Earnings preview: Fastenal (FAST) looks poised to end FY19 on a bright note

While most of its peers struggled with the tariff dispute last year, Fastenal Company (NASDAQ: FAST) managed to stay resilient to the US-China trade conflict. When the industrial distributor reports its fourth-quarter results Friday before the opening bell, market watchers will be looking for earnings of $0.32 per share, which represents a 10% year-over-year growth. Revenues are expected to rise by 5% to $1.29 billion.

It is estimated that the core areas of the business – onsite locations, vending machine installations, and construction – performed well in the final three months of the fiscal year. The recent hike in product prices should ease the impact of tariff-related inflation in the to-be-reported quarter, thereby catalyzing sales growth.

Cost Pressure

Meanwhile, the revision of the product mix has come at a price, as the higher production costs and logistics expenses put pressure on gross margin. Headwinds in the overseas market, amid economic uncertainties, might have a negative impact on overall performance. The slowdown is evident from the softness in daily sales growth last year, as customers postponed their purchases.

Long-term Prospects

Armed with its well-conceived business plan and innovation, the company is poised to overcome the current slump. However, it might need to focus more on non-core products, in view of the segment’s lackluster performance in recent quarters.

Looking Back

In the third quarter, a further increase in installed devices pushed up revenues to $1.37 billion. Consequently, earnings moved up 8% annually to $0.37 per share, which also exceeded the market’s prediction. Meanwhile, the management lowered its forecast for new vending machine deals in the full fiscal year.

Recently, Fastenal’s competitor HD Supply Holdings (HDS) got a boost after the market reacted positively to its decision to split the company into two stand-alone units, with the aim of improving operational efficiency. Last month, it reported a modest increase in third-quarter earnings, aided by a 2% revenue growth.

Also see: Fastenal Q3 2019 Earnings Conference Call Transcript

At $37, Fastenal’s shares on Wednesday traded close to the record highs seen a few months ago. The stock has increased 24% in the past twelve months, all along maintaining a steady uptrend.

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