Why Fastenal Company (NASDAQ: FAST) stock is under pressure

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Fastenal Company (NASDAQ: FAST) stock fell over 2.9% on July 11th, 2019 (Source: Google finance) after the company posted lower than expected results for the second quarter of FY 19. FAST has signed 11,042 industrial vending devices during the first six months of 2019 and 5,439 devices during the second quarter of 2019. The installed device count on June 30, 2019 was 85,871, an increase of 12.9% over June 30, 2018. Daily sales through the vending devices grew at a low-teens pace in the second quarter of 2019 over the second quarter of 2018 due to the increase in the installed base.

FAST in the second quarter of FY 19 has reported the adjusted earnings per share of 36 cents, missing the analysts’ estimates for the adjusted earnings per share of 37 cents. The company had reported the adjusted revenue growth of 7.9 percent to $1.37 billion in the second quarter of FY 19, missing the analysts’ estimates for revenue of $1.38 billion. This increase was driven by higher unit sales related primarily to our growth drivers, most notably contribution from industrial vending, Onsite locations, and construction, as well as higher underlying market demand compared to the second quarter of 2018. Sales of the fastener products grew 5.5% on a daily basis over the second quarter of 2018 and represented 34.5% of sales in the second quarter of 2019. Sales of the non-fastener products grew 9.5% on a daily basis over the second quarter of 2018 and represented 65.5% of sales in the second quarter of 2019.

Moreover, the gross profit, as a percentage of net sales, fell by 180 basis points to 46.9% in the second quarter of 2019 from 48.7% in the second quarter of 2018. The most significant factors behind the decline in the gross profit percentage in the period were the impacts of customer and product mix and net inflation on product margins, the latter of which had a larger negative impact on the margin than in the first quarter of 2019. The operating income, as a percentage of net sales, declined to 20.1% in the second quarter of 2019 from 21.2% in the second quarter of 2018. The decline was due to the lower gross margin, which more than offset the ability to leverage our operating expenses

FAST has returned $123.1 to our shareholders in the second quarter of 2019 (all in the form of dividends), compared to $146.7 in the second quarter of 2018

Additionally, the company has opened three branches in the second quarter of 2019 and closed 24 branches.

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