Shares of Fastenal sank 6.2 percent Wednesday after the release of the company’s first-quarter results.
The Winona-based company met Wall Street expectations, reporting a 13.2 percent increase in revenue year over year and a 30 percent increase in earnings.
Investors, though, were hoping for a bigger surprise on the upside, and Fastenal shares had the biggest percentage decline Wednesday among S&P 500 companies.
Fastenal earned $174.3 million, or 61 cents per share, in the quarter ended March 31. That compares with $134.2 million, or 46 cents per share, in the same period a year ago. Revenue was $1.2 billion.
Profit margins at Fastenal did decrease. Gross profit, as a percentage of net sales, declined 73 basis points to 48.7 percent in the first quarter, down from 49.4 percent in the first quarter of 2017.
Dan Florness, president and CEO of Fastenal, told analysts on the company’s earnings call that part of the hit to profit margins was due to inflationary pressures on sales of fasteners at the local level, but he called it a habitual problem that was fixable going forward.
With manufacturing and industrial activity picking up, the strong economy generally bodes well for Fastenal, which is one of the largest industrial suppliers in the U.S. It has more than 2,300 branch locations and a growing installation of industrial vending machines and Onsite locations (dedicated sales and service centers installed within or close to customer facilities).
The harsh winter weather also had an impact on results.
“Weather hit us hard in the quarter,” Florness told analysts. The company canceled 332 of its delivery routes in the quarter due to weather, a 65 percent increase from the number of route cancellations in the first quarter of 2017.
Fastenal signed deals for 5,679 industrial vending devices in the first quarter bringing the installed base to 73,561, an increase of 14.2 percent over March 31, 2017. It also signed deals for 100 new Onsite locations in the first quarter, compared with 64 signings in the first quarter last year.
The installed vending machines and Onsite locations help Fastenal monitor and restock customer supplies. Florness said the company is well on its way toward its goal of signing 360 to 385 Onsite locations in 2018 and 2,100 to 2,300 new vending device signings for the year.
Fastenal shares closed at $51.05, down $3.37 per share or 6.2 percent. Fastenal shares have traded between $39.79 and $58.74 over the last 52 weeks and are now down 6.7 percent year-to-date.