Fastenal Company FAST reported adjusted earnings of 43 cents per share in the first quarter of 2015, beating the Zacks Consensus Estimate of 42 cents by 2.4%. Earnings grew 13.2% year over year driven by higher sales and lower expenses.
Fastenal reported net sales of $953.3 million, missing the Zacks Consensus Estimate of $964 million by 1.1%. Net sales, however, increased 8.8% year over year. The increase was driven by higher prices of non-fastener products, partially offset by price deflation of fastener products.
Behind the Headline Numbers
Fastenal’s total average daily sales growth rate was 8.8%, up from 8.7% in the prior-year quarter, owing to an increase in sales volume. However, foreign exchange dragged first-quarter daily sales growth rate by 1%.
First quarter revenue results were unfavorably impacted by poor weather in North America, economic softness, currency headwinds and lower sales from the oil & gas industry.
Daily sales growth was 5.6% in March, 8.6% in February and 12% in January compared with 11.6%, 7.7% and 6.7% increases, respectively in the corresponding year-ago months.
Daily sales to manufacturing customers (representing almost 50% of revenues) grew 6.9%, lower than 9% growth in the prior-year quarter.
Daily sales growth rate of fastener products (used mainly for industrial production and accounting for approximately 40% of the company’s business) was 5.5%, better than 1.6% in the year-ago quarter due to improved sales of fasteners.
Non-fastener product sales (used mainly for maintenance) increased 11.7%, down from 14.2% growth in the prior-year quarter and 19% in the last quarter.
In the non-residential construction market, daily sales to non-residential construction customers (representing 20% to 25% of revenues) grew 6.2%, up from 2.9% in the prior-year quarter and 12.6% in the previous quarter.
Vending Trends Continue to Improve
As of Mar 31, 2015, the company operated 48,545 vending machines (irrespective of the type of machine), up 3.6% sequentially and 15.2% year over year. During the quarter, the company signed 3,962 machine contracts, up 15.6% from last quarter. Daily sales growth to customers using vending machines was 12.3%, down from 20% in the previous quarter. The vending machines now account for 40.5% of the company’s sales, higher than 39.3% in the prior quarter.
Vending trends improved through 2014 after remaining soft in 2013 as management’s recent efforts to improve the quality of signings/installs paid off. Even though the number of customers using vending declined sequentially, the percentage of vending customers and signings improved during the quarter.
Gross Margins Down Y/Y, Improve Sequentially
Fastenal’s gross margins are contracting as management’s focus shifts toward top-line improvement. Gross margin in the first quarter of 2015 declined 40 basis points (bps) year over year, owing to unfavorable product and customer mix. However it improved 30 bps sequentially to 50.8% on the back of improving leverage of trucking network and better execution.
As a percentage of sales, the company’s operating and administrative expenses were down 140 bps year over year to 29.4% driven by expense control.
Fastenal carries a Zacks Rank #4 (Sell).
However, better-ranked stocks in the construction sector include Toll Brothers Inc. TOL, Tile Shop Holdings, Inc. TTS and DR Horton Inc. DHI. While Toll Brothers sports a Zacks Rank #1 (Strong Buy), Tile Shop Holdings and DR Horton carry a Zacks Rank #2 (Buy).
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