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Fastenal (FAST) Up 4.6% 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). Shares have added about 4.6% 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 the most recent earnings report in order to get a better handle on the important drivers.

Fastenal (FAST) Q2 Earnings & Sales Top, Margins Up

Fastenal Company reported second-quarter 2021 results. Although the top and bottom lines topped the respective Zacks Consensus Estimate, net sales declined and earnings remained on par with the year-ago figure.

Demand from its traditional manufacturing and construction customers were more than offset by lower sales in personal protective equipment or PPE and sanitation products category. Also, product pricing impacted net sales by 80-110 bps during the quarter. It continues to experience pressure related to product and transportation cost inflation.

Earnings & Sales in Detail

The company reported earnings of 42 cents per share, which topped the consensus mark of 41 cents by 2.4% but remained in line with the year-ago period.

Net sales totaled $1.507 billion, beating the consensus mark of $1.5 billion by 0.5% but decreasing 0.1% from the year-ago figure of $1.509 billion. The fall was owing to the absence of "surge"-type volumes due to the COVID-19 pandemic.

The company reported daily sales of $23.6 million, reflecting a decline of 0.1% year over year. On a monthly basis, daily sales improved 1.7% and 1.2% for June and April, while May sales fell 3.2% year over year.

Daily sales of Fastener products (mainly used for industrial production and accounting for approximately 33.6% of second-quarter sales) rose 28.4% year over year backed by higher manufacturing and construction demand. Sales of safety products (accounting for 21% of second-quarter sales) declined 38.6% on a daily basis. The downside was mainly due to the absence of surge-related PPE sales, partly offset by improvement in manufacturing and construction demand. Sales of the remaining products (accounting for 45.4% of second-quarter sales) grew 12.9% year over year, given higher manufacturing and construction demand, partly offset by the absence of surge-related sanitation sales.

Vending Trends & Other Growth Drivers

Fastenal signed 155 new Onsite locations during the first six months of 2021. As of Jun 30, 2021, the company had 1,323 active sites, up 9.2% from the comparable year-ago period. Daily sales through Onsite locations (excluding sales transferred from branches to new Onsites) increased more than 25% for the second quarter of 2021 from a year ago.

This resumption of growth reflects improved demand from Onsite customers against relatively easy comparisons. It expects Onsite signings between 375 and 400 for 2021.

Daily sales through weighted FMI devices grew 61.4% for second-quarter 2021 and represented 31.1% of net sales.

Daily sales to national account customers (representing 55.6% of total revenues) increased 1.4% on a year-over-year basis for second-quarter 2021. Daily sales to non-national account customers (which include government customers and represent 44.4% of total revenues) fell 2.4% for the quarter.

Margins

Gross margin of 46.5% for the quarter improved 200 bps from the prior-year period. The improvement was driven by favorable product and customer mix, overhead/organizational leverage, improved product margins as well as lower rebates. These positives were partly offset by higher shipping costs, and increased use of external service providers to manage tight product and transportation supply chains.

Also, operating margin expanded 20 bps year over year to 21.1% for the quarter, owing to higher gross margin.

Financials

Cash and cash equivalents were $321.8 million as of Jun 30, 2021, up from $245.7 million on Dec 31, 2020. Long-term debt at quarter-end was $365 million, in line with 2020-end.

In the first six months of 2021, cash provided by operating activities totaled $446.3 million compared with $491.8 million in the comparable year-ago period.

How Have Estimates Been Moving Since Then?

It turns out, fresh estimates flatlined during the past month.

VGM Scores

At this time, Fastenal has a nice Growth Score of B, though it is lagging a bit on the Momentum Score front with a C. 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.

Outlook

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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