Fastenal (FAST) Set to Report Q4 Earnings: What to Expect

Fastenal Company FAST is scheduled to report fourth-quarter 2019 results on Jan 17, before the opening bell.

In the last reported quarter, the company’s earnings beat the Zacks Consensus Estimate by 5.7%. That said, it surpassed the consensus mark in two of the trailing four quarters, while met the same once, with average positive earnings surprise of 1.1%.

Markedly, third-quarter 2019 earnings grew 8.8% and revenues increased 7.8% year over year. The growth was driven by higher unit sales, primarily related to growth drivers, with notable contributions from industrial vending and Onsite locations. Notably, the company’s daily sales growth was recorded at 6.1%, lower than 7.9% and 13% increase in second-quarter 2019 and the prior-year period, respectively, as end-market activity slowed down in the quarter.

Trend in Estimate Revision

For the quarter to be reported, the Zacks Consensus Estimate for earnings per share has been unchanged at 32 cents over the past 30 days. The estimated figure indicates an increase of 6.7% from 30 per share reported in the year-ago quarter. The consensus mark for revenues is pegged at $1.29 billion, suggesting a 5% increase from the year-ago reported figure of $1.23 billion.

Let’s see how things have shaped up for this announcement.

Fastenal Company Price and EPS Surprise

Fastenal Company Price and EPS Surprise

Fastenal Company price-eps-surprise | Fastenal Company Quote

Key Factors to Note

Slower End-Market Demand: We expect Fastenal to have registered mid-single-digit revenue improvement in the fourth quarter, thanks to slower global growth and trade war/geopolitical uncertainties. Its sales have softened on a year-over-year basis, with average daily sales growth of 4.3% and 5.7% in October and November, respectively. Considering lingering tariff uncertainty, and weakness in heavy manufacturing (as customers are delaying capex, reducing inventory, as well as cutting production), average daily sales growth is expected to slow down in the fourth quarter from the year-ago level (14.5%) and last reported quarter (5.7%).

This modest growth rate in daily sales is consistent with management’s softer macro outlook, general market slowdown and inventory destocking seen across the industrial space. Notably, slower economic activity has lengthened the company’s sales cycle for vending. As a result, during the third-quarter earnings call, Fastenal reduced the vending machine target for 2019 to approximately 22,000 from the previous goal of 23,000-25,000 units.

Nonetheless, growth in core product offerings like Onsite Locations/vending machines/managed inventory is expected to have benefited Fastenal in the fourth quarter of 2019. In a nutshell, strong momentum in construction, vending machine installations and onsite locations are likely to have supported top-line growth in the to-be-reported quarter.

Gross Margin Pressure: Fastenal’s changes in product and customer mix have been hurting gross margin for quite some time now. Increased product costs, higher freight expenses, and changes in product and customer mix are expected to have affected its fourth-quarter gross margin.

To offset tariffs placed on products sourced from China to date, Fastenal has been successfully raising prices. However, those increases were not sufficient to counter general inflation in the marketplace. The company has been undertaking additional steps to counter cost pressure and incremental tariffs that were levied on China-sourced products in May 2019. For the fourth quarter, the company expects gross margins to fall from the third quarter by approximately 20-40 basis points.

What the Zacks Model Unveils

Fastenal does not have the right combination of the two key ingredients — a positive Earnings ESP and a Zacks Rank #3 (Hold) or higher — to increase the odds of an earnings beat.

Earnings ESP: The company has an Earnings ESP of 0.00%. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Zacks Rank: Currently, Fastenal carries a Zacks Rank #3.

You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Stocks to Consider

Here are some companies in the Zacks Retail-Wholesale sector, which according to our model have the right combination of elements to post an earnings beat in their respective quarters to be reported:

Chico's FAS, Inc. CHS has an Earnings ESP of +28.00% and holds a Zacks Rank #1.

Boot Barn Holdings, Inc. BOOT has an Earnings ESP of +2.56% and a Zacks Rank #2 (Buy).

Chipotle Mexican Grill, Inc. CMG has an Earnings ESP of +2.31% and a Zacks Rank #2.

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Fastenal Company (FAST) : Free Stock Analysis Report
 
Chico's FAS, Inc. (CHS) : Free Stock Analysis Report
 
Chipotle Mexican Grill, Inc. (CMG) : Free Stock Analysis Report
 
Boot Barn Holdings, Inc. (BOOT) : Free Stock Analysis Report
 
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