The Winona-based company's results didn't please Wall Street, with shares down 4 percent.
The rebound in manufacturing activity may have lost some steam in recent months, but it hasn't been felt so far at Fastenal Co.
The Winona-based distributor of nuts, bolts and other industrial supplies said Tuesday that continuing strong sales to manufacturing customers, which account for about half its business, fueled better-than-expected results for its second quarter.
After a slow start in January and February due to poor weather, Fastenal's sales have gotten steadily stronger and were up almost 23 percent to $701 million in the quarter ended June 30. Earnings totaled $94 million, or 32 cents a share, compared with $69 million, or 23 cents a share, the same period last year.
Wall Street analysts were expecting the company to earn 30 cents a share on sales of $688.6 million.
The results were helped by a gain of 36 stores during the quarter, bringing the total to 2,588. Even so, sales of stores open for at least five years rose by more than 18 percent over last year's second quarter.
In a conference call, CEO William Oberton said Fastenal's recent strength is somewhat at odds with manufacturing activity benchmarks like the Institute for Supply Management's monthly index, which has shown a slowdown in growth in the last few months.
"Based on our June numbers we think [the company's growth] has been pretty steady and we're happy with that," Oberton said. Sales to manufacturing customers rose 18.5 percent in the second quarter, the sixth consecutive quarterly gain. Fastenal didn't provide a specific forecast, but said it believes it's in a good position to deliver solid increases in earnings and sales for the second half of this year.
The positive vibe didn't carry over to Wall Street, where Fastenal's shares declined more than 4 percent to close at $34.48. More than 5 million shares changed hands, compared with recent daily volume of less than a million.
Ben Marks, president of Minnetonka-based Marks Group Wealth Management, said it's not unusual for Fastenal's stock price to run up in the days leading up to an earnings report and then fall when the results -- even healthy ones -- come out. The stock had been trading at around $33 a share in late June.
But Marks also said analysts might have been looking for more signs from the company that it plans to increase prices to offset higher raw material costs. Oberton said little about pricing in the conference call except that it was "stable." The company boosted its profit margin to 21.4 percent compared with 19.6 percent in the second quarter last year.
Oberton said the company continues to expand its network of vending machines in customers' warehouses and factories that dispense supplies with the swipe of an electronic card. It currently has more than 4,000 installed machines compared with about 1,400 a year ago.
Daily sales growth in the vending machines was almost 50 percent in the second quarter. Marks said the strategy is a good example of Fastenal's success increasing sales to its existing customer base.
"That's a significant number," Marks said. "The company is showing it can be innovative in gaining a larger share of its customers' wallets."
Staff writer Janet Moore contributed to this report. Susan Feyder • 612-673-1723