So when the company reported downside Q2 earnings this morning, coupled with a deceleration in top-line growth, investors were provided with a data point indicating that economic conditions softened this quarter.
This would be in alignment with yesterday's commentary from Fed Chairman Powell in which he stated that Q1 business investment was slower.
For the quarter, FAST generated EPS of $0.36 vs. the $0.37 consensus with revenue in line with expectations at $1.37 bln.
Its 7.9% revenue growth was its lowest since 1Q17 and FAST noted that economic activity slowed in Q2 relative to activity levels experienced in Q1.
Click here to access FAST's earnings press release.
In late 2017, FAST's revenue growth picked up steam, going from low-to-mid single digits to the mid-teen range. This new level of growth would remain intact throughout 2018 and into 1Q19, mainly driven by significant expansion of its Onsite and vending businesses.
The Onsite model is a physical "shop" set up at or near a customer's site that FAST stocks with needed inventory. Vending devices are exactly what the name implies: machines that dispense products and produce revenue.
In Q1 it signed 105 new Onsite locations (up 39% yr/yr) with sales increasing by more than 20% in the quarter. The pace decelerated this quarter as FAST added 94 new locations with daily sales growing at a high-teens pace.
For its vending business, FAST signed 5,603 vending devices in Q1, driving high-teens sales growth. This quarter it signed 5,439 devices and daily sales were up at a low-teens pace.
In addition to the slower top line growth, FAST was hit by rising commodity costs and tariffs, which cut into its margins. After declining by 100 bps last quarter, its gross margin slid by another 180 bps this quarter to 46.9%.
In an effort to offset headwinds related to tariffs placed on products sourced from China, FAST implemented some price increases. While these price increases were absorbed by its customers, it wasn't enough to counter rising input costs.
As a result, the company intends to push more price increases through in 3Q19.
Key Takeaways: As an industrial company that generates about 85% of its revenue in the U.S., FAST is a good barometer for the health of the domestic construction and manufacturing markets. Its softer Q2 results dovetail with Fed Chairmain Powell's statements yesterday, in which he commented that economic conditions were weaker this quarter compared to Q1.
However, we wouldn't characterize the drop-off in activity as catastrophic by any means. The question is whether this slowdown is the beginning of a trend, or whether it is a blip on the radar.