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Fastenal (FAST) to Report Q3 Earnings: What's in Store?

Zacks Equity Research
·5-min read

Fastenal Company FAST is scheduled to report third-quarter 2020 results on Oct 13, before the opening bell.

In the last reported quarter, the company’s earnings and sales beat the Zacks Consensus Estimate by 16.7% and 1.7%, respectively. On a year-over-year basis, earnings and revenues grew 16.7% and 10.3%, respectively.

Notably, Fastenal’s earnings topped the consensus mark in three of the last four quarters, with the average surprise being 5.6%.

Trend in Estimate Revision

For the quarter to be reported, the Zacks Consensus Estimate for earnings per share has been unchanged at 37 cents over the past 60 days. The estimated figure indicates no change from the year-ago level. Nonetheless, the consensus mark for revenues is pegged at $1.41 billion, suggesting a 2.4% increase from the year-ago reported figure of $1.38 billion.

Fastenal Company Price and EPS Surprise

Fastenal Company Price and EPS Surprise
Fastenal Company Price and EPS Surprise

Fastenal Company price-eps-surprise | Fastenal Company Quote

Key Factors to Note

Soft End-Market Demand: This national wholesale distributor of industrial and construction supplies is likely to have witnessed tepid end-market demand in the quarter to be reported. The company has been experiencing a slowdown in various end-markets served owing to slower global growth rate and trade war/geopolitical uncertainties. Also, the recent economic slowdown resulting from coronavirus-led shutdowns is likely to have weighed on sales. Underlying industrial demand is still quite below pre-COVID-19 levels.

Nonetheless, from an end-market perspective, sales of manufacturing and safety products are expected to have offset the above-mentioned negatives to some extent, as is evident from the monthly sales report. Average daily sales growth rate in manufacturing improved sequentially in August, while the same in non-residential end markets declined.

From product lines perspective, the monthly sales data reflects that fasteners sales trend has improved. After plunging 22.5% in April, the figure was down 15.3%, 11.4%, 7.5% and 7.3% in May, June, July and August, respectively.

Meanwhile, Safety products grew 35.1% in August compared with 38% growth in July. However, these rates of growth were well below the 116% growth recorded in the second quarter.

The Zacks Consensus Estimate for the company’s overall daily sales is pegged at $22.1 million, which indicates a sequential decrease of 6.3%. Notably, the company’s overall average daily sales grew 2.5% in August to $22.2 million compared with 2.6% growth registered in July 2020 and 6.3% in the year-ago period. The upside was led by notable gains in safety products. Notably, daily sales on a seasonal basis were up 3.8% compared with the company’s benchmark (historical five-year average) of 3.3%.

Margins Under Pressure: Fastenal’s changes in product and customer mix have been hurting gross margin for quite some time now. Negative customer/product mix — as a result of increased growth of lower-margin national accounts and safety products — along with lower proportion of higher-margin fasteners are expected to have affected its third-quarter gross margin.

To offset the 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. Although the company has been undertaking additional steps to counter cost pressure and incremental tariffs, the above-mentioned headwinds are likely to have put pressure on the bottom line.

What the Zacks Model Unveils

Our proven model does not predict an earnings beat for Fastenal in the quarter to be reported. The combination of a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) increases the changes of an earnings beat. But that’s not the case here.

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 stocks here.

Stocks With Favorable Combination

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.

Beacon Roofing Supply, Inc. BECN has an Earnings ESP of +5.98% and a Zacks Rank #2.

Advance Auto Parts, Inc. AAP has an Earnings ESP of +7.10% and holds a Zacks Rank #1 (Buy).

AutoNation, Inc. AN has an Earnings ESP of +18.17% and a Zacks Rank #2.

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