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Fastenal Company FAST is scheduled to report second-quarter 2019 results on Jun 11, before the opening bell.

In the las t report ed quarter, the company's earnings topped the Zacks Consensus Estimate by 1.5%. Notably, it surpassed the consensus mark in three of the trailing four quarters, while met the same once, with average positive earnings surprise of 4.2%.

Markedly, first-quarter 2019 earnings and revenues recorded an improvement of 11.9% and 10.4%, respectively, courtesy of higher market demand, and growth in the industrial vending business and existing Onsite locations.

How are Estimates Faring?

Let's take a look at the estimate revision trend in order to get a clear picture of what analysts are thinking about the company prior to the earnings release. The Zacks Consensus Estimate for the to-be-reported quarter has declined from 38 cents to 37 cents over the past 60 days. This indicates flat growth with the year-ago level. Revenues are expected to be $1.38 billion, up 8.8% year over year.

Let's see how things are shaping up for this announcement.

Fastenal Company Price and EPS Surprise

Fastenal Company Price and EPS Surprise

Fastenal Company price-eps-surprise | Fastenal Company Quote

Key Factors

We expect the U.S. industrial market to grow in the second quarter, albeit at a slower rate than in 2018, thereby driving high-single-digit revenue growth. Over the past couple of months, Fastenal sales have softened on a year-over-year basis, with average daily sales growth in April and May coming in at 7.4% and 9.5%, respectively. Average daily sales growth was recorded at 13.2% and 12.2% in fourth-quarter 2018 and first-quarter 2019, respectively. Growth at this level ahead will mark a deviation from management's expectation of double-digit growth in 2019, attributable to a combination of company-specific drivers (i.e. Onsite, vending) and price realization.

Management noted that there have been some signs of slower growth in the market. Nonetheless, performance rebounded slightly in May from the slower results reported in April across all markets and product lines served by Fastenal.

Growth in core product offerings like Onsite Locations/vending machines/managed inventory is expected to benefit Fastenal in the second quarter of 2019.

Higher Non-Residential End-Market Demand: Construction market, especially non-residential and manufacturing, is expected to act as a major tailwind for Fastenal's performance in the quarter.

Vending Machines to Drive Growth: Over the last few quarters, Fastenal's sales have been driven by increased installation of industrial vending machines. Sales through vending devices continued to grow at a double-digit pace, primarily due to higher installed base.

Onsite Locations to Boost Sales: A consistent increase in the number of on-site locations is likely to strengthen Fastenal's market share and boost quarterly numbers. The increased number of onsite locations is likely to expand its market share. The trend is expected to continue in second-quarter 2019 as well. The company aims at achieving 375-400 onsite signings in 2019, reflecting an increase from 336 a year ago.

In a nutshell, sustained strength in most of its end-markets served, and strong momentum in vending machine installations and onsite locations are likely to support top-line growth in the to-be-reported quarter.

Gross Margin Pressure: Fastenal's changes in product and customer mix have been hurting gross margin for quite some time now. Increased product costs, higher freight expenses, and changes in product and customer mix are expected to impact its second-quarter gross margin.

Here is What Our Quantitative Model Predicts:

Our proven model does not suggest that Fastenal is likely to beat estimates in the quarter to be reported. That is because a stock needs to have both a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) for this to happen. Unfortunately, that is not the case here as you will see below.

Earnings ESP: The company has an Earnings ESP of -3.28% as the Most Accurate Estimate is pegged at 36 cents, lower than the Zacks Consensus Estimate of 37 cents. You can uncover the best stocks to buy or sell before they're reported with our Earnings ESP Filter .

Zacks Rank: Fastenal currently has a Zacks Rank #3, which increases the predictive power of ESP. However, the company's -3.28% ESP makes surprise prediction difficult.

Note that we caution against stocks with a Zacks Rank #4 or 5 (Sell rated) going into the earnings announcement, especially when the company is witnessing negative estimate revisions.

You can see the complete list of today's Zacks #1 Rank stocks here .

Stocks to Consider

Here are some companies in the Zacks Retail-Wholesale sector, which according to our model have the right combination of elements to post an earnings beat in their respective quarters to be reported:

GMS Inc. GMS has an Earnings ESP of +0.32% and a Zacks Rank #3.

Urban Outfitters, Inc. URBN has an Earnings ESP of +2.23% and holds a Zacks Rank #3.

BJ's Restaurants, Inc. BJRI has an Earnings ESP of +5.16% and a Zacks Rank #3.

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GMS Inc. (GMS): Free Stock Analysis Report

Fastenal Company (FAST): Free Stock Analysis Report

Urban Outfitters, Inc. (URBN): Free Stock Analysis Report

BJ's Restaurants, Inc. (BJRI): Free Stock Analysis Report

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of NASDAQ, Inc.

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