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Industrial Distributor Fastenal Reported Weak Earnings. It's Bad News for Manufacturing. -- Barrons.com Industrial Distributor Fastenal Reported Weak Earnings. It's Bad News for Manufacturing. -- Barrons.com Dow Jones By Al Root Fastenal -- one of the first industrial companies to report earnings and a valuable source of insights about the health of U.S. manufacturing -- turned in lower sales and profits than Wall Street analysts were expecting. The company earned 36 cents a share from $1.4 billion in sales. Falling short of earnings estimates is never a good thing. The stock was down 4% at $30.01 before the market opened on Thursday, even as futures on the S&P 500 rose. Second-quarter sales growth at the company slowed to 8%, the first sub-10% growth in the past nine quarters. Fastenal (ticker: FAST) highlighted double-digit percentage-point growth in its vending, On-Site and national account business, but overall activity in its end markets slowed. (On-Site operations are located inside customers' facilities. Fastenal takes over part of these manufacturers' inventory management.) The back story. As a distributor of thousands of small items that make possible manufacturing around the country, the company offers a good reading on the health of American manufacturing. Shares are up more than 21% in 2019, excluding dividends, better than the 15% move of the Dow Jones Industrial Average, also excluding dividends. Still, Fastenal stock dropped 1.6% in the second quarter as U.S. manufacturing indexes showed decelerating growth. What's new. Gross profit margins declined by 1.8% year over year, in part because of rising costs. "While we successfully raised prices as one element of our strategy to offset tariffs placed to date on products sourced from China, those increases were not sufficient to also counter general inflation in the marketplace," reads the company's news release. "We have taken additional actions in the third quarter of 2019 to counter the broader pressures we are experiencing on our costs as well as the additional tariffs that were levied on China-sourced products in May 2019." Looking ahead. The increase in costs stemming from trade issues is a problem, but analysts will likely focus more on the slowdown in sales growth. Fastenal's results follow news of a poor quarterly performance from MSC Industrial Direct (MSM), another distributor of parts and other gear for manufacturing. MSC's results missed Wall Street's expectations and management issued a sales forecast for the current quarter that was below what analysts were predicting. Its stock dropped 3.8% in Wednesday trading. Fastenal will host a conference call for investors and analysts 10 a.m. Eastern time to discuss the results. Investors will be listening for what management has to say about various industrial end markets, hoping to learn whether manufacturing activity is rebounding. |
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