Hot stock to watch: Fastenal Company (NASDAQ: FAST)

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Fastenal Company (NASDAQ: FAST) stock rose over 14.3% driven by the better than expected performance for the second quarter of 2018.

The group’s total and daily sales rose 13.1% during the second quarter, on track with their first quarter of 2018 growth. They expect the pricing to contribute in the range of 50 and 100 basis points during the period which is also in line with last quarter. June’s daily sales rose 13.5% which is 13th straight month of organic daily sales growth ranging between 11.5% and 14.5%. The PMI averaged 58.7 for the second quarter while the industrial production continued to expand at a low to mid single-digit rate.

Non-residential construction continued to accelerate during the quarter generating 15.5% which includes growth of 17.4% in June driving the mix. Manufacturing end-markets remain stable at high levels, growing 13.3% with sustained strength in most sub-verticals and from a product standpoint, non-fasteners rose 14.8% while fasteners surged 11.1%.  Fasteners in June rose 13.5% which is the fastest rate we have seen this cycle.

Meanwhile, national accounts surged 19.1% with 80 of the top 100 accounts growing. National accounts rose 20.4%. Growth in non-national accounts continues to run in the mid to high single-digits with roughly 66% of their branches growing in the second quarter.

On the other hand,  the group’s gross margins were under pressure during the second quarter which fell   110 basis points against 48.7% in the first quarter of 2018. During the second quarter of 2017, their was a modest price due to expected higher product costs. Rising freight expenses also added to the pressure.

The group’s operating margin was flat on a year-over-year basis falling to 21.2% during the second quarter of 2018. Stronger seasonal volumes and the lapping of certain cost resets generated 110 basis points of cost leverage and an incremental margin of 21.5%. As per Holden they signed 81 Onsites in the second quarter, that’s a 19% increase over the second quarter of 2017 and we finished the quarter with 761 active sites, which is a 57% rise against pcp. The group’s 2018 goal for Onsite signings continues to be in the range of 360 and 385. Total in-market locations were 3,051 at the end of the quarter, which is a rise against 2,937 pcp.

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