Industrial distributor Fastenal missed Wall Street’s second-quarter earnings estimates. The stock was falling in premarket trading. Results show that the manufacturing economy isn’t out of the woods yet.
Fastenal
(ticker: FAST) is a key industrial company. It reports earnings early in the season. And it’s an industrial distributor, selling thousands of small products to thousands of customers across the country. Its results are a good, real-time read on the health of the manufacturing economy.
Fastenal reported earnings per share of 52 cents from just under $1.9 billion in sales. Wall Street was looking for earnings of 53 cents from just under $1.9 billion in sales. In the first quarter, Fastenal reported 52 cents a share from just under $1.9 billion in sales. In the second quarter. A year ago, Fastenal reported 50 cents a share from about $1.8 billion in sales.
Growth has slowed and earnings were a touch light. CEO Dan Florness called the quarter challenging amid “softer manufacturing activity.” Shares fell about 2.3% in premarket trading while
S&P 500
and
Dow Jones Industrial Average
futures rose 0.2% and 0.3%, respectively.
Shares of cyclical manufacturers have been rising ahead of second-quarter earnings reports. Coming into Thursday trading, Fastenal stock has risen about 12% over the past three months. The
iShares U.S. Industrials ETF
(IYJ) has gained about 6% over the past three months, while the
iShares U.S. Consumer Staples ETF
(IYK) has fallen about 2% over the same span.
A big reason for stronger performance is the potential for a turn in the manufacturing economy. In recent months it’s been shrinking. The Institute for Supply Management Purchasing Manager Index, or
PMI,
has been below 50 for eight consecutive months. Readings below 50 mean the sector is contracting. Above 50 mean it’s growing.
But analysts and strategists typically like to recommend cyclical stocks just as the economy is bottoming. Fairlead Strategies founder and market technical Katie Stockton wrote Wednesday that cyclical sectors were looking more attractive. And
Citi
strategist Hong Li wrote Tuesday that industrial stocks should produce strong earnings reports.
What’s more, Citi industrial analyst Andrew Kaplowitz wrote earlier this week that the coming manufacturing up-cycle will be “stronger for longer” thanks to “megatrends” such as electrification of the economy due to electric vehicles, and higher government spending on infrastructure projects.
Wall Street optimism likely won’t fade because of one earnings report but Fastenal results show the turn isn’t here yet.
Management hosts a conference call at 10 a.m. Eastern time to discuss results. Investors and analysts will be interested to hear what Fastenal has to say about the outlook for manufacturing in the second half of 2023.
Write to Al Root at [email protected]
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