Size and scale matter in business. The latest example is Fastenal (NASDAQ: FAST), a component distributor that was able to produce better-than-expected results despite selling into sluggish industrial and construction end markets.
Investors are cheering the results, sending shares of Fastenal up 7% as of 11 a.m. ET.
Strong results in a difficult environment
Fastenal is a distributor of industrial and construction supplies, serving a lot of industries that faced headwinds in 2023. Higher interest rates and questions about the economy led to uneven results among end users of Fastenal products, but it was not enough to slow the company's momentum.
Fastenal earned $0.46 per share on revenue of $1.76 billion in the fourth quarter, topping analyst expectations for $0.45 per share in earnings on sales of $1.75 billion. Revenue was up 4.1% year over year and gross profit was up slightly from a year prior.
"We experienced higher unit sales in the fourth quarter of 2023 primarily due to growth at our onsite locations, particularly those newly opened in 2023 and 2022, and with large customers," the company said in a statement.
Fastenal did see a slowdown in its fastener business but was able to offset the sluggishness with sales of safety supplies and other products.
Is Fastenal a buy after its stronger-than-expected quarter?
Fastenal's success in the quarter is a testament to the advantages of offering a diverse line of products. The company's fasteners are closely tied to economic activity, and were under pressure. But the safety supplies and other equipment are used in operations and maintenance, and are necessary even when customers are not investing in expansion.
It is a good blueprint for weathering the more cyclical aspects of an industrial business, but there are limits to how much Fastenal can do until demand for its entire suite of offerings returns. With the stock now up about 40% over the past 12 months, investors might want to wait for signs the broader economy is healthy before investing new money in Fastenal right now.
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Lou Whiteman has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.
