Fastenal Co. shares fell Tuesday after the company's second-quarter results missed investor expectations.
The Winona-based distributor of fasteners, construction and industrial equipment said its profit fell 6 percent to $131.5 million. That amounted to 46 cents a share, 2 cents below the consensus forecast of analysts.
The company's shares closed at $43.79, down 3.5 percent.
Fastenal missed analysts' expectations by 1 cent per share in each of the previous two quarters. The company is routinely the first publicly traded firm in Minnesota to report its results for a new quarter.
Sales for the April-to-June period were $1.01 billion, up 2 percent from last year. Analysts had forecast sales of $1.02 billion.
Sales of fasteners to Fastenal's construction and production customers — approximately 40 percent of its overall business — have slowed in 2016 and got worse in June, the company said.
Sales of its nonfastener products, done mainly through industrial vending machines, also softened in the last eight quarters.
Fastenal said its profit margin has been pressured as it does more business with large national businesses, firms that it says have been underrepresented in its customer base in the past. Large accounts yield profits that are below the company's average, Fastenal said in a statement. But those businesses yield "strong incremental operating income growth," the company said.
Its sales to large customers grew around 4 percent, or 2 percentage points faster than its overall sales.
Expenses rose during the quarter because of a store remodeling project, called CSP 16 or Customer Service Project 2016. Fastenal converted approximately 1,900 of its stores to the new format as of June 30.
Logan Purk, an analyst with Edward Jones, downgraded his rating on Fastenal from a "buy" to a "hold" after the company's earnings call Tuesday morning. "I think the company is doing well, pulling the levers it can and executing on its growth initiatives, Purk said. "But the current macroeconomic headwinds are going to be just too great for them to offset."
"Meaningful earnings growth will be harder to come by," Purk added. "With that kind of reduced outlook, I think shares are appropriately valued at current levels."
Patrick Kennedy • 612-673-7926
