On Jan 17, Zacks Investment Research downgraded
) to a Zacks Rank #5 (Strong Sell) following disappointing
fourth-quarter and fiscal 2013 results.
Why the Downgrade?
Fastenal's adjusted earnings of 33 cents per share in the fourth
quarter of 2013 missed the Zacks Consensus Estimate by a penny.
Earnings were flat year over year, in contrast to the company's
guidance of year-over-year growth, as sales and margin
deteriorated beyond expectations.
Fastenal reported net sales of $813.8 million in the fourth
quarter of 2013, up 7.5% year over year. Net sales also missed
the Zacks Consensus Estimate of $816 million by a marginal 0.3%.
The national distributor of industrial/construction supplies has
been struggling with its top line due to lower sales of its
fasteners product line which is being hurt by end-market slowdown
and broader economic uncertainty.
Management has been slowing down store growth in favor of
increasing headcount to drive near-term sales growth. However,
such initiatives increase employee costs and hurt margins.
In fourth-quarter 2013, gross margin declined 100 basis points
(bps) from the prior-year quarter to 50.6%.Gross margin also
declined 110 bps sequentially. Fourth quarter gross margin missed
the company's long-term gross margin range of 51% to 53%. Gross
margin fell short of company's expectation of margin expansion
due to weakness in fastener products, a competitive marketplace,
reduced supplier incentives and lower utilization of trucking
Fastenal's earnings of $1.51 per share in fiscal 2013 increased
6.3% year over year but missed the Zacks Consensus Estimate of
$1.54 by 1.9%. The company reported net sales of $3.326 billion
in fiscal 2013, up 6.1% year over year. Net sales missed the
Zacks Consensus Estimate of $3.327 billion.
Better-ranked stocks in the industrial goods sector include
The Home Depot, Inc.
Lumber Liquidators Holdings, Inc.
). All the three companies carry a Zacks Rank #2 (Buy)
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