Can Fastenal Company Earnings Send the Stock Higher?

As economic conditions improve, the industrial and construction wholesaler should see better results.

Jul 9, 2014 at 1:40PM

On Friday, Fastenal (NASDAQ:FAST) will release its quarterly report, and investors hope to see solid earnings growth from the supplier of industrial and construction materials. As economic conditions in the U.S. continue to improve, Fastenal wants to grow at a faster pace than peers like HD Supply Holdings (NASDAQ:HDS) and MSC Industrial Direct (NYSE:MSM), yet ensuring that margins remain high enough to have sales growth translate into higher earnings is a big challenge for the company going forward.

Fastenal's business doesn't sound all that glamorous, as it supplies construction and industrial businesses with the fasteners and other simple products they need in order to make their own products. That leaves Fastenal reliant on the health of its customers, who need to see enough demand from their own customers to ramp up production and require more components from Fastenal. Let's take an early look at what's been happening with Fastenal over the past quarter and what we're likely to see in its report.

Fast
Source: Wikipedia.

Stats on Fastenal

Analyst EPS Estimate

$0.44

Change From Year-Ago EPS

7.3%

Revenue Estimate

$952.45 million

Change From Year-Ago Revenue

12.4%

Earnings Beats in Past Four Quarters

0

Source: Yahoo! Finance.

Can Fastenal earnings grow faster?
In recent months investors have been a bit more optimistic about Fastenal earnings, boosting full-year estimates for this year and next by a penny per share. The stock has gone nowhere, though, falling 3% since early April.

Fastenal has already given investors some guidance on its performance over the past quarter, with monthly sales reports showing solid gains. In April, Fastenal's revenue climbed 10%, with 8.4% gains from stores open at least two years. May's figures showed gains of 13.5% in daily sales, with double-digit comp growth supported largely by manufacturing clients. In light of last quarter's 8.7% jump in net sales, this quarter's figures suggest even better top-line performance.

Fastenal has done a good job of fighting off headwinds to produce that top-line growth. In the first quarter, both it and MSC Industrial noted that the industrial sector has seen improved conditions, and even challenges like harsh winter weather weren't enough to hold down the industry. In addition, Fastenal gets a lot of its business from heavy-equipment sales, where problems in key industries like the mining sector have held back capital expenditures.

But what Fastenal has struggled with is producing bottom-line profit growth from those sales. Last quarter, net income rose only 2.6%, as gross margins fell by more than a full percentage point and operating and administrative expenses grew. Cost containment has been an important element of profitability throughout the industry, with both HD Supply and MSC Industrial also working hard to keep expenses in line. Better work from Fastenal on that front would help it return its profit growth to higher levels.

In the end, Fastenal's key edge lies in its ability to have deep connections with local customers while enjoying the economies of scale of a large business. With efforts like industrial vending that helps Fastenal make the goods that individual clients need ready and available to them, Fastenal continues to work at making customer service its most important goal.

In the Fastenal earnings report, watch to see how the company's sales gains compare to earnings. If earnings growth continues to lag, then Fastenal will need to address how it can boost its margins and keep shareholders happier with its overall results.

You can't afford to miss this
"Made in China" -- an all too familiar phrase. But not for much longer: There's a radical new technology out there, one that's already being employed by the U.S. Air Force, BMW and even Nike. Respected publications like The Economist have compared this disruptive invention to the steam engine and the printing press; Business Insider calls it "the next trillion dollar industry." Watch The Motley Fool's shocking video presentation to learn about the next great wave of technological innovation, one that will bring an end to "Made In China" for good. Click here!

Click here to add Fastenal to My Watchlist, which can find all of our Foolish analysis on it and all your other stocks.

Dan Caplinger has no position in any stocks mentioned. The Motley Fool recommends MSC Industrial Direct. The Motley Fool owns shares of MSC Industrial Direct. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

Money to your ears - A great FREE investing resource for you

The best way to get your regular dose of market and money insights is our suite of free podcasts ... what we like to think of as “binge-worthy finance.”

Feb 1, 2016 at 5:03PM

Whether we're in the midst of earnings season or riding out the market's lulls, you want to know the best strategies for your money.

And you'll want to go beyond the hype of screaming TV personalities, fear-mongering ads, and "analysis" from people who might have your email address ... but no track record of success.

In short, you want a voice of reason you can count on.

A 2015 Business Insider article titled, "11 websites to bookmark if you want to get rich," rated The Motley Fool as the #1 place online to get smarter about investing.

And one of the easiest, most enjoyable, most valuable ways to get your regular dose of market and money insights is our suite of free podcasts ... what we like to think of as "binge-worthy finance."

Whether you make it part of your daily commute or you save up and listen to a handful of episodes for your 50-mile bike rides or long soaks in a bubble bath (or both!), the podcasts make sense of your money.

And unlike so many who want to make the subjects of personal finance and investing complicated and scary, our podcasts are clear, insightful, and (yes, it's true) fun.

Our free suite of podcasts

Motley Fool Money features a team of our analysts discussing the week's top business and investing stories, interviews, and an inside look at the stocks on our radar. The show is also heard weekly on dozens of radio stations across the country.

The hosts of Motley Fool Answers challenge the conventional wisdom on life's biggest financial issues to reveal what you really need to know to make smart money moves.

David Gardner, co-founder of The Motley Fool, is among the most respected and trusted sources on investing. And he's the host of Rule Breaker Investing, in which he shares his insights into today's most innovative and disruptive companies ... and how to profit from them.

Market Foolery is our daily look at stocks in the news, as well as the top business and investing stories.

And Industry Focus offers a deeper dive into a specific industry and the stories making headlines. Healthcare, technology, energy, consumer goods, and other industries take turns in the spotlight.

They're all informative, entertaining, and eminently listenable. Rule Breaker Investing and Answers are timeless, so it's worth going back to and listening from the very start; the other three are focused more on today's events, so listen to the most recent first.

All are available for free at www.fool.com/podcasts.

If you're looking for a friendly voice ... with great advice on how to make the most of your money ... from a business with a lengthy track record of success ... in clear, compelling language ... I encourage you to give a listen to our free podcasts.

Head to www.fool.com/podcasts, give them a spin, and you can subscribe there (at iTunes, Stitcher, or our other partners) if you want to receive them regularly.

It's money to your ears.

 


Compare Brokers