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Fastenal (FAST) to Report Q4 Earnings: What's in the Offing?

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Fastenal Company (FAST - Free Report) is scheduled to report fourth-quarter 2018 results on Jan 17, before the opening bell.

The company surpassed the Zacks Consensus Estimate by 2.9% in the last reported quarter. In fact, it reported positive earnings surprise in all the trailing four quarters, with average of 3.8%.

How are Estimates Faring?

Let’s take a look at the estimate revision trend in order to get a clear picture of what analysts are thinking about the company prior to the earnings release. The Zacks Consensus Estimate for the quarter to be reported is currently pegged at 60 cents, remaining unchanged over the past 60 days. Nonetheless, this reflects an increase of 33.3% from the year-ago earnings of 45 cents per share. Revenues are expected to be $1.22 billion, up 12% year over year.

Fastenal Company Price and EPS Surprise

 

Fastenal Company Price and EPS Surprise | Fastenal Company Quote

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

Fastenal is expected to benefit from its core product offerings like Onsite Locations/vending machines/managed inventory. However, higher product and freight expenses, along with changes in product and customer mix raise concerns.

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 devices continued to grow at a double-digit pace, both in the first nine months and the third quarter of 2018, primarily due to higher installed base. Fastenal’s signings of industrial vending devices grew 23.2% year over year in the quarter and were up more than 13% in the first nine months of 2018. Installed device count (as of Sep 30, 2018) increased 14% from the year-ago quarter. The trend is expected to continue in the to-be-reported quarter as well.

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. As of Sep 30, 2018, it had 828 active sites, up 49.2% from a year ago. The increased number of onsite locations is likely to expand Fastenal’s market share. The trend is expected to continue in the fourth 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. Non-residential construction grew 16.2% and manufacturing increased 13% in the third quarter, consistent with the second quarter’s growth. The trend is likely to have continued in the fourth quarter of 2018 as well.

The company is expected to report impressive top- and bottom-line growth in the fourth quarter, courtesy of sustained strength in most of its end markets, as well as strong momentum in vending machine installations and onsite locations.

Gross Margin Pressure: Fastenal’s changes in product and customer mix have been hurting the gross margin for quite some time now. In the first nine months of 2018, gross margins contracted 90 basis points year over year. Moreover, freight and product cost inflation 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.

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 -0.65%.

Zacks Rank: The company carries a Zacks Rank #4 (Sell), which decreases the predictive power of ESP.

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:

Ralph Lauren Corporation (RL - Free Report) has an Earnings ESP of +0.78% and a Zacks Rank #3. The company is slated to report quarterly numbers on Feb 5, 2019.

Group 1 Automotive, Inc. (GPI - Free Report) has an Earnings ESP of +1.32% and sports a Zacks Rank #1. The company is expected to report quarterly numbers on Feb 14, 2019.

Advance Auto Parts, Inc. (AAP - Free Report) has an Earnings ESP of +2.01% and a Zacks Rank #3. The company is expected to report quarterly results on Feb 20.

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