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Fastenal Turns Around; Beats Earnings, Revs - Analyst Blog

Posted: 4/11/2014 12:53:00 PM
Referenced Stocks: FAST;SSD;STCK;TVPKF

Fastenal Company 's ( FAST ) 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.

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%.

Quarter Details

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.

Vending Trends

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.

Store Count

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 2013.

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. ( STCK ), Travis Perkins plc ( TVPKF ) and Simpson Manufacturing Co., Inc. ( SSD ). While Stock Building Supply Holdings and Travis Perkins sport a Zacks Rank #1 (Strong Buy), Simpson Manufacturing carries a Zacks Rank #2 (Buy).

FASTENAL (FAST): Free Stock Analysis Report

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