Earnings Preview: Fastenal Co. - Analyst Blog
October 11 2011 - 7:15AM
Zacks
Fastenal Co.
(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.
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