- Raymond James Analyst Sam J. Darkatsh reiterated an underperform rating on shares of Fastenal Co FAST.
- 4Q22 Adjusted earnings per share were $0.43 (RJE/Street $0.43/$0.42), with an EBITDA of $375M vs. RJE/Street $370M/$365M.
- At elevated levels, better-than-expected opex leverage (driven by likely unsustainable labor costs) offset weaker-than-expected gross margins, the analyst added.
- Gross margins of 45.3% missed guidance by 20 basis points -30 basis points and fell year-on-year for the 2nd straight quarter to the lowest level since 3Q’20.
- also read: According to Fastenal, fourth-quarter sales growth will be hampered by softer consumer staples and home improvement markets
- The analyst said negative price-costs should continue through at least 1H23 and annual gross margin mix pressure is now locked in at 50 basis points – 70 basis points from 30 basis points – 50 basis points earlier.
- In the near term, modest earnings per share in the fourth quarter were driven by likely unsustainable work-related operating cost savings as gross margins continued to decline more-than-expected year-on-year, the analyst added.
- 2023 Vending machine sales and on-site sales both fell short of plan for the year as actual numbers fell short of target for the fourth and sixth consecutive years, respectively.
- The analyst noted that local churn improved sequentially but remained above the normal range of 5%.
- Due to the high W/Cap and limited margin leverage within Fastenal’s business model, today’s FCF yield of ~3% implies high market expectations for “base case” organic ADSs over the next decade and beyond, the analyst said.
- The analyst said it’s a struggle to get the math working as the market continues to draw +HSD annual organic ADS for what appears to be permanent, especially given the softening demand backdrop.
- Price promotion: FAST shares are trading up 3.58% at $48.48 on the latest check Friday.
- Photo via company
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