Will Slow End-Market Demand Hurt Fastenal (FAST) Q1 Earnings?

Zacks Equity Research

Fastenal Company FAST is scheduled to report first-quarter 2020 results on Apr 14, before the opening bell.

In the last reported quarter, the company’s earnings and sales missed the Zacks Consensus Estimate by 3.1% and 1.3%, respectively. The decline was mainly due to continued slower activity levels. This slowdown was exacerbated in December 2019 by holiday timing and longer-than-usual year-end plant shutdowns.

On the contrary, the metrics grew 3.3% and 3.7% from the year-ago period, driven by higher unit sales, primarily related to growth drivers, with notable contributions from industrial vending and Onsite locations.

Trend in Estimate Revision

For the quarter to be reported, the Zacks Consensus Estimate for earnings per share has declined 2.9% to 34 cents over the past 30 days. The estimated figure indicates no change from the year-ago period. The consensus mark for revenues is pegged at $1.36 billion, suggesting a 4.2% increase from the year-ago reported figure of $1.31 billion.

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 lower end-market demand in the quarter to be reported. The company has been experiencing 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 March sales.

The Zacks Consensus Estimate for daily sales is pegged at $21.59 million, which indicates a 3.8% increase from the year-ago level. The company had registered better-than-expected daily sales growth rate of 12.2% in the comparable year-ago period.

Growth in core product offerings like Onsite Locations/vending machines/managed inventory is expected to have benefited Fastenal in the to-be-reported quarter.

Margins Under Pressure: Fastenal’s changes in product and customer mix have been hurting gross margin for quite some time now. Increased concentration of lower-margin non-fastener products, reduced daily sales, price/cost deficit and higher freight expense are expected to have affected its first-quarter margins.

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. 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 suggest that Fastenal is likely to beat estimates in the quarter to be reported. That is because a stock needs to have both a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) for this to happen. Unfortunately, that is not the case here as you will see below.

Earnings ESP: The company has an Earnings ESP of -0.51%. 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 #4 (Sell).

You can see the complete list of today’s Zacks #1 Rank 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:

Yum China Holdings, Inc. YUMC has an Earnings ESP of +18.37% and a Zacks Rank #3.

Costco Wholesale Corporation COST has an Earnings ESP of +9.28% and a Zacks Rank #2.

BMC Stock Holdings, Inc. BMCH has an Earnings ESP of +5.10% and holds a Zacks Rank #2.

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Fastenal Company (FAST) : Free Stock Analysis Report
 
Costco Wholesale Corporation (COST) : Free Stock Analysis Report
 
Yum China Holdings Inc. (YUMC) : Free Stock Analysis Report
 
BMC Stock Holdings, Inc. (BMCH) : Free Stock Analysis Report
 
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