Fastenal’s quarterly earnings report, which sent shares of the industrial distributor sharply lower on Tuesday morning, makes a difference beyond the implications for the stock itself.
Fastenal (ticker: FAST) is one of the earliest industrial companies to report numbers. Larger, better-known industrial companies start disclosing their third quarter earnings in a couple of weeks.
More important, Fastenal is a distributor of thousands of small, lower- priced items used by businesses around the U.S. every day. Its sales trends are a good, real-time indicator of what is going on at the shop-floor level. The figures offer clues for investors about the coming earnings season and about the health of the U.S. economy.
“I find Fastenal to be a great bellwether for the industrial side of the U.S. economy,” said Peter Boockvar, Chief Investment Officer at Bleakley Advisory Group, via email. “The tone of the third quarter of 2020 can best be described as one of normalization following the heavily pandemic-influenced second quarter of 2020.”
For the third quarter, Fastenal reported 38 cents in per-share earnings, one penny ahead of Wall Street consensus estimates and one penny more than the company earned in the third quarter of 2019. Sales, however, just missed expectations.
Growth in average daily sales decelerated to 2.5% from more than 10% in the second quarter. Third-quarter growth was also below daily sales growth in the first quarter of 2020. The “surge activity eased in [the third quarter],” reads Fastenal’s quarterly presentation. “But demand for pandemic-related products remains elevated, contributing to 34.4% growth in safety supplies.”
Baird analyst Dave Manthey said that while figures on September sales and profit margins might have disappointed the Street, he still likes the stock. “Results were strong despite the recession,” wrote Manthey in a Tuesday report. “The stock remains underloved by the Street, and we see a continued favorable cyclical setup.”
Shares were down 6.1% in Tuesday morning trading. It seems investors are worried that the industrial recovery is flagging and might need additional federal stimulus.
Stimulus efforts, even if targeted at consumers, affect industrial companies. “Most people think of heavy machinery when they think of industrial goods,” said Tim Fiore, committee chair for the Institute for Supply Management’s Manufacturing Report on Business, told Barron’s in a recent interview. Yet many industrial enterprises are consumer- facing, from chemical manufacturers that make packaging to the automotive industry, he noted.
Fiore believes that the government’s various stimulus efforts have helped U.S. companies avoid laying off even more staff than they have so far.
(The ISM produces the widely followed manufacturing PMI report released at the start of each month.)
Manthey, for his part, rates Fastenal shares at Buy and has a target of $50 for the stock price. He is more bullish than his peers. Only about 20% of analysts covering the stock rate shares Buy. The average Buy-rating ratio for stocks in the
Dow Jones Industrial Average
is about 58%.
So far this year, Fastenal stock is up about 21%, better than comparable returns of the Dow and
The Industrial Select Sector SDPR ETF (XLI) is down 1% year to date.
Write to Al Root at [email protected]