) reported diluted earnings of 33 cents per share in the fourth
quarter of 2012, up 10.0% on the back of decent margin growth.
The company's earnings were in line with the Zacks Consensus
Fastenal reported net sales of $757.2 million, up 8.5% year
over year. Revenues were also in line with the Zacks Consensus
Estimate. Both earnings and revenues declined
We believe that the fourth quarter was the weakest for the
company in terms of sales growth. Fastenal serves customers in
the manufacturing and non-residential construction markets. It
performed poorly in both the markets.
Fastenal's daily sales growth rates in the second, third and
fourth quarters of 2012 have been lower than that of the first
quarter as well as year-ago comparable periods.
Daily sales growth rates declined sharply in the fourth
quarter due to end market slowdown, the negative impact from
Hurricane Sandy and foreign currency headwinds. Daily sales
growth rates stood at 6.8%, 8.2% and 9.7% for the months of
October, November and December, respectively, significantly down
from the daily growth rates of 21.4%, 22.2% and 21.2% in the
corresponding prior-year months.
The sequential change in daily sales for 10 months from
January to October also fell short of historical averages.
Foreign exchange negatively impacted the fourth quarter daily
sales growth rates by 0.1%.
Daily sales to manufacturing customers (representing almost
50% of revenues) grew 9.7% in the fourth quarter, much below the
growth of 21.0% in the prior-year quarter and 14.0% in the
preceding quarter. Daily sales growth rates to manufacturing
customers have declined sharply due to lower sales of its
fasteners product line, which are being hurt by end market
slowdown and broader economic uncertainty.
In the non-residential construction market, daily sales to the
non-residential construction customers (representing 20% to 25%
of revenues) grew 4.2% in fourth quarter of 2012, down from 17.4%
recorded in the fourth quarter of 2011 and 8.2% in the third
quarter of 2012. Management blamed the weakness in the overall
non-residential construction market and the political instability
in U.S for the decline in this business.
Vending Machine Activity is Gaining Traction
The company has adopted FAST Solutions, an industrial vending
process that has the potential to revolutionize the industrial
distribution system and increase profitability. The company
installs vending machines that aid in controlling inventory and
administrative costs while reducing product consumption. Despite
all overall weak sales, the company is seeing some progress
around its vending program.
In the fourth quarter, the company installed 4,082 machines
with the cumulative machines installed standing at 21,095 at the
end of the year. The vending machines now account for over 25% of
the company's sales. During the quarter, the company signed 5,591
vending machine contracts, up 4.8% sequentially. The daily sales
growth to customers using vending machines was 28.6% in the
fourth quarter, down from 40.7% in the prior-year quarter and
32.9% in the prior quarter.
In 2013, the company aims to sign 2,500 machines per month or
30,000 per year, much more than its earlier expectation of
signing 2,500 machines per quarter or 10,000 per year.
In fourth quarter of 2012, gross margin improved 40 basis
points from the prior-year quarter to 51.6% due to lower freight
utilization, which in turn was due to low business volume. The
company believes that its normal gross margin range is 51% to
In fiscal 2012, the company witnessed a 13.3% increase in
revenue to $3.13 billion, in line with the Zacks Consensus
Estimate. Adjusted earnings were $1.42 per share, which were also
in line with the Zacks Consensus Estimate. Earnings increased
17.4% from prior year.
Fastenal carries a Zacks Rank #3 (Hold). However, we cannot
rule out a rating downgrade with yet another weak quarter being
With the overall housing market improving steadily, there are
many housing companies that are currently performing well, have a
bright outlook and are worth considering. These include
Hovnanian Enterprises, Inc
) - Zacks Rank #2 (Buy),
Meritage Homes Corporation
) - Zacks Rank #1 (Strong Buy), and
) - Zacks Rank #2.
FASTENAL (FAST): Free Stock Analysis Report
HOVNANIAN ENTRP (HOV): Free Stock Analysis
MERITAGE HOMES (MTH): Free Stock Analysis
PULTE GROUP ONC (PHM): Free Stock Analysis
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