Categories Analysis, Industrials

Fastenal (FAST) likely to report modest Q2 results as demand woes persist

The company is expected to report slightly higher net sales and lower earnings per share for the June quarter

Over the years, Fastenal Company (NASDAQ: FAST) has maintained its dominance in the industrial fastener market, aided by its diverse product offering and large market share. As it gears up for next week’s earnings, muted customer demand remains the primary challenge for the company.

The fastener distributor’s stock maintained a steady uptrend in the early months of the year and peaked in mid-March, but changed course and pared most of those gains since then. It dropped sharply after the first-quarter earnings and entered a downward spiral. FAST slid to a six-month low this week, and is down 3% since the beginning of the year. While the company is performing relatively well in the challenging market environment, a major boost in terms of customer demand is essential for the stock to recover meaningfully.  

Mixed Q2 in Cards

The Winona-headquartered supplier of industrial and construction supplies is expected to report second-quarter 2024 results on Friday, July 12, at 6:50 am ET. Market watchers forecast a mixed outcome – net income is expected to drop by a penny to $0.51 per share on revenues of $1.92 billion, which represents a 1.5% year-over-year increase.

In recent quarters, daily sales growth decelerated and the company delivered near-flat quarterly sales that often fell short of expectations. Reflecting the management’s cost-cutting efforts, SG&A expense growth moderated in the past five quarters, resulting in improved margin performance. Meanwhile, margins might come under pressure in the second quarter due to continued investments in hardware, personnel, customer service, and promotional activities.

Road Ahead

Last year, several of Fastenal’s customers experienced a slump as the economic slowdown affected industrial production and construction activities, which in turn hurt the company’s sales. Improving economic conditions and recovery in industrial activity, as indicated by recent economic data, bode well for the company in terms of returning to the high-growth path.

“One thing we have been doing, and this has been going on for the last four or five years is we have made a conscious effort to continue to diversify our supply base, not just by the number of suppliers, but by the geographies from which we obtain product. That’s part of our covenant with our customers. We balance that with cost-effectiveness. And because, if you — it’s sitting on the customer and saying, what’s the trade-off of what we’re willing to spend for supply-chain to have that diversity of supply because there is a trade-off there,” Fastenal’s CEO Daniel Florness said at the Q1 earnings call.  

Key Numbers

The company entered the fiscal year on a positive note, reporting a modest increase in first-quarter sales to $1.90 billion. Net income edged up 1% from last year to $297.7 million or $0.52 per share in the March quarter. The bottom line fell short of expectations, reversing the recent trend of either beating or matching the Street view. Onsite locations increased by 102 signings during the quarter, which represents an increase both sequentially and year-over-year.

Fastenal’s stock has lost about 20% since its March peak. On Wednesday, FAST opened at $62.76 and traded slightly higher in the early hours.

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