increase in the prior-year quarter.
On a monthly basis, daily sales improved 13.5% in September, 13.7% in August and 12% in July compared with 15.3%, 12.8% and 12.9%, respectively, in the prior-year months.
Daily sales of Fastener products (mainly used for industrial production and accounting for approximately 34.7% of third-quarter sales) rose 10.8% in the quarter.
Non-fastener product daily sales (mainly used for maintenance and representing 65.3% of the quarterly sales) increased 14.9% year over year.
Vending Trends and Other Growth Drivers
As of Sep 30, 2018, Fastenal operated 78,706 vending machines, up 14% year over year. During the quarter, the company signed 5,877 machine contracts, up 23.2% year over year.
Fastenal signed 88 new Onsite locations during the quarter, up 8.6% from 81 signings in the prior-year quarter. As of Sep 30, 2018, the company had 828 active sites, up 49.2% from a year ago. Additionally, it signed 41 new national account contracts in the third quarter (representing 51.5% of the total revenues in the quarter). Daily sales to national account customers increased 18% on a year-over-year basis.
Higher Costs Hurting Gross Margin
Gross margin of 48.1% in the third quarter of 2018 contracted 100 bps year over year due to changes in product and customer mix, inflation, as well as higher product and freight expenses.
However, operating margin expanded 30 bps year over year to 20.5% in the quarter, owing to an improvement in operating and administrative expenses.
Cash and cash equivalents were $129.7 million as of Sep 30, 2018, up from $116.9 million on Dec 31, 2017. Long-term debt was $387.5 million, down from $412 million at the end of 2017.
How Have Estimates Been Moving Since Then?
Fresh estimates followed an upward path over the past two months.
Currently, Fastenal has a nice Growth Score of B, though it is lagging a lot on the Momentum Score front with a D. Following the exact same course, 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 C. If you aren't focused on one strategy, this score is the one you should be interested in.
Fastenal has a Zacks Rank #2 (Buy). We expect an above average return from the stock in the next few months.