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Fastenal (FAST) Up 10.9% Since Last Earnings Report: Can It Continue?

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It has been about a month since the last earnings report for Fastenal (FAST - Free Report) . Shares have added about 10.9% 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 the most recent earnings report in order to get a better handle on the important drivers.

Fastenal (FAST - Free Report) Q1 Earnings and Revenues Beat Estimates

Fastenal Company’s top and bottom lines in first-quarter 2020 topped the respective Zacks Consensus Estimate despite continued slower activity levels. Moreover, activity levels weakened significantly in the second half of March, in response to societal actions that were undertaken to address the coronavirus pandemic.

Earnings & Sales in Detail

The company reported earnings of 35 cents per share, which beat the consensus mark of 34 cents by 2.9%. The reported figure also increased from the year-ago profit level of 34 cents per share.

Net sales during the reported period were $1,367 million, beating the consensus mark of $1,364 million by 0.2% and increasing 4.4% from the year-ago figure of $1,309.3 million. The growth was driven by higher unit sales, primarily related to growth drivers, with notable contributions from industrial vending and Onsite locations. Also, higher sales of certain products later in the quarter related to the coronavirus pandemic also contributed to the increase.

It reported daily sales growth of 2.8%, lower than 12.2% and 3.7% increase registered in the first and fourth quarters of 2019, respectively, as end-market activity continued to slow down in the quarter.

On a monthly basis, daily sales improved 3.6%, 4.7% and 0.2% in January, February and March compared with 13.3%, 10.5% and 12.7%, respectively, in the comparable months of the prior year.

Notably, 50% of the business relates to fastener and safety products. Together, these two product lines grew 4.3% on a daily basis in the quarter.

Daily sales of Fastener products (mainly used for industrial production and accounting for 32.9% of first-quarter sales) declined 2.6% year over year. Sales of safety products (accounting for 19.8% of first-quarter sales) grew 18.4% on a daily basis. Sales of remaining products (accounting for 47.3% of first-quarter sales) grew 1.6% on a daily basis.

In addition, the company’s manufacturing and non-residential construction end markets were down 1.1% and 7.8% on a daily basis, respectively, in the quarter. Nonetheless, the government business was up 31.1% on a daily basis. Moreover, sales to healthcare organizations more than doubled during the quarter.

Vending Trends and Other Growth Drivers

As of Mar 31, 2020, Fastenal operated 92,124 vending machines, up 10.4% year over year. During the quarter, the company signed 4,798 machine contracts, down from 5,603 reported in the year-ago period.

Fastenal signed 85 new Onsite locations during first-quarter 2020. The metric was 105 in first-quarter 2019. As of Mar 31, 2020, the company had 1,179 active sites, up 24.8% from the comparable year-ago period. Daily sales to national account customers (representing 55.4% of total revenues) increased 5.5% on a year-over-year basis during the quarter.

Margins Hurt by Higher Costs

Gross margin of 46.6% in the quarter contracted 110 basis points (bps) from the prior-year period due to changes in product and customer mix, and freight.

Also, operating margin contracted 10 bps year over year to 19.9% in the quarter, owing to lower gross margin.

Operating and administrative expenses (including gains from sales of property and equipment) — as a percentage of net sales — improved 110 bps year over year to 26.7% in first-quarter 2020, owing to the company’s ability to leverage employee, occupancy, and general corporate expenses.

Financials

Cash and cash equivalents were $160.7 million as of Mar 31, 2020, down from $174.9 million on Dec 31, 2019. Long-term debt at the end of the quarter was $450.1 million, up from $342 million at 2019-end.

In the first quarter, cash provided by operating activities totaled $241.1 million, up from $204.9 million in the comparable year-ago period.

How Have Estimates Been Moving Since Then?

It turns out, fresh estimates have trended upward during the past month. The consensus estimate has shifted 14.6% due to these changes.

VGM Scores

At this time, Fastenal has a great Growth Score of A, a grade with the same score on the momentum front. However, 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 B. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been broadly trending upward for the stock, and the magnitude of these revisions looks promising. Notably, Fastenal has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.


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