Categories Analysis, Other Industries

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.

Fastenal beats Q3 earnings estimates; revenues in-line

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.

Also Read:  AK Steel slips to loss in Q1 but beats estimates

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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