Fastenal Company FAST is set to report first quarter 2015 results on Apr 14, before the market opens.
Last quarter, Fastenal delivered in-line results as a strong top-line performance was offset by weaker margins. Let’s see how things are shaping up for this announcement.
Factors to Consider this Quarter
Fastenal took the strategic decision to increase sales personnel at its stores in order to increase sales. This strategy largely boosted sales during 2014. Also vending trends improved throughout the year and the construction business showed signs of improvement.
However, monthly sales data released for January and February (included in the first quarter) shows that the top-line improvement has weakened. Daily sales grew 8.6% in February and 12% in January much softer than 17.4% in December 2014. In fact, the daily sales increase recorded in February as the slowest since April last year.
We believe that sales in these months were hurt by currency headwinds, lower sales from the oil & gas industry and severe weather conditions.
During the fourth-quarter conference call held in January, management noted that approximately 10% to 12% of sales were from stores located in oil producing regions (Texas, Western Pennsylvania, Western Canada and others). Management warned that sales in these states are expected to be hurt by slowing economy due to lower oil prices.
These headwinds are expected to be reflected in the overall results of the first quarter of 2015.
As it is, Fastenal’s gross margins are contracting as management’s focus shifts toward top-line improvement. Additionally, lack of inflation, an unfavorable product/customer mix, pricing and competitive pressures are hurting gross margins.
Earnings Whispers?
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 #1, 2 or 3 for this to happen. That is not the case here, as you will see below.
Zacks ESP: The ESP for Fastenal is -2.38% as the Most Accurate estimate stands at 41 cents while the Zacks Consensus Estimate is higher at 42 cents.
Zacks Rank: Fastenal’s Zacks Rank #3 (Hold) increases the predictive power of ESP. However, we need to have a positive ESP to be confident about an earnings surprise.
We caution against stocks with Zacks Rank #4 and 5 (Sell-rated stocks) going into the earnings announcement, especially when the company is seeing negative estimate revisions momentum.
Other Stocks to Consider
Here are some other companies in the construction sector for investors to consider, that, according to our model have the right combination of elements to post an earnings beat this quarter:
Plum Creek Timber Co. Inc. PCL with Earnings ESP of +4.55% and a Zacks Rank #3.
Installed Building Products, Inc. IBP with Earnings ESP of +10.00% and a Zacks Rank #3.
Watsco Inc. WSO with Earnings ESP of +3.39% and a Zacks Rank #3.
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