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It has been about a month since the last earnings report for Fastenal (FAST). Shares have added about 3.9% 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) Q1 Earnings Meet, Revenues Miss Estimates
Fastenal Company’s first-quarter 2021 earnings met the Zacks Consensus Estimate but revenues missed the same.
Earnings & Sales in Detail
The company reported earnings of 37 cents per share, in line with the consensus mark. The reported figure, nonetheless, increased 3.7% from the year-ago profit of 35 cents per share.
Net sales for the reported period were $1,417 million, marginally missing the consensus mark of $1,424 million but increasing 3.7% from the year-ago figure of $1,367 million. The upside was due to higher unit sales of fastener, safety and janitorial products.
It reported daily sales growth of 5.3%, lower than 6.4% increase in fourth-quarter 2020 but higher than 2.8% in the year-ago period.
On a monthly basis, daily sales improved 7.5%, 1.5% and 6.5% in March, February and January compared with 0.2%, 4.7% and 3.6% growth, respectively, in the comparable months of the prior year.
Daily sales of Fastener products (mainly used for industrial production and accounting for 32.5% of first-quarter sales) improved 4% year over year. This reflects improvement in demand among traditional industrial and construction customers. Also, easy year-over-year comparison added to the positives. Notably, the company experienced the onset of pandemic-related weakness and a contraction in fastener product growth in the year-ago period. In the fourth quarter, the metric declined 2.3% year over year.
Sales of safety products (accounting for 21.5% of first-quarter sales) grew 14.7% on a daily basis. Sales of the remaining products (accounting for 46% of first-quarter sales) grew 2.5% year over year on a daily basis.
Growth in other products lines, mainly attributable to higher demand for janitorial products, was driven by similar variables as safety products. These favorable factors were partly offset by severe weather in February 2021, which reduced net and daily sales growth by 50-100 bps year over year for the first quarter of 2021.
Vending Trends and Other Growth Drivers
Fastenal signed 4,683 Fastenal Managed Inventory (FMI) devices, almost in line with 4,692 a year ago. Its installed weighted FMI device count on Mar 31, 2021 was 85,157, reflecting an increase of 7.5% from a year ago.
Daily sales through weighted FMI devices grew 9% for first-quarter 2021 and represented 21.2% of net sales.
Fastenal signed 68 new Onsite locations during the first quarter. The figure was 85 in the year-ago period. Though this marks a decline from the year-ago period, it represented the highest rate of quarterly signings since the onset of the pandemic. As of Mar 31, 2021, the company had 1,285 active sites, up 9% from the comparable year-ago period. First-quarter 2021 daily sales through Onsite locations (excluding sales transferred from branches to new Onsites) increased at a mid-to-high single-digit rate from a year ago.
This resumption of growth reflects increasing sales in relatively new active locations with progress in implementations, combined with moderating rates of contraction in more mature sites. It expects Onsite signings between 375 and 400 for 2021. That said, in light of the signings in first-quarter 2021 and continued lengthening of the sales cycle as a result of the COVID-19 pandemic, it believes Onsite signings in 2021 to most likely fall to 300-350 locations.
Daily sales to national account customers (representing 56.3% of total revenues) increased 6.9% on a year-over-year basis for first-quarter 2021. Daily sales to non-national account customers (which include government customers and represent 43.7% of total revenues) grew 3.1% for the quarter.
Gross margin of 45.4% decreased 120 bps from the prior-year period, as it wrote down the value of the 3-ply masks that remain in inventory by $7.8. Also, the impact of product and customer mix are concerns.
Also, operating margin contracted 10 bps year over year to 19.8% for the quarter.
Cash and cash equivalents were $333.9 million as of Mar 31, 2021, up from $245.7 million on Dec 31, 2020. Long-term debt at first quarter-end was $365 million, in line with 2020-end.
In the first quarter, cash provided by operating activities totaled $274.8 million, up from $241.1 million in the prior year. Fastenal returned $160.8 in dividends to shareholders in the quarter compared with $143.6 a year ago.
For second quarter of 2021, the company expects sales growth to be flat to slightly down.
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed a downward trend in estimates review.
Currently, Fastenal has a great Growth Score of A, though it is lagging a lot on the Momentum Score front with an F. Charting a somewhat similar path, 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.
Estimates have been broadly trending downward for the stock, and the magnitude of these revisions has been net zero. 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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