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Fastenal Co. (NASDAQ:FAST) announced that it would release its results for the third quarter of 2011 before the market opens on October 13, 2011.

Winona, Minnesota-based Fastenal realized a profit of 32 cents in the second quarter, improving from 23 cents a year ago and just beating the Zacks Consensus Estimate of 31 cents. In the upcoming quarter, the Zacks Consensus Estimate for Fastenal is pegged at a profit of 33 cents per share, reflecting an annualized growth of 28.98%. There is no upside or downside potential for the estimate.

With respect to earnings surprises, the company outdid the Zacks Consensus Estimate in the trailing four quarters. This is reflected in the average earnings surprise of 5.26%. Positive surprises were noted in two of the concerned quarters while the other two quarters recorded no surprises.

Second Quarter Recap

Sales in the quarter rose 23% to $701.7 million, higher than the Zacks Consensus Estimate of $699 million. Gross profit during the quarter increased 23% to $366.2 million (52.2%) from $297.7 million (52.1%) in the second quarter of 2010.

The increase in sales was due to aggressive store openings and an increase in the company’s non-residential customers, accounting for 20%–25% of sales historically. Sales to non-residential construction increased to 15.8% from 0.5% in the same quarter last year. Meanwhile, sales to manufacturing customers (accounting for 50% of sales historically) declined to 18.5% from 29.8% a year ago.

During the first half of 2011, Fastenal opened 75 stores compared with 45 stores in the same period of 2010. The company had 2,565 stores as of June 30, 2011. During each of the first six months of 2011 and 2010, the company closed seven stores. The company intends to open 80 to 95 stores during the second half of 2010 (which is equivalent to an annualized rate of 6.8% to 8.0%).

Fastenal had cash and cash equivalents of $89.4 million as on June 30, 2011 compared with $143.7 million as on December 31, 2010.

Estimate Revisions Trend

Earnings estimate for the third quarter of 2011 is currently pegged at a profit of 33 cents per share. The analysts are confident about Fastenal’s strategies to improve sales and expect these to reflect in the company’s financials.

Agreement of Estimate Revisions

Out of the 9 analysts covering the stock for the third quarter of 2011, only one has upgraded the stock in the last 30 days. None of the analysts has downgraded the stock in the given period.

Magnitude of Estimate Revisions

Following the second quarter earnings release in July, third quarter profit per share was projected at 32 cents. However, over the last 60 days, the profit estimate increased by a penny to 33 cents per share. Since then, the estimate is being maintained at 33 cents per share.

Our Take

Fastenal has a widespread customer base. The company’s large number of customers belongs to varied markets, which protects its market position in tough economies. Further, the company 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. The company aims to push sales of its average store to 100,000-$110,000 per month by 2013.

Moreover, Fastenal is making efforts to improve and expand its product portfolio, especially for its private label brands, which accounted for 7% of the second quarter’s total revenue and almost 13%-14% of the non-fastener revenue. The company’s private label brands include Profitter, Blackstone and Northway.

However, the increase in diesel fuel and gasoline prices will adversely impact the company’s business activities thereby, causing costs to increase significantly and margins to fall considerably.

Keeping these in mind, the shares of Fastenal Co. are maintaining a Zacks #3 Rank, which translates into a short-term “Hold” rating.

Source: Fastenal: Earnings Preview