Earnings preview: Here’s what to look for in Fastenal’s Q2 report

Fastenal Company (Nasdaq: FAST) will be reporting second-quarter results Thursday before the opening bell. The market’s prediction of $0.37 per share earnings for the quarter is in line with the performance in the prior-year quarter. The forecast for net sales is $1.38 billion, up 8.8% year-over-year.

Fastenal’s foothold in the vending machine market is growing rapidly, which is expected to continue in the coming years due to growing demand. The Winona, Minnesota-based industrial distribution company operated 8,3410 vending machines at the end of the March quarter, which is up 13% from the same period of last year. Over the years, revenue growth largely outpaced the industry though it did not always reflect in earnings, due to margin constraints.

The positive bottom-line performance in recent years can be attributed mainly to market share growth for the vending machines business, which has also made the stock an investors’ favorite. The well-conceived business model, which is in sync with the demands of the industry, will likely continue to drive growth in the long term, supported by the positive cash flow.

Fastenal’s foothold in the vending machine market is growing rapidly, which is expected to continue in the coming years

Meanwhile, though efforts are being made to address the weakness of the product mix, characterized by too many low-margin customer accounts and contracts, this area needs more attention. Overall, the performance of non-core products has not been very impressive.

Starting the year on an upbeat note, the company surprised the market by reporting above-consensus earnings of $0.68 per share for the first quarter on net sales of $1.31 billion, representing a double-digit annual increase. The strong results mainly reflected a marked increase in the contracts for industrial vending device and higher installed device count.

Also see: Fastenal Company Q1 2019 Earnings Call Transcript

Fastenal’s competitor W.W. Grainger (GWW) is slated to unveil its second-quarter numbers on July 24 before the opening bell, after reporting an 8% increase in earnings to $4.51 per share in the first quarter.

After much volatility, Fastenal shares reached a peak mid-April and traded slightly above $35, but pared the gains in the following weeks. However, they continue to maintain the uptrend. The stock has gained 15% since last year and 25% since the beginning of 2019.

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