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Fastenal's Feb Sales Better than Jan

Zacks Equity Research

Fastenal Company (FAST) has been struggling with its top line for the past few quarters as end-market slowdown and broader economic uncertainty are lowering its fastener sales. Moreover, the construction as well as vending businesses have been soft for the past three quarters.

However, the national wholesale distributor of industrial and construction supplies has something to smile about. The company’s February sales results were better than January despite difficult weather conditions. Net sales rose 7.7% year over year in the month to $274.5 million, better than a 6.7% growth in January. Currency, however, was a 0.6% headwind.

February daily sales grew 7.7% to $13.7 million, better than January but weaker than February last year.

Fastenal serves customers in the manufacturing and non-residential construction markets.

Daily sales to manufacturing customers (representing almost 50% of revenues) grew 8.8%, slightly better than 8.2% last year and 6.6% in Jan 2014.

Daily sales to non-residential construction customers (representing 20% to 25% of revenues) grew 0.7%, slowing down from 4.3% in February last year. However, it was better than a 0.3% growth in January.

Fastenal is trying to improve its top line. Stores are being encouraged to focus on improving near-term sales. In order to accelerate sales growth, Fastenal took the strategic decision to increase sales personnel at the stores. The added selling energy in stores is aimed to position the company well for future growth.

However, such initiatives increase employee costs and hurt margins. An unfavorable product mix (due to weakness in higher-margin fastener products) and pricing and competitive pressures are also hurting gross margins. The accelerated hiring pace is anticipated to continue in 2014 which could further pressure margins.

Fastenal carries a Zacks Rank #3 (Hold). Better-ranked stocks in the building products/ building construction sector include Stock Building Supply Holdings, Inc. (STCK), USG Corporation (USG) and CaesarStone Sdot-Yam Ltd. (CSTE). While Stock Building and CaesarStone enjoy a Zacks Rank #1 (Strong Buy), USG Corporation holds a Zacks Rank #2 (Buy).

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