It has been about a month since the last earnings report for Fastenal (FAST). Shares have added about 9.4% in that time frame, outperforming the S&P 500.
Will the recent positive trend continue leading up to its next earnings release, or is Fastenal due for a pullback? Before we dive into how investors and analysts have reacted as 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.
Fastenal (FAST) Q2 Earnings & Sales Beat Estimates
Fastenal Company reported second-quarter 2020 results. The top and bottom lines topped the respective Zacks Consensus Estimate, courtesy of higher demand for PPE products.
Earnings & Sales in Detail
The company reported earnings of 42 cents per share, which beat the consensus mark of 36 cents by 16.7%. The reported figure also increased 16.7% from the year-ago profit level of 36 cents per share.
Net sales during the reported period were $1,509 million, beating the consensus mark of $1,483 million by 1.7% and increasing 10.3% from the year-ago figure of $1,368.4 million. Increased demand for PPE products more than offset the decline in the traditional business.
It reported daily sales growth of 10.3%, higher than 2.8% and 7.9% increase registered in first-quarter 2020 and second-quarter 2019, respectively.
Sales of surge-type PPE were at its peak in April and May, before beginning to taper slightly in June. However, business activity appears to have bottomed in April, before improving in May and June. Notably, the daily sales rate trend for fasteners — the most cyclical product category — remained unaffected by the PPE surge. The company pointed also out that fastener daily sales were down 22.5% in April 2020. In May, the rate of decline moderated to 15.3% and again to 11.4% in June. Activity levels experienced in June were below the first quarter of 2020.
On a monthly basis, daily sales improved 9.5%, 14.8% and 6.7% in June, May and April compared with 7%, 9.5% and 7.4%, respectively, in the comparable months of the prior year.
Daily sales of Fastener products (mainly used for industrial production and accounting for 26% of second-quarter sales) declined 16.4% year over year. Sales of safety products (accounting for 34% of second-quarter sales) grew 116.3% on a daily basis. Sales of the remaining products (accounting for 40% of second-quarter sales) declined 7.5% on a daily basis.
In addition, the company’s manufacturing and non-residential construction end markets were down 9.4% and 10.3% on a daily basis, respectively. Nonetheless, the government business was up 266.7% year over year on a daily basis. Moreover, sales to healthcare organizations more than quadrupled during the quarter.
Vending Trends and Other Growth Drivers
As of Jun 30, 2020, Fastenal operated 92,615 vending machines, up 7.9% year over year. During the first six months of 2020, the company signed 8,281 machine contracts, down from 11,042 reported in the year-ago period.
Fastenal signed 125 new Onsite locations during the first six months of 2020. The metric was 199 in the first six months of 2019. As of Jun 30, 2020, the company had 1,212 active sites, up 18.1% from the comparable year-ago period. Daily sales to national account customers (representing 55.1% of total revenues) increased 12% on a year-over-year basis.
Gross margin of 44.5% in the quarter contracted 240 basis points (bps) from the prior-year period due to the impact of product mix, as lower-margin safety sales increased sharply as a proportion of its total sales in comparison with higher-margin fastener sales.
Nonetheless, operating margin expanded 80 bps year over year to 20.9%.
Second-quarter 2020 operating and administrative expenses (including gains from sales of property and equipment) — as a percentage of net sales — improved 320 bps year over year to 23.6%, owing to the company’s ability to leverage employee, occupancy, as well as general corporate expenses.
Cash and cash equivalents were $201.5 million as of Jun 30, 2020, up from $174.9 million on Dec 31, 2019. Long-term debt at quarter-end was $405 million, up from $342 million at 2019-end.
In the second quarter, cash provided by operating activities totaled $491.8 million, up from $333 million in the year-ago period.
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed an upward trend in estimates revision.
Currently, Fastenal has a great Growth Score of A, though it is lagging a bit on the Momentum Score front with a B. Charting a somewhat similar path, the stock was allocated a grade of C on the value side, putting it in the middle 20% for this investment strategy.
Overall, the stock has an aggregate VGM Score of A. If you aren't focused on one strategy, this score is the one you should be interested in.
Estimates have been broadly trending upward for the stock, and the magnitude of these revisions looks promising. Notably, Fastenal has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.
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