) adjusted earnings of 38 cents per share in the first quarter of
2014 surpassed the Zacks Consensus Estimate and the year-ago
earnings of 37 cents by a penny. The earnings beat was due to
solid sales witnessed in the month of March.
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Fastenal reported net sales of $876.5 million in the first
quarter of 2014, up 8.7% year over year. Net sales exceeded the
Zacks Consensus Estimate of $870 million by a marginal 0.8%.
Fastenal's total average daily sales growth rate in the first
quarter of 2014 was 8.7%, up from 4.9% in prior year quarter,
owing to increase in sales volume. However, foreign exchange
dragged down first-quarter daily sales growth rates by 0.6%.
Daily sales growth was 6.7% in January, 7.7% in February and
11.6% in March compared with a respective 6.7%, 8.2% and 5.1% in
the corresponding prior-year months.
Though the company witnessed softer sales in January and February
due to harsh weather conditions, sales improved in March. The
double digit growth in daily sales for March was driven by
increased investments in stores to drive sales and favorable
timing of Easter. This is the first double digit increase in
monthly daily sales since September 2012.
Fastenal was struggling with its top line for the past few
quarters as end-market slowdown and broader economic uncertainty
was lowering its fastener sales. In order to accelerate sales
growth, Fastenal took the strategic decision to increase sales
personnel at the stores. The added selling energy in stores
largely boosted sales in March.
Daily sales to manufacturing customers (representing almost 50%
of revenues) grew 9.0% in the first quarter, higher than 7.0%
growth in the prior-year quarter.
Sales of products for industrial production dipped, owing to a
decline in daily sales growth rates of fastener products (used
mainly for industrial production), to 1.6% in the quarter from
1.7% in the prior-year quarter.
Sales of non-fastener products (used mainly for maintenance)
increased 14.2% in the first quarter of 2014, up from 10.8% in
the prior-year quarter and 12.0% in the prior quarter.
In the non-residential construction market, daily sales to
non-residential construction customers (representing 20% to 25%
of revenues) grew 2.9% in the first quarter of 2014, flat year
over year but up from 2.8% in the previous quarter.
As of Mar 30, 2013, the company operated 35,310 vending machines.
During the quarter, the company signed 3,602 vending machine
contracts, down approximately 6.4% sequentially. Daily sales
growth to customers using vending machines was 19.7% in the first
quarter, up from 18.7% in the prior-year quarter.
Management has been slowing down store growth in favor of
increasing headcount to drive near-term sales. Such initiatives
increase employee costs and hurt margins.
In the first quarter, gross margin declined 110 basis points
(bps) year over year but improved 60 bps sequentially to 51.2%.
Gross margin was within the company's long-term guidance range of
51% to 53%.
The company recorded operating and administrative expense of
$269.8 million in the first quarter, up 9.1% year over year. In
order to accelerate sales growth, Fastenal took the strategic
decision to increase sales personnel at its stores. Increased
store headcount and field leadership increased operating costs,
thus pulling down margins.
Fastenal had 2,683 stores at the end of first quarter 2014,
compared with 2,687 stores at the end of the fourth quarter of
Fastenal carries a Zacks Rank #4 (Sell).
Key Picks from the Sector
Some better ranked stocks in the building products/ building
construction sector include
Stock Building Supply Holdings, Inc.
Travis Perkins plc
Simpson Manufacturing Co., Inc.
). While Stock Building Supply Holdings and Travis Perkins sport
a Zacks Rank #1 (Strong Buy), Simpson Manufacturing carries a
Zacks Rank #2 (Buy).