What happened
Industrial supplier Fastenal (NASDAQ: FAST) can be a bellwether for how the American economy is performing. The company reported third-quarter earnings today, and investors are celebrating the results. After popping as much as 8%, Fastenal shares were higher by 6.1% as of 10:55 a.m. ET Thursday morning.
So what
Fastenal said its third-quarter sales increased 2.4% year over year, meeting analyst expectations. But a better-than-expected operating profit margin helped the company beat Wall Street estimates on the bottom line. Overall, continued economic strength has given investors confidence in Fastenal's business, resulting in a more than 10% gain for the stock over the last month.
Now what
Fastenal provides industrial supplies, including fastener, safety, janitorial, and other products from about 3,400 branches and on-site locations. That means it relies on growth from many business sectors to power its earnings. The manufacturing sector is where Fastenal reported the most growth in the third quarter.
While heavy manufacturing sales increased by 9%, nonresidential construction sales fell by 7.2% in the quarterly period. But construction makes up less than 10% of Fastenal's sales, while heavy manufacturing is its largest customer segment.
Investors also likely focused on the company beating profitability expectations, not just seeing increased sales due to raising prices. Fastenal might be the right stock for those who believe in the resilience of the overall economy. It has also been paying a dividend since 1991. This year, while it maintained its current dividend rate for the fourth quarter, that still represents a 13% year-over-year increase.
While a recession would undoubtedly hurt the returns from Fastenal stock in the short term, long-term investors might want to hold shares in this economic bellwether.
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Howard Smith has positions in Fastenal. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.
