Fastenal Company (FAST) Up 4.5% Since Earnings Report: Can It Continue?

It has been about a month since the last earnings report for Fastenal Company FAST. Shares have added about 4.5% in the past month, outperforming the market.

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

Recent Earnings

Fastenal’s adjusted earnings of 45 cents per share in the fourth quarter of 2017 were in line with the Zacks Consensus Estimate. Without the pretax gain adjustments, earnings per share came in at 53 cents, up 33.5% year over year.

Sales Detail

Net sales of $1.09 billion surpassed the Zacks Consensus Estimate of $1.08 billion. Sales grew 14.8% year over year on increased units owing to higher underlying market demand and growth in industrial vending business and existing Onsite locations. The acquisition of Manufacturers Supply Company (Mansco) contributed 1.4% to sales.

Fastenal’s daily sales grew 14.8% in the quarter, higher than the 13.6% increase recorded in the third quarter of 2017.

On a monthly basis, daily sales increased 14.7% in December, 15.4% in November and 13.8% in October 2017, compared with 2.8%, 1.2% and 3.9%, respectively, a year ago.

Daily sales of fastener products (used mainly for industrial production and accounting for approximately 35% of the company’s fourth-quarter sales) increased 13.4% in the quarter, 3.9% of which came from the acquisition of Mansco.

Non-fastener product Daily sales (used mainly for maintenance and represented 65% of the quarterly sales) increased 16.1% year over year.

Vending Trends and Other Growth Drivers

As of Dec 31, 2017, Fastenal operated 71,421 vending machines, up 13.7% year over year. During the quarter, the company signed 4,266 machine contracts, reflecting an increase of 13.5% year over year.

After a soft 2013, vending trends improved as management’s efforts to enhance the quality of signings/installs paid off.

Fastenal signed 57 new Onsite locations during the quarter, up 32.6% from 43 signings a year ago. As of Dec 31, 2017, the company had 650 active sites, representing an increase of 50.9%.

Additionally, Fastenal signed 32 new national account contracts in the fourth quarter (representing 49.8% of its total revenues in the quarter). Daily sales to its national account customers grew 18.5% in the quarter on a year-over-year basis.

Margins Decline

Gross margin of 48.8% in the fourth quarter of 2017 declined 97 basis points (bps) year over year owing to changes in product and customer mix, the addition of Mansco (which has a lower gross profit product mix than the company), higher freight expenses, investments in hub assets and commodity inflation.

Operating margin declined 57 bps year over year to 18.7% in the quarter, owing to an improvement in operating and administrative expenses, offset by a decline in gross profit.

Fiscal 2017 Results

Earnings of $2.01 per share in fiscal 2017 increased 16.2% year over year and managed to beat the Zacks Consensus Estimate of $1.93. The company reported net sales of $4.39 billion, up 10.8% year over year. Net sales surpassed the Zacks Consensus Estimate of $4.38 billion.

Financials

Cash and cash equivalents were $116.9 million as of Dec 31, 2017, up from $112.7 million as on Dec 31, 2016. Long-term debt was $412 million, up from $379.5 million at 2016-end.

How Have Estimates Been Moving Since Then?

In the past month, 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, FAST has a great Growth Score of A, though it is lagging a bit on the momentum front with a B. However, the stock was also allocated a grade of F on the value side, putting it in the bottom 20% quintile for this investment strategy.

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

Our style scores indicate that the stock is more suitable for growth investors than momentum investors.

Outlook

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

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