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Fastenal (FAST) Gears Up for Q4 Earnings: What's in Store?

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Zacks Equity Research
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Fastenal Company FAST is scheduled to report fourth-quarter 2020 results on Jan 20, before the opening bell.

In the last reported quarter, the company’s earnings beat the Zacks Consensus Estimate by 2.7% but sales missed the same by 0.3%. On a year-over-year basis, earnings and revenues grew 2.7% and 2.5%, respectively.

Fastenal’s earnings topped the consensus mark in three of the last four quarters, with the average surprise being 4.8%.

Trend in Estimate Revision

For the quarter to be reported, the Zacks Consensus Estimate for earnings per share has increased to 33 cents from 32 cents over the past 60 days. The estimated figure indicates 6.5% growth from the year-ago level. Nonetheless, the consensus mark for revenues is pegged at $1.33 billion, suggesting a 4.3% increase from the year-ago reported figure of $1.28 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

Soft End-Market Demand: This national wholesale distributor of industrial and construction supplies is likely to have witnessed modest end-market demand in the holiday-impacted fourth quarter. Although the company experienced an improved sales environment, a slowdown in various end-markets served owing to slower global growth rate and trade war/geopolitical uncertainties is a concern. Underlying industrial demand is still quite below pre-COVID levels.

If we go by the monthly sales report, average daily sales or ADS grew 6.8% to $22.1 million in November 2020 compared with 4.1% growth registered in October 2020 and 5.7% in the year-ago period. November 2020 growth was based on strength in safety (35.9% improvement) despite a 1.7% dip in fastener sales.

In terms of region, for the month of November, U.S. sales grew 5.4%, Canada/Mexico sales grew 9.7% and “rest of world” sales grew 28.7% year over year. By end market, manufacturing sales increased 1.4%, while non-residential construction sales decreased 10.2%, as stated by the company. Safety sales continued to drive the company’s top line, which increased 35.9% from the prior-year period. However, fasteners declined 1.7% and “other” improved 1.7% from a year ago.

Hence, from an end-market perspective, sales of manufacturing and safety products are expected to have offset the above-mentioned negatives to some extent, as is evident from the monthly sales report.

From product lines perspective, the monthly sales data reflects that fasteners sales trend has improved. After plunging 22.5% in April, the figure was down 15.3%, 11.4%, 7.5%, 7.3%, 6.1%, 4.7% and 1.7% in May, June, July, August, September, October, and November, respectively.

The Zacks Consensus Estimate for the company’s overall daily sales is pegged at $20.9 million, which indicates a sequential decrease of 5.6% but year-over-year growth of 2.8%.

Margins Under Pressure: 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 fourth-quarter gross margin.

To offset the tariffs placed on products sourced from China to date, Fastenal has been successfully raising prices. However, those increases were not sufficient to counter general inflation in the marketplace. Although the company has been undertaking additional steps to counter cost pressure and incremental tariffs, the above-mentioned headwinds are likely to have put pressure on the bottom line.

What the Zacks Model Unveils

Our proven model predicts an earnings beat for Fastenal in the quarter to be reported. The combination of a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) increases the changes of an earnings beat.

Earnings ESP: The company has an Earnings ESP of +4.62%. 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.

Other Stocks With Favorable Combination

Here are some other 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.

Advance Auto Parts, Inc. AAP has an Earnings ESP of +3.82% and a Zacks Rank #3.

American Eagle Outfitters, Inc. AEO has an Earnings ESP of +8.27% and holds a Zacks Rank #3.

AutoZone, Inc. AZO has an Earnings ESP of +4.50% and a Zacks Rank #3.

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Fastenal Company (FAST) : Free Stock Analysis Report
 
Advance Auto Parts, Inc. (AAP) : Free Stock Analysis Report
 
AutoZone, Inc. (AZO) : Free Stock Analysis Report
 
American Eagle Outfitters, Inc. (AEO) : Free Stock Analysis Report
 
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