What happened

Shares of Fastenal (NASDAQ:FAST) traded up more than 14% on Friday after the industrial and construction supplier reported third-quarter results that came in ahead of expectations. Concerns about growing costs and a potential slowdown should the U.S. fall into a recession have lingered around the stock in recent months, but Fastenal is showing it can generate results even in this environment.

So what

Fastenal before markets opened on Friday reported third-quarter earnings of $0.37 per share on revenue of $1.38 billion, ahead of the consensus estimate for $0.35 per share in earnings on sales of $1.37 billion. Prior to the Friday jump, Fastenal shares had been down about 12% since the beginning of May due to concerns about the impact of tariffs and fears of a slowdown, but Fastenal's results show the company is managing.

A construction site.

Image source: Getty Images.

The company in a statement said that the "general slowing in economic activity that we experienced in the second quarter of 2019 continued in the third quarter of 2019," but also said that it was having some success adjusting prices higher to mitigate the impact of tariffs.

Fastenal said its push into industrial vending machines and onsite locations, designed to bring it closer to the customer, is having the desired impact, with daily sales up 6.1% from the same three months of 2018 on higher unit sales.

The growth did come at a cost. Gross profit as a percentage of sales declined 90 basis points to 47.2% in the quarter. Fastenal said the most significant driver of that decline was that vending and onsite locations tend to have lower gross margins due to customer and product mix.

Now what

Fastenal reiterated its expectations that it would record $195 million to $225 million in capital expenditures for the full year, up from $166.8 million in 2018, as it continues spending on developing its hub capacity and vending devices. That spending should pay off over time, but in the near term the cost will weigh on earnings.

The near-term outlook is likely to be clouded by worries about trade wars, tariff increases, and the health of the U.S. economy, but Fastenal appears to be making the right moves to secure its place as an essential partner to its customers. There's a lot for buy-and-hold investors to like about these latest results.