Fastenal: Earnings Preview

Jul.11.11 | About: Fastenal Company (FAST)

Fastenal Co. (NASDAQ:FAST) is scheduled to release its second quarter 2011 results before the market opens on July 12, 2011.

Fastenal earned a profit of 54 cents per share in the first quarter, which was higher than the Zacks Consensus Estimate of 51 cents per share.

For the upcoming quarter, the Zacks Consensus Estimate is 31 cents per share, which reflects an annualized improvement of 30%.

With respect to earnings surprises, the company beat the Zacks Consensus Estimate in two of the last four quarters, amassing an average earnings surprise of 4.20%. It matched the other two quarters.

First Quarter Recap

Net sales for the quarter totaled $640.6 million, up 23% year over year, driven by an improvement in sales to the company’s manufacturing customers as well as non-residential construction customers.

Fastenal’s first quarter sales also exceeded the Zacks Consensus Estimate of $626 million. During the quarter, daily sales to manufacturing customers increased 15.5% and those to the non-residential construction customers rose 17.7%.

Fastenal opened 37 stores during the quarter, leading to a total of 2,522 stores as of March 31, 2011. The company intends to open 150 to 200 stores during 2011, equivalent to an annualized rate of 6.0% to 8.0%.

Fastenal recorded average store sales of $74,400 per month during the quarter, versus $62,700 per month in the first quarter of 2010. The company aims to push its average store sales to $125,000 per month going forward.

Gross profit rose 25.4% to $333.4 million from $265.9 million in the prior year. However, gross margin spiked marginally to 52.0% from 51.1% in the corresponding quarter of 2010.

Estimate Revisions Trend

Earnings estimates for the second quarter of fiscal 2011 is currently pegged at a profit of 31 cents per share. The current position of the North American industrial, construction and maintenance supply industry keeps the analysts cautious, although they are confident about the company's management.

Agreement of Estimate Revisions

Out of the 10 analysts covering the stock for the second quarter of fiscal 2011, none have reduced their estimates over the last 30 days, while one estimate moved higher.

Magnitude of Estimate Revisions

Following the first quarter earnings release in April, the second quarter earnings per share were projected at 29 cents per share. It has since moved to 31 cents per share.

Our Take

Fastenal has a wide customer base spanning various markets, which protect its market position in tough economies. Furthermore, it has employed a hub and spoke model along with the opening of new stores and service centers to ensure efficient customer service in all aspects.

However, the fluctuations in diesel fuel and gasoline prices may pose considerable threats to the company’s margins in the coming quarters. Taking into account the above conditions, we have a long-term Neutral recommendation on the stock.

Based in Winona, Minnesota, Fastenal is a leading national distributor of industrial and construction supplies and operates stores in Canada, Mexico, the Dominican Republic, Puerto Rico, Singapore, China, and in all the 50 states in the U.S.

Key competitors include MSC Industrial Direct Co. Inc. (NYSE:MSM), W.W. Grainger, Inc. (NYSE:GWW) and The Home Depot, Inc. (NYSE:HD).