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Why Is Fastenal (FAST) Down 1.8% Since the Last Earnings Report?

It has been about a month since the last earnings report for Fastenal CompanyFAST . Shares have lost about 1.8% in that time frame, underperforming the market.

Will the recent negative trend continue leading up to the stock's next earnings release, or is it due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important catalysts.

Fastenal Tops Q2 Earnings & Revenues, Margins Improve

Fastenal's earnings of $0.52 per share in the second quarter of 2017 surpassed the Zacks Consensus Estimate of $0.50 by 4%. Earnings also grew 13.4% year over year.

Sales Detail

Net sales of $1,121.5 million surpassed the Zacks Consensus Estimate of $1,110 million by 1%. Sales grew 10.6% year over year on higher units owing to improvement in underlying market demand and growth in industrial vending business and existing Onsite locations.

Fastenal's daily sales grew 10.6% in the quarter, higher than the 6.2% increase in the first quarter of 2017.

On a monthly basis, daily sales increased 13% in June, 9.7% in May and 8.9% in April, compared with 0.0%, 1.1% and 3.8%, respectively, a year ago.

Sales of fastener products (used mainly for industrial production and accounting for approximately 36.1% of the company's second-quarter sales) increased 7.9% in the quarter, 3.6% of which came from the acquisition of the Manufacturers Supply Company ('Mansco') business. Non-fastener product sales (used mainly for maintenance and represented 63.9% of the quarterly sales) increased 12.2%.

Vending Trends and Other Growth Drivers

As of Jun 30, 2017, Fastenal operated 66,577 vending machines, up 14.1% year over year. During the quarter, the company signed 4,881 machine contracts, up 0.3% year over year.

After a soft 2013, vending trends improved through 2014, 2015 and 2016 as management's efforts to enhance the quality of signings/installs paid off.

Fastenal signed 68 new Onsite locations during the quarter, up 54.5% from 44 signings a year ago. As of Jun 30, 2017, the company had 486 active sites, representing an increase of 45.9%.

Additionally, Fastenal signed 51 new national account contracts in the second quarter (representing 47.8% of its total revenues in the quarter). Net sales from national account customers grew 13.2% in the quarter on a year-over-year basis.

In order to better serve its customers, Fastenal introduced additional product Stock Keeping units (SKUs) in many of its branches at the end of 2015 and through most of 2016. This initiative is referred to as Customer Service Project 16 (CSP 16). In the second quarter of 2017, products added as part of various CSP initiatives accounted for 15% of net sales, and daily sales of these products grew 12.3% year over year.

Margins

Gross margin of 49.8% in the second quarter of 2017 improved 30 basis points (bps) year over year. The upside was driven by improvement in supply chain initiatives, including relative growth in the sale of Fastenal brands, increased purchase throughout the organization and more efficient fleet utilization. However, changes in product and customer mix continued to affect gross profit as did the addition of Mansco.

Operating margin improved 60 bps year over year to 21.2% in the quarter, mainly driven by higher gross profit and lower operating and administrative expenses.

Financials

Cash and cash equivalents were $115.1 million as of Jun 30, 2017, up from $112.7 million as of Dec 31, 2016. Long-term debt was $436.2 million, up from $379.5 million at the end of 2016.

How Have Estimates Been Moving Since Then?

Following the release, investors have witnessed an upward trend in fresh estimates. There have been three revisions higher for the current quarter.

Fastenal Company Price and Consensus

Fastenal Company Price and Consensus | Fastenal Company Quote

VGM Scores

At this time, the stock has a subpar Growth Score of 'D', however its Momentum is doing a bit better with an 'C'. However, the stock was allocated a grade of 'D' on the value side, putting it in the bottom 40% for this investment strategy.

Overall, the stock has an aggregate VGM Score of 'D'. If you aren't focused on one strategy, this score is the one you should be interested in.

The company's stock is suitable soley for momentum based on our styles scores.

Outlook

Estimates have been trending upward for the stock. The magnitude of these revisions also looks promising. It comes with little surprise that the stock has a Zacks Rank #2 (Buy). We are expecting an above average return from the stock in the next few months.

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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