Fastenal missed on revenue early Wednesday and warned of softening demand, after it hiked prices to manage cost inflation. Fastenal stock tumbled despite in-line earnings for the second quarter, making a year-plus low.
June sales grew 16% year over year, Fastenal said in a separate sales report Wednesday. Fastenal previously reported sales gains of 24% in May and 15% in April. The company increased prices to offset cost inflation in the latter half of 2021 and Q1 this year.
"Demand remained generally healthy, but there were certain signs of softening that emerged in May and June," Chief Executive Dan Florness said in an earnings presentation.
Florness alluded to "marketplace disruptions that have made supply chains costlier than pre-pandemic" and "still-elevated material and transportation costs." But he added that Fastenal is effectively managing supply challenges and managing to sustain margins despite higher costs.
IBD Live: A New Tool For Daily Stock Market Analysis
Fastenal Earnings
On a per-share basis, Fastenal earnings climbed 19% year over year to 50 cents a share. That was in line with estimates but slowed from a 27% advance the prior quarter. Revenue grew 18% to $1.779 billion, falling just short of views.
Q2 results benefited from both higher unit sales and price increases over the past 12 months. Price hikes boosted growth by 6.6% to 6.9%, in line with costs, Fastenal said. Operating margin of 21.6% increased 50 basis points from 21.1% in the year-ago quarter.
Fastenal noted that it did not take any broad price increases in Q2 itself. But the earnings release added: "We will continue to take actions aimed at mitigating the impact of product and transportation cost inflation should the need arise in 2022."
The distributor of industrial supplies also sees "more difficult" comparisons in the second half of 2022.
Outlook: Fastenal did not offer specific guidance Wednesday. In all of 2022, Wall Street expects Fastenal earnings per share to grow 17% with sales up 16%, FactSet shows.
Fastenal Stock
Shares gapped down 6.4% to 46.77 on the stock market today. Fastenal stock undercut June lows and hit its lowest level since March 2021. It remains below a falling 50-day moving average and far below the 200-day line. The relative strength line for FAST stock is lackluster.
WW Grainger shed 4.1% Wednesday and Global Industrial Co. lost 2.3%.
Market Rally Falls On Hot Inflation, 'Everything' Fed Rate Hike Talk
Inflation Shrinks Infrastructure Bill
Fastenal manages a streamlined supply chain business model, providing a continuous supply of fasteners, cutting tools and other equipment. It primarily targets manufacturing and construction customers.
It touts roughly 1,400 on-site locations and 1,800 retail sites across 25 countries.
Many of Fastenal's industrial customers are likely to benefit from the bipartisan infrastructure spending bill, which includes $550 billion in funding for new roads, rail and bridges. Under that landmark legislation, construction spending is expected to increase 5% in 2022 and 5.5% in 2023.
However, Politico reports that the rapid rise in inflation has already shaved billions in value from the spending bill, just seven to eight months after it was enacted. Comments on the impact of inflation will be key in Fastenal's guidance.
Amid a wider sell-off, Fastenal stock has slumped since March. It's down roughly 25% year to date.
Find Aparna Narayanan on Twitter at @IBD_Aparna.
