On Nov 13, we maintained a Neutral recommendation on
) following dismal third-quarter 2013 results as we have faith in
the company's growth initiatives.
Why the Neutral Recommendation?
This industrial and construction supplies company announced
third-quarter 2013 results on Oct 10. Adjusted earnings of 40
cents per share missed the Zacks Consensus Estimate by a penny
due to soft revenues and margins. Revenues grew 7.0% year over
year, but missed the Zacks Consensus Estimate owing to soft
fastener sales and weakness in construction.
Fastenal has been struggling with its top line over several
quarters. Fastenal's daily sales growth rates have been weak
since the last 5-6 quarters mainly due to a weakness in its
fastener product line caused by end-market slowdown and broader
economic uncertainty. From more than 15% growth in the first
quarter of 2012, the fastener product line, which accounts for
around 45% of the company sales, dropped to 1.0% growth in the
third quarter of 2013.
Industrial vending has also been soft for the past two
quarters as management intentionally slowed down vending to focus
more on the quality of signings/installs. Moreover, management is
encouraging stores to focus more on immediate sales growth.
Estimates have mostly shown a downward trend after the weak
third-quarter results. The Zacks Consensus Estimate for 2013 has
gone down 1.3%, while that for 2014 has gone down 2.2% over the
last 60 days.
In order to improve sales, management is slowing down store
growth in favor of increasing store headcount to drive near-term
sales. However, such initiatives affect margins. We would also
like to see substantial sales recovery before becoming more
positive on the stock.
Nonetheless, we believe that optimization of the vending
machine program, easier comparisons and improved efficiencies
from the recently launched vending-specific distribution center,
T-HUB, should drive sales and productivity, going forward.
Other Stocks to Consider
Fastenal carries a Zacks Rank #4 (Sell). However, other
companies in the building products sector that are doing well
Liquidators Holdings, Inc.
Builders FirstSource, Inc.
Vulcan Materials Company
). While Builders carries a Zacks Rank #1 (Strong Buy), Vulcan
and Lumber carry a Zacks Rank #2 (Buy).
BUILDERS FIRSTS (BLDR): Free Stock Analysis
FASTENAL (FAST): Free Stock Analysis Report
LUMBER LIQUIDAT (LL): Free Stock Analysis
VULCAN MATLS CO (VMC): Free Stock Analysis
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