Fastenal's Q4 Beat Fueled By Opex Leverage, Says Analyst Who Struggles To 'Get The Math To Work'

Raymond James analyst Sam J. Darkatsh reiterated an Underperform rating on the shares of Fastenal Co FAST.
4Q22 adjusted EPS was $0.43 (RJE/Street $0.43/$0.42), with EBITDA $375 million vs. RJE/Street $370 million/$365 million.
At a high level, better-than-expected opex leverage (driven by likely-unsustainable labor costs) offset softer-than-expected gross margins, the analyst added.
Gross margins of 45.3% missed views by 20 basis points – 30 basis points and fell y/y for the 2nd straight quarter to the lowest point since 3Q20.
Also Read: Fastenal Says Q4 Sales Growth Impacted By Softer Markets Of Consumer Goods, Construction
The analyst said negative price-cost should continue through at least 1H23 and annual gross margin mix pressures are now pegged as 50 basis points – 70 basis points from 30 basis points – 50 basis points prior.
Near term, the mild 4Q EPS beat was driven by likely-unsustainable labor-related opex savings as gross margins continued to moderate more than expected on a y/y basis, added the analyst.
2023 vending signings and onsite signings were both below plan for the year as actuals fell short of the target for the 4th and 6th year in a row, respectively.
The analyst noted that onsite churn improved sequentially but remained above the normal 5% range.
Due to the high w/cap and limited margin leverage within Fastenal’s business model, today’s ~3% FCF yield implies lofty market expectations for “base-case” organic ADS over the next decade-plus, said the analyst.
The analyst said it's a struggle to get the math to work, as the market continues to seemingly underwrite +HSD annual organic ADS in near-perpetuity, especially given the softening demand backdrop.
Price Action: FAST shares are trading higher by 3.58% at $48.48 on the last check Friday.
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