) adjusted earnings of 41 cents per share in the second quarter
of 2013 were in line with the Zacks Consensus Estimate. The
earnings rose 7.9% year over year, on the back of year over year
growth in revenue and margin.
Fastenal's net sales of $847.6 million, lagged the Zacks
Consensus Estimate of $857 million by 1.1%. Net sales grew
5.3% year over year, due to an increase in unit sales and
favorable impact of the FAST solution initiative, which offset
the decline in fastener sales.
Fastenal serves customers in the manufacturing and
non-residential construction markets. Sales were slow in both the
Fastenal's daily sales growth rates came in at 4.8%, 5.3% and
6.0% for the months of April, May and June, respectively,
significantly down from the daily growth rates of 17.3%, 13.1%
and 14.0% in the corresponding prior-year months. The sequential
change in daily sales for 6 months from January to June also fell
short of historical averages. Foreign exchange dragged second
quarter daily sales growth rates by 0.1%.
Daily sales to manufacturing customers (representing almost 50%
of revenues) grew 5.9% in the second quarter compared with 15.8%
growth in the prior-year quarter and 7.0% in the preceding
quarter. Daily sales growth rates to manufacturing customers
declined sharply due to lower sales of its fasteners product
line, hurt by end market slowdown and broader economic
The company supplies two types of products to manufacturing
customers, one for industrial production and the other for
maintenance of the manufacturing business.
Sales of products for industrial production dipped significantly,
owing to a continuous decline in daily sales growth rates of
fastener products (used mainly for industrial production) to 1.9%
in the quarter from 8.0% in the prior-year quarter. However,
sales improved sequentially from 1.7% growth recorded in the
Sales of non-fastener products (used mainly for maintenance)
increased 8.5% in the second quarter of 2013, down from 10.8% in
the preceding quarter. The decline was less dramatic than
fasteners due to strength in FAST Solutions, which was partially
offset by a weak industrial environment.
In the non-residential construction market, daily sales to
non-residential construction customers (representing 20% to 25%
of revenues) grew 0.7% in the second quarter of 2013, down from
12.7% in the second quarter of 2012 and 2.9% recorded in the
first quarter of 2013. Management blamed the weakness in the
overall non-residential construction market and the uncertainty
in U.S economic policy for the decline in this business.
Vending Machine Activity 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
overall weak sales, the company is seeing some progress around
its vending program.
In the second quarter, the company installed 4,102 new machines,
down 5.7% sequentially. As of Jun 30, 2013, the company operated
29,549 FAST Solutions vending machines. The vending machines now
account for over 30% of the company's sales. During the quarter,
the company signed 5,272 vending machine contracts, down 8.0%
In second quarter 2013, gross margin improved 60 basis points
from the prior-year quarter to 52.2% attributable to improved
transactional margins. The company believes that its normal gross
margin range is 51% to 53%. However, the company witnessed 10
basis points sequential decline in gross margin due to weakness
in faster products and construction business.
Fastenal had 2,677 stores at the end of second quarter of 2013,
up from 2,660 stores in the sequentially preceding quarter.
During the second quarter of 2013, the company opened 22 new
stores, up 100% sequentially.
Fastenal carries a Zacks Rank #4 (Sell).
With the overall housing market improving steadily, other
companies in the broader housing sector are also performing well.
Builders FirstSource, Inc.
The Home Depot, Inc.
). All the companies carry a Zacks Rank #2 (Buy).
BUILDERS FIRSTS (BLDR): Free Stock Analysis
FASTENAL (FAST): Free Stock Analysis Report
HOME DEPOT (HD): Free Stock Analysis Report
LENNAR CORP -A (LEN): Free Stock Analysis
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