More than a month has gone by since the last earnings report for Fastenal Company FAST. Shares have added about 6.9% in that time frame, outperforming the market.
Will the recent positive trend continue leading up to the stock's next earnings release, or is it due for a pullback? Before we dive into how investors and analysts have reacted of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important catalysts.
Third Quarter 2017 Results
Fastenal’s earnings of 50 cents per share in the third quarter of 2017 were in line with the Zacks Consensus Estimate. Earnings also grew 13.4% year over year.
Net sales of $1.13 billion were also in line with the Zacks Consensus Estimate. Sales grew 11.8% year over year driven by higher units owing to improvement in underlying market demand and growth in industrial vending business and existing Onsite locations.
Fastenal’s daily sales grew 13.6% in the quarter, better than the 10.6% increase in the second quarter of 2017.
On a monthly basis, daily sales increased 15.3% in September, 12.8% in August and 12.9% in July, compared with 2.8%, 0.3% and 2.1%, respectively, a year ago.
Sales of fastener products (used mainly for industrial production and accounting for approximately 35.6% of the company’s third-quarter sales) increased 12.1% in the quarter, 3.8% of which came from the acquisition of the Manufacturers Supply Company (Mansco) business. Non-fastener product sales (used mainly for maintenance and represented 64.4% of the quarterly sales) increased 14.6%.
Vending Trends and Other Growth Drivers
As of Sep 30, 2017, Fastenal operated 69,058 vending machines, up 14.3% year over year. During the quarter, the company signed 4,771 machine contracts, in line with the year-ago figure.
After a soft 2013, vending trends improved through 2014, 2015 and 2016 as management’s efforts to enhance the quality of signings/installs paid off.
Fastenal signed 81 new Onsite locations during the quarter, up 97.6% from 41 a year ago. As of Sep 30, 2017, the company had 555 active sites, representing an increase of 47.6%.
Additionally, Fastenal signed 42 new national account contracts in the third quarter (representing 48.7% of total revenues in the quarter). Net sales from its national account customers grew 17.3% in the quarter on a year-over-year basis.
Gross margin of 49.1% in the third quarter of 2017 declined 20 basis points (bps) year over year owing to changes in product and customer mix, the addition of Mansco (which has a lower gross profit product mix than the company), disruption owing to the recent hurricanes and commodity inflation.
Operating margin improved 20 bps year over year to 20.2% in the quarter, mainly driven by lower operating and administrative expenses.
Cash and cash equivalents were $133.4 million as of Sep 30, 2017, up from $112.7 million as of Dec 31, 2016. Long-term debt was $432 million, up from $379.5 million at the end of 2016.
How Have Estimates Been Moving Since Then?
Analysts were quiet during the last month as none of them issued any earnings estimate revisions.
Fastenal Company Price and Consensus
Fastenal Company Price and Consensus | Fastenal Company Quote
At this time, Fastenal's stock has a nice Growth Score of B, though it is lagging a bit on the momentum front with a C.The stock was allocated a grade of D on the value side, putting it in the bottom 40% for this investment strategy.
Overall, the stock has an aggregate VGM Score of C. If you aren't focused on one strategy, this score is the one you should be interested in.
The company's stock is suitable for growth investors and to a lesser degree momentum.
The stock has a Zacks Rank #3 (Hold). We expect in-line returns from the stock in the next few months.
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