Fastenal Beats by a Penny

Fastenal Co. (FAST) posted a 57.6% increase in profit to $75 million in the third quarter of the year from $47.6 million in the same quarter a year-ago. On earnings per share basis, profit improved 59.4% to 51 cents from 32 cents a year ago, a penny beyond the Zacks Consensus Estimate of 50 cents per share.

Sales in the quarter rose 23.4% to $603.8 million, higher than the Zacks Consensus Estimate of $597 million. This was attributable to an increase in the company’s manufacturing customers, accounting for 50% of sales historically. Sales to manufacturing customers surged 30.6% in the quarter. Meanwhile, sales to non-residential construction business (accounting for 20%–25% of sales historically) inched up 6.3%.

Fastenal’s average store recorded sales of $71,600 per month compared with $61,600 per month in the quarter. Under the Pathway to Profit growth strategy, the company aims to push sales of its average store to $125,000 per month.

Gross profit rose 28% to $312.6 million in the quarter from $244.6 million in the year-ago quarter. Consequently, gross margin hiked to 51.8% from 50% in the third quarter of 2009.

During the quarter, Fastenal opened 45 stores, leading to a total of 2,453 stores as of September 30, 2010. The company has indicated its plan to open 80 to 95 stores during the second half of 2010, which is equivalent to an annualized rate of 6.8% to 8%.

Fastenal had cash and cash equivalents of $172.6 million as on September 30, 2010, compared with $164.9 million as on December 31, 2009.

In the first nine months of the year, the company had cash flow of $166.3 million from operating activities, a decline from $253.2 million in the prior-year period. Despite an improvement in profit, cash flow declined primarily due to increases in trade accounts receivable and inventories. Meanwhile, capital expenditures increased marginally to $42.6 million from $40.1 million in the year-ago period.

Our Take

Fastenal has a widespread customer base. The company’s large number of customers belongs to varied markets, which protects its market position in tough economies.

Further, the company has employed a hub and spoke model along with the opening of new stores and service centers to ensure efficient customer service in all aspects. These factors have led the company to maintain a Zacks #2 Rank on its stock, which translated to a short-term (1–3 months) rating of Buy.

FASTENAL (FAST): Free Stock Analysis Report

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