Fastenal Company (FAST) is set to report the fourth-quarter and fiscal 2013 results on Jan 15 before the market opens. Last quarter, it posted a negative earnings surprise of 2.44%. Let’s see how things are shaping up for this announcement.
Factors to Consider this Quarter
In late Dec 2013, the company announced that it is likely to miss analyst expectations for the fourth quarter due to sluggish sales, higher employee cost and weak margins.
The national distributor of industrial/construction supplies has been struggling with its top line due to lower sales of its fasteners product line due to end-market slowdown and broader economic uncertainty. Moreover, the non-residential construction and vending businesses have also been soft for the past two quarters.
Management has been slowing down store growth in favor of increasing headcount to drive near-term sales growth. Moreover, focus on vending has temporarily been slowed down in order to improve near-term sales. Though these efforts have shown improving sales trends in the months of Oct and Nov 2013, they are below management’s expectations.
Moreover, such initiatives increase employee costs and hurt margins. In fact, gross margin is also below the company’s expectation due to weakness in fastener products, a competitive marketplace, reduced supplier incentives and lower utilization of trucking networks.
Earnings Whisper?
Our proven model does not conclusively show that Fastenal is likely to beat earnings this quarter. That is because a stock needs to have both a positive Earnings ESP and a Zacks Rank of #1, 2 or 3 for this to happen. That is not the case here, as you will see below.
Negative Zacks ESP: The Earnings ESP is -2.86%. That is because the Most Accurate estimate stands at 34 cents while the Zacks Consensus Estimate is higher at 35 cents. That is a difference of -2.86%.
Zacks Rank #4 (Sell): We caution against stocks with Zacks Ranks #4 and 5 (Sell-rated stocks) going into the earnings announcement, especially when the company is seeing negative estimate revisions momentum. Estimates for Fastenal have been declining over the past 30 days.
Other Stocks to Consider
Here are some other companies that you may consider, as our model shows that they have the right combination of elements to post an earnings beat this quarter:
Standard Pacific Corp. (SPF), with Earnings ESP of +21.4% and a Zacks Rank #2 (Buy).
KB Home (KBH), with Earnings ESP of +28.57% and a Zacks Rank #3 (Hold).
Starbucks Corporation (SBUX), with Earnings ESP of +2.90% and a Zacks Rank #3.
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