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Fastenal (FAST) November Sales Beat Normal Seasonal Patterns

Zacks Equity Research

Fastenal Company FAST came out with November 2019 sales report, wherein average daily sales grew 5.7% to $20.7 million compared with 4.3% and 5.8% growth registered in October and September, respectively. In November 2018, daily sales grew 12.3%. Notably, daily sales on a seasonal basis were down 3.1% versus the company’s benchmark (historical five-year average) of 4%. Hence, after missing normal seasonal patterns in October by 250 basis points (bps), Fastenal beat the seasonality by 90 bps in November.

On an organic constant-currency basis, average daily sales were up 5.8% from 4.4% in October. Foreign exchange impacted November sales by 10 bps. Meanwhile, net sales grew just 0.7% year over year to $413.1 million. The figure was down from 4.3% net sales growth in October.

This modest growth rate in daily sales is reflective of soft macroeconomic conditions and weak industrial demand as customers are delaying capex, reducing inventory, as well as cutting production.

During the third-quarter earnings call, Fastenal acknowledged the fact that overall activity in end-markets served slowed down in the quarter. This offset the continued double-digit growth of vending and onsite locations, as well as sales to National Account customers. To offset tariffs placed on products sourced from China, Fastenal has successfully raised prices.

The company has been undertaking additional steps to counter cost pressure and incremental tariffs that were levied on China-sourced products. Continued tepid growth is reflected in the current Zacks Consensus Estimate for fourth-quarter earnings of 32 cents (indicating 6.7% year-over-year growth).

From End-Market Perspective, Product Lines & Customers

From end-market perspective, manufacturing sales grew 7.5% during the month, lower than 12.2% growth in the corresponding year-ago period. Again, non-residential construction grew 5%, lower than 13.9% growth reported in November 2018.

Fastenal derives sales from fastener and other product lines. Fasteners growth slowed to 2.4% from 3.4% in October and 10.4% in November 2018. Non-fasteners grew 7.6%. It improved from 5.3% in October but declined from 14% in the year-ago period.

In terms of customer/channel, National account growth was an impressive 10%, given the fact that 62% of the top 100 accounts are expanding. Meanwhile, non-national accounts were down 1% year over year in the month.

Negative customer/product mix, as a result of increased growth of lower-margin national accounts and lower proportion of higher margin fasteners, has been impacting Fastenal’s gross margin since the past three years. However, contributions from industrial vending and Onsite locations are encouraging.

 

 

Fastenal — a Zacks Rank #2 (Buy) stock — remains optimistic about its performance in the forthcoming quarters, given improved pricing expectation. Since the beginning of 2019, shares of Fastenal have gained 34.9%, underperforming its industry’s 23.9% growth.

Other Key Picks

Other top-ranked stocks in the Zacks Retail-Wholesale sector include BMC Stock Holdings, Inc. BMCH, Builders FirstSource, Inc. BLDR and America's Car-Mart, Inc. CRMT. While BMC sports a Zacks Rank #1 (Strong Buy), the other two stocks carry a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank stocks here.

BMC and Builders FirstSource’s earnings surpassed estimates in all the trailing four quarters, with the average being 29.3% and 28.2%, respectively.

America's Car-Mart has an expected earnings growth rate of 25.4% for the current year.

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