Earnings Cheat Sheet: Fastenal Improving, But Investors Sell the News

Fastenal (FAST) is one of the 100 largest non-financial companies listed on NASDAQ. The wholesaler and retailer of industrial and construction supplies announced much improved earnings in what remains a challenging environment for anything related to construction. (Note: 50% of Fastenal’s business has historically been with customers engaged in some type of manufacturing, non-residential construction customers have historically represented 20% to 25% of Fastenal’s business.)

The stock already ran up 11% in the month leading up to earnings, so investors seem to be selling the news this morning.

Here’s your earnings Cheat Sheet …

Earnings: Increased 57.5% to $75 million ($0.51 cents a share) from $47.6 million ($0.32 cents a share) last year.

Revenues: Increased 17% to $603.8 million from $595.5 million last year.

Actual Versus Wall Street Expectations: Analysts expected earnings of 50 cents a share (before special items) on revenue of $595.5 million (Thomson Reuters).

Notable Stats: Sales at stores opened more than five years increased 18.9% (yoy), while sales at stores opened more than two years increased 19.8% (yoy).

The Holo-Krome business, acquired in December 2009, added approximately 0.5 percentage points to daily sales growth.

Core Product/Customer Updates: The following graph shows trends in customers representing manufacturing and non-residential construction:

Key Quotes: “The improvement in the first nine months of 2010 continues the trend we saw in the latter half of 2009.”

“The ‘pathway to profit’ initiative allows us to focus on the three drivers of our business: (1) store headcount, (2) store (or unit) growth, and (3) average sales volume per store, which ultimately drives our level of profitability. Our original goal was to hit the $125 thousand per month store average by 2012. We believe the duration of the economic weakness could delay the timing of when we achieve the $125 thousand per month average by approximately two years. However, the current economic weakness only serves to strengthen our belief in the ‘pathway to profit’.”

Key Competitors to Watch: WW Grainger Inc (GWW) and MSC Industrial Direct Co Inc (MSM).

Technicals: Fastenal has done great since the start of 2009. The stock recently broke out of a mid-term downtrend (with the rest of the market). The stock is trading above both its 50 and 200 DMA. Look for support if the stock retests these key moving averages.

Official Company Earnings Release: Click here for Fastenal’s earnings release >>

Disclosure: No positions in FAST.