Before getting into the earnings report in more detail, here is some more background on what FAST does. As noted above, the company is a wholesale distributor of various industrial and construction supplies in the U.S., Canada, and internationally. More specifically, it sells fasteners (bolts, nuts, screws, washers, etc) under its own brand name. Additionally, it supplies other hardware like machinery keys, concrete anchors, framing systems, wire ropes, and strut products, among other items. It distributes these products through a network of over 2,500 company owned stores.
Circling back to its Q3 results, FAST generated EPS of $0.50, inline with the Capital IQ Consensus, with revenue up 12% year/year to $1.13 billion. That was essentially inline with the $1.12 billion expectation. It's also worth noting that FAST is coming off a upside Q2 report, so investors and traders may have been looking for it to build upon that with another upside report.
On the positive side, the 12% topline growth was its best performance since 4Q12, when revenue was up 14%. For the quarter, daily sales (adj for 1 less selling day compared to last year's Q3) were higher by 14% year/year, but, there is a bit of a caveat there. Some of the growth was driven by its acquisition of Manufacturers Supply Company. On an organic basis, daily sales were up about 12%, mainly driven by higher unit sales. This resulted from improvement in underlying market demand and strength in industrial vending and Onsite locations, which it defines as services provided within close proximity of a customer's facility.
Gross margin dipped modestly, down 20 basis points to 49.1%, mainly due to changes in product mix, and the effects of the hurricanes which reduced net sales and gross profit dollars, causing an increase in lower margin products. However, solid cost containment led to a slight bump in operating margin to 20.2%. The end result was that operating income and net earnings both increased by 11% year/year.
The company did not provide any guidance in its press release, nor did it offer much in the way of commentary regarding its outlook. Management simply stated, "Our growth drivers, combined with a solid economy, are resulting in great growth." To wrap up, all in all, the quarter itself was decent, but investors were clearly looking for more. And with limited clarity on the quarter ahead, traders that are sitting on gains are taking this opportunity to lock in some profits.