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Industrial companies are caught in the “tween” stage of the coronavirus recovery: The narrative around a post-pandemic industrial renaissance remains very much intact but there's not much to show for it yet beyond some positive early growth signs that are now old news. Meanwhile, costs are going up, expectations are high and Covid uncertainty still lingers. This year’s first quarter was also just inherently noisy, with year-ago comparisons straddling the line between the comparatively normal early months of 2020 and the dire final weeks of last March as most of the world went under lockdown. It’s not a great recipe for earnings-day stock rallies.
Fastenal Co., a distributor of factory-floor odds and ends and the unofficial first mover of the industrial earnings season, exemplified that dynamic this week. The company was one of the beneficiaries of the pandemic, thanks to its ability to procure and supply personal protective gear and cleaning products. Now, demand for such goods is waning as the vaccine rollout presses ahead. In fact, there’s a glut of three-ply face masks and Fastenal is having to sell its stock for less than it paid for it. The company took an $8 million writedown on its mask inventory in the first quarter, and its sales and gross profit margin fell short of analysts’ estimates. This sounds bad but it’s fundamentally a good thing.