Fastenal Misses EPS by a Penny - Analyst Blog

Fastenal Co.(FAST) posted a 46.3% increase in profit to $65.1 million during the fourth quarter of 2010 from $44.5 million in the year-ago quarter. Earnings per share improved 46.7% to 44 cents from 30 cents a year ago, a penny behind the Zacks Consensus Estimate of 45 cents per share.

Net sales for the quarter totaled $573.8 million, up 20.3% year over year driven by improvement in sales to both manufacturing customers as well as non-residential construction customers of the company. Fastenal's fourth quarter sales also exceeded the Zacks Revenue Estimate of $565 million. During the quarter, daily sales to the manufacturing customers surged 17.7% and that to the non-residential construction customers rose 10.3%.

Fastenal's average store sales recorded at $67,600 per month versus $58,100 per month in the fourth quarter of 2009. The company aims to push average store sales to $125,000 per month.

Gross profit rose 25.6% to $298.6 million in the quarter from $237.7 million in the year-ago quarter. Consequently, gross margin increased to 52.0% from 49.9% in the corresponding period of 2009.

During the quarter, Fastenal opened 37 stores, leading to a total of 2,490 stores as of December 31, 2010. The company has indicated its plan to open 150 to 200 new stores during 2011, which is equivalent to an annualized rate of 6.0% to 8.0%.

Full Year 2010

Profit for the full year rose 43.9% year over year, from $184.4 million to $265.4 million. Alongside, earnings per share were up 45.2% to $1.80 from $1.24. The full year per share earnings also missed the Zacks Consensus Estimate of $1.81.

Full year net sales were $2.27 billion, up 17.6% from last year's $1.93 billion. The full year sales were marginally down from the Zacks Revenue Estimate of $2.26 billion.

Financial Position

Fastenal had cash and cash equivalents of $143.7 million as of December 31, 2010, compared with $164.9 million as of December 31, 2009.

During the course of 2010, net cash provided by operating activities was $240.5 million, a decline from $306.1 million in the prior-year period. The failure to generate cash flow was attributed to increases in trade accounts receivable and inventories.

Fastenal has a wide customer base covering varied markets, which strengthens its market position in tough economies. Further, it has employed a 'hub and spoke' model along with the opening of new stores and service centers to ensure efficient customer service. However, the fluctuations in diesel fuel and gasoline prices may pose considerable threat to the company's margins in the coming quarters. In view of the above conditions, we recommend the shares of Fastenal Co. as “Hold” (Zacks #3 Rank) in the short term and “Neutral” in the long term.

Based in Winona, Minnesota, Fastenal is a leading national distributor of industrial and construction supplies having stores in Canada, Mexico, the Dominican Republic, Puerto Rico, Singapore, China, and all the 50 states of the U.S. The company's key competitors include MSC Industrial Direct Co. Inc. (MSM), W.W. Grainger, Inc. (GWW) and The Home Depot, Inc. (HD).

 
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