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Fastenal (FAST) Q4 Earnings In Line, Sales Beat, Stock Dips

Zacks Equity Research

Fastenal Company FAST reported fourth-quarter 2018 results, wherein earnings met the Zacks Consensus Estimate, while sales beat. Higher market demand, coupled with growth in industrial vending business and existing Onsite locations are encouraging.

However, gross margin suffered due to inflationary pressures. Shares of the company slipped 1.9% in the pre-market trading session, following the earnings release.

Earnings & Sales Detail

Fastenal reported adjusted earnings (adjusting for discrete tax items) of 60 cents per share in the quarter, in line with analysts’ expectation. That said, earnings surged 34.9% from 45 cents reported a year ago.
 
Net sales of $1.23 billion surpassed the consensus mark of $1.22 billion. Sales also grew 13.2% year over year on the back of higher underlying market demand, along with growth in industrial vending business and existing Onsite locations.
 
The company’s daily sales grew 13.2% in the quarter, lower than 14.8% increase recorded in the prior-year quarter.

On a monthly basis, daily sales improved 14.5% in December, 12.3% in November and 12.4% in October compared with 13.8%, 15.4% and 14.7%, respectively, in the prior-year months.

Daily sales of Fastener products (mainly used for industrial production and accounting for approximately 34.4% of third-quarter sales) rose 11.3% year over year in the quarter.
 
Non-fastener products’ daily sales (mainly used for maintenance and representing 65.6% of the quarterly sales) increased 14.6% year over year.

Fastenal Company Price, Consensus and EPS Surprise

 

Fastenal Company Price, Consensus and EPS Surprise | Fastenal Company Quote

 

Vending Trends and Other Growth Drivers

As of Dec 31, 2018, Fastenal operated 81,137 vending machines, up 13.6% year over year. During the quarter, the company signed 4,980 machine contracts, up 16.7% year over year.
 
Fastenal signed 67 new Onsite locations during the quarter, up 17.5% from 57 signings in the prior-year quarter. As of Dec 31, 2018, the company had 894 active sites, up 47.8% from a year ago. The company signed 32 new national account contracts in the fourth quarter (representing 52.4% of the total revenues in the quarter). Daily sales to national account customers increased 18.1% on a year-over-year basis during the quarter.

Higher Costs Hurting Gross Margin

Gross margin of 47.7% in the fourth quarter of 2018 contracted 110 basis points (bps) year over year due to changes in product and customer mix, inflation, as well as higher product and freight expenses.
 
However, operating margin expanded 30 bps year over year to 19% in the quarter, owing to an improvement in operating and administrative expenses.

2018 Highlights

Earnings came in at $2.62 per share in 2018, reflecting 30.5% growth from the 2017 level. Net sales were $4.96 billion, up 13.1% from 2017. Daily sales grew 13.1% from a year ago.

Financials

Cash and cash equivalents were $167.2 million as of Dec 31, 2018, up from $116.9 million on Dec 31, 2017. Long-term debt was $497 million, up from $412 million at the end of 2017.

Zacks Rank & Other Stocks to Consider

Fastenal currently has a Zacks Rank #2 (Buy). Other top-ranked stocks in the Zacks Retail-Wholesale sector include Lumber Liquidators Holdings, Inc. LL, AutoZone, Inc. AZO and O'Reilly Automotive, Inc. ORLY, each carrying a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
 
Lumber Liquidators has a three-five year expected EPS growth rate of 27.5%.

AutoZone is expected to witness an earnings growth rate of 17.7% this year.

O'Reilly Automotive is expected to record earnings growth of 11.2% in 2019.

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