Is Fastenal on the Fast Track?

Industrial and construction supplier Fastenal (NAS: FAST) recently reported its third-quarter results in line with market expectations. The company seems to have done well despite the sluggish global economy -- evidence, perhaps, that the manufacturing and construction industry continues to display solid results based on increased demand in the sector.

Let's dig deeper and find out how the company performed.

The quarter's nuts and bolts
Although international business now accounts for nearly 10% of Fastenal's sales, most of its business is still based in North America. For the quarter, Fastenal saw a steep rise in demand, both in domestic and international markets, and sales rose 20.4% from the year-ago period to $726.7 million.

Net income rose 29% to $96.8 million, translating into earnings per share of $0.33, in line with market expectations. The company posted its sixth straight quarter of 25%-plus growth, and its seventh straight quarter of higher profit growth than sales growth.

Fastenal benefited from aggressive store openings. It added 94 new locations in the first nine months of 2011 and estimates that it will open 115 to 125 new stores overall this year. It plans to continue expanding into 2012, adding 4% to 6% to its store total during the calendar year.

Manufacturers firm up
There have been signs that manufacturers are continuing to contribute to growth, as U.S. industrial production advanced in September for a fifth straight month. For Fastenal, sales to manufacturers, which account for nearly half of the company's sales, grew by 18%, while non-residential customers, which account for 20% to 25% of the sales, were up by 15%.

A wide customer base and valuable partnerships with companies from diverse industries -- with names such as 3M (NYS: MMM) , Eaton (NYS: ETN) , and Kimberly-Clark (NYS: KMB) -- have helped the company market its products better. All three of these companies are marketing partners with Fastenal, and they rely on the company to help get their products into consumers' hands.

Fastenal plans to expand its product portfolio, especially its private-label brands such as ProFitter, Blackstone, and Northway. With the cash inflow it generated during the year, the company is well positioned for this expansion. Moreover, Fastenal has no debt.

Loose ends
As nearly 50% of the company's sales consist of some type of fasteners that are mostly made from steel, fluctuations in steel and energy prices can have a deep impact on performance. So far, the company has managed its costs well, but investors interested in this stock need to watch out for changes in energy and steel prices.

Fools should also take a look at the quarterly performance of competitor W.W. Grainger (NYS: GWW) , which recently reported third-quarter earnings that rose 21% and raised its full-year earnings estimate.

The Foolish bottom line
Fastenal has consistently posted strong quarterly results and has growth plans in place to take advantage of increasing manufacturing activity. I would suggest that Fools keep an eye on this stock. To keep up with all the events and news, add Fastenal to My Watchlist.

At the time thisarticle was published Fool contributor Navjot Kaur owns no shares in any of the companies mentioned in this article.Motley Fool newsletter serviceshave recommended buying shares of Kimberly-Clark and 3M. Try any of our Foolish newsletter servicesfree for 30 days. We Fools don't all hold the same opinions, but we all believe thatconsidering a diverse range of insightsmakes us better investors. The Motley Fool has adisclosure policy.

Copyright © 1995 - 2011 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.