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Will Fastenal (FAST) be Able to Report Higher Q2 Earnings?

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Fastenal Company FAST is scheduled to report second-quarter 2021 results on Jul 13, before the opening bell.

In the last reported quarter, the company’s earnings were in line with the Zacks Consensus Estimate but revenues marginally missed the same. On a year-over-year basis, earnings and revenues both grew 3.7%.

Fastenal’s earnings topped the consensus mark in three of the last four quarters and met on one occasion, with the average surprise being 5.6%.

Trend in Estimate Revision

For the quarter to be reported, the Zacks Consensus Estimate for earnings per share has been unchanged at 41 cents over the past 60 days. The estimated figure indicates a 2.4% decline from the year-ago level. The consensus mark for revenues is pegged at $1.5 billion, suggesting a 0.6% decrease from the year-ago reported figure of $1.51 billion.

Fastenal Company Price and EPS Surprise

Fastenal Company Price and EPS Surprise
Fastenal Company Price and EPS Surprise

Fastenal Company price-eps-surprise | Fastenal Company Quote

Key Factors to Note

Sales: This national wholesale distributor of industrial and construction supplies is likely to have witnessed difficult year-over-year comps in the second quarter, given last year’s surge in safety demand. For second-quarter 2021, the company expects sales growth to be flat to slightly down from a year ago.

If we go by the monthly sales report, May daily sales were down 3.2% (declining 4.7% on an organic, constant currency basis), which reflected tougher comps than April’s daily sales growth of 1.2% (up 0.1% organic, constant currency). In the year-ago period, average daily sales were up 14.9% year over year.

In terms of end markets/products/customers in May, manufacturing was up 18.9% (versus 30.8% year-over-year increase in April) while non-residential grew 4.4% (versus 11.9% growth in April). Daily sales moderated for both manufacturing and construction on a two-year average basis. Fastener sales were up 28.2% (versus 33.3% increase in April) and Other product sales rose 12.5% (versus 16% growth in April). Safety sales decreased 44.1% for May versus 40.9% decline in April. By customer channel, national accounts were down 4% year over year, while non-national accounts declined 2%.

The Zacks Consensus Estimate for the company’s overall daily sales is pegged at $23.62 million, which indicates a sequential increase of 5% and year-over-year rise of 0.1%.

Margins: Fastenal’s changes in product and customer mix have been hurting gross margin for quite some time now. Negative customer/product mix — as a result of increased growth of lower-margin national accounts and safety products — along with lower proportion of higher-margin fasteners are expected to have affected its second-quarter gross margin.

Moreover, inflationary pressures have been a cause of concern. Although Fastener has seen a nominal impact from the same on first-quarter performance, the company highlighted the fact that it has been experiencing significant material cost inflation, particularly for steel, fuel and transportation. The company has been experiencing adverse effects from tightening global and domestic supply chains.

For fasteners, lower margin OEMs has been growing faster than other categories, which is likely to have put pressure on second-quarter margins. In safety, PPE sales to government carry lower margins, which may have been a concern. That said, potential improvement in the non-government mix for the second quarter relative to the first quarter should have benefited the overall product margin. Rising non-safety mix is also expected to have aided the company’s gross margins.

Meanwhile, Fastenal has been successfully raising prices to offset inflationary pressures. The company has been undertaking additional steps to counter cost pressure and incremental tariffs, which are expected to reflect on the bottom line.

What the Zacks Model Unveils

Our proven model does not conclusively predict an earnings beat for Fastenal this time around. That is because a stock needs to have both a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) for this to happen. Unfortunately, that is not the case here, as you will see below.

Earnings ESP: The company has an Earnings ESP of -0.30%. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Zacks Rank: Currently, Fastenal carries a Zacks Rank #2.

You can see the complete list of today’s Zacks #1 Rank stocks here.

Stocks With Favorable Combination

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.

RH RH has an Earnings ESP of +2.20% and a Zacks Rank #3.

Tempur Sealy International, Inc. TPX has an Earnings ESP of +14.29% and holds a Zacks Rank #1.

Costco Wholesale Corporation COST has an Earnings ESP of +3.11% and a Zacks Rank #2.

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Fastenal Company (FAST) : Free Stock Analysis Report

Costco Wholesale Corporation (COST) : Free Stock Analysis Report

Tempur Sealy International, Inc. (TPX) : Free Stock Analysis Report

RH (RH) : Free Stock Analysis Report

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