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Fastenal Reports Solid February Sales Despite Weather Woes

Zacks Equity Research

Fastenal Company FAST came out with February sales report, wherein net sales grew 10.5% year over year to $411.9 million. However, the figure was down from 13.3% net sales growth in January.

Meanwhile, daily sales grew 10.5% to $20.6 million, down from 13.3% growth registered in January. Winter storms negatively impacted February sales by an estimated 130-160 basis points (bps). Foreign exchange also impacted the same by 50 bps.

That said, the sales pace is in line with the company’s expectation of double-digit growth in 2019, owing to a combination of company-specific growth drivers (i.e. Onsite, vending) and price realization.

From end-market perspective, manufacturing sales grew 11.6% during the month, comparing unfavorably with the 15.9% growth in the year-ago period. Again, non-residential construction grew 11%, better than the 10.5% growth reported in February 2018.

Fastenal derives sales from the fastener product line and the other product line. Fasteners growth slowed to 8.7% from 13.3% in January and 13.1% in February 2018. Non-fasteners continued with its double-digit growth rate of 11.9%. However, it slowed down from 13.6% in January and 16.3% in February 2018.

National account growth was an impressive 16% compared with 19% a year ago, given the fact that 78% of the top 100 accounts are expanding. However, non-national accounts grew just 3%, down from 7% in January and 9% a year ago.

We believe that the slowdown in non-national account customer growth may reflect slowing industrial demand. Although growth of national accounts is encouraging, it reflects continued gross margin pressure. Also, a dip in fastener sales relative to other sales added to the woes.

Negative customer/product mix as a result of enhanced growth of lower-margin national accounts and lower proportion of higher margin fasteners has been serving as dampeners for Fastenal’s gross margin since the past three years. Its customer mix shifted toward the large-account end-market, which produces low-margin gross profit but stronger operating income. The product mix shifted from high-margin fastener products to lower margin non-fastener products. Fastenal ended 2018 with a gross margin of 48.3%, down 100 bps from the 2017 level, mainly due to product and customer mix, as well as freight inflation.

Nonetheless, Fastenal, a Zacks Rank #2 (Buy) stock, remains optimistic about its performance in the forthcoming quarters, given improved pricing expectation. Over the past three months, shares of Fastenal have gained 13.6%, outperforming its industry’s 9.7% growth.


Other Top-Ranked Stocks

Other top-ranked stocks in the Zacks Retail-Wholesale sector include Beacon Roofing Supply, Inc. BECN, AutoZone, Inc. AZO and Tech Data Corporation TECD, each carrying a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Beacon Roofing has a three-five year expected EPS growth rate of 21%.

AutoZone is expected to witness an earnings growth rate of 21.4% this year.

Tech Data has a three-five year expected EPS growth rate of 8.7%.

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