Fastenal (FAST) To Report Q1 Earnings: Is A Beat In Store?

Fastenal Company (NASDAQ:FAST) is scheduled to report first-quarter 2018 results on Apr 11, before the opening bell.

In the last quarter, the company’s earnings were in line with the Zacks Consensus Estimate. The company surpassed expectations in only one of the trailing four quarters, the average being 1%.

Let’s look at the factors which might affect the company’s results in the first quarter.

Vending Machines to Drive Growth: Fastenal’s sales in the last few quarters have been driven by an increased installation of industrial vending machines. Sales through vending machines grew at or near a double-digit pace in each of the four quarters of 2017. The company signed 19,355 vending machines in 2017, up 7.2% from the prior-year quarter and the highest since 2013.

Onsite Locations to Boost Sales: A consistent increase in the number of on-site locations is likely to strengthen Fastenal’s market share and boost the quarterly numbers. Sales growth through Onsite was 22% in 2017. The trend is expected to continue in the first quarter of 2018. Fastenal aims to achieve 360-385 onsite signings in 2018, reflecting an increase of 270 signings in 2017.

Mansco Acquisition: We are encouraged by Fastenal’s acquisition of certain assets of industrial and fastener supply distributor — Manufacturer's Supply Company (Mansco) — in March 2017. This fortifies Fastenal’s presence in markets where it has not significantly contributed in the past. Mansco contributed 140 basis points (bps) to total sales growth of 14.8% in the last reported quarter and is expected to maintain the same in the to-be-reported quarter as well.

Backed by sustained strength in most of its end markets as well as strong momentum in vending machines installations and onsite locations, the company is expected to report solid top- and bottom-line growth in the first quarter. The Zacks Consensus Estimate for revenues is pegged at $1.18 billion, implying 12.9% year over year growth. The consensus estimate for earnings is pegged at 61 cents, reflecting an improvement of 32.6% on a year-over-year basis.

However, we are apprehensive about Fastenal’s changes in product and customer mix that have been hurting the gross margin for quite some time. Gross margin of 49.3% in 2017 dropped 30 bps from the prior-year period. Also, storms in the eastern and southern regions of United States care likely to mar prospects, as it had a significant impact on business activity in the first half of January 2018.

Quantitative Model Prediction

Here is what our quantitative model predicts:

Fastenal has the right combination of two main ingredients — a positive Earnings ESP and Zacks Rank #3 (Hold) or higher — for increasing the odds of an earnings beat.

Zacks ESP: The Earnings ESP for Fastenal is +0.21%. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Zacks Rank: Fastenal carries a Zacks Rank #2 (Buy), which increases the predictive power of ESP.

Fastenal Company Price and EPS Surprise

Other Stocks to Consider

Here are some other companies in the Zacks Retail-Wholesale sector that, according to our model, which have the right combination of elements to post an earnings beat this quarter:

Dunkin' Brands Group, Inc. (NASDAQ:DNKN) has an Earnings ESP of +1.34% and a Zacks Rank #3. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Nordstrom, Inc. (NYSE:JWN) has an Earnings ESP of +2.36% and a Zacks Rank #2.

Amazon.com, Inc. (NASDAQ:AMZN) has an Earnings ESP of +12.11% and a Zacks Rank #2.

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