The Fastenal Company of Winona, MN (Nasdaq:FAST) reported the
results of the quarter ended March 31, 2010. Except as otherwise
noted below, dollar amounts are in thousands.
Net sales, net earnings, and earnings per share were as follows
for the three-month periods ended March 31:
Three-month period
2010
2009
Change
Net sales
$520,772
489,347
6.4%
Net earnings
$56,034
48,694
15.1%
Basic and diluted earnings per share
$0.38
0.33
15.2%
During the first three months of 2010, Fastenal opened 29 new
stores (Fastenal opened 33 new stores in the same period of 2009).
The 29 new stores represent an increase of 1.2% since December 31,
2009. (We had 2,369 stores on December 31, 2009.) There
were 11,962 total employees as of March 31, 2010, a decrease of
0.7% from the 12,045 total employees on December 31, 2009.
COMMENTS REGARDING END MARKETS, MONTHLY SALES CHANGES, AND SALES
TRENDS
Note – Daily sales are defined as the sales for the period
divided by the number of business days in the period.
We believe the end market discussion below provides insight into
activities with our various types of customers. The next
discussion of monthly sales changes provides a good mechanical view
of our business based on the age of the store and the final
discussion of sales trends provides a framework for understanding
the sequential trends in our business since the market decline late
in 2008.
END MARKETS:
Fluctuations in end market business – As we saw in 2009, the
fluctuations caused by the weakened economy continue to have a
substantial impact on our business. To place this in
perspective – approximately 50% of our business has historically
been with manufacturing customers. The daily sales to our
manufacturing customers grew approximately 15.7% in the first
quarter of 2010. In the first, second, third, and fourth quarters
of 2009, this business contracted 16.0%, 25.2%, 22.8%, and 10.1%,
respectively. For the year, our total sales to our
manufacturing customers in 2009 contracted 18.8% from
2008. The 2009 contraction was more severe in our industrial
production business (this is business where we supply products that
become part of the finished goods produced by our customers) and
less severe in the maintenance portion of our manufacturing
business (this is business where we supply products that maintain
the facility or the equipment of our customers engaged in
manufacturing).
Our non-residential construction customers have historically
represented 20% to 25% of our business. This business
contracted approximately 14.7% in the first quarter of 2010. In the
first, second, third, and fourth quarters of 2009, the contraction
was 6.4%, 19.6%, 25.3%, and 24.8%, respectively. The total
sales contraction for 2009 was 19.4%.
On a sequential basis (that is, comparing a period to the
immediately preceding period), the daily average sales to our
manufacturing customers have improved each month since May 2009
(with the exception of July and December 2009 due to the holiday
impact and February 2010 due to the impact of poor
weather). This reversed the negative trend which began in
October 2008. This improvement has been partially offset by
continued weakening in our non-residential construction business in
2009 and in the first three months of 2010.
MONTHLY SALES CHANGES:
Stores opened greater than five years – The impact of the
economy, over time, is best reflected in the growth performance of
our stores opened greater than five years (store sites opened as
follows: 2010 group – opened 2005 and earlier, 2009 group – opened
2004 and earlier, and 2008 group – opened 2003 and
earlier). This store group is more cyclical due to the
increased market share these stores enjoy in their local
markets. During each of the first three months in 2010 and
each of the twelve months in 2009 and 2008, the stores opened
greater than five years had daily sales growth rates of (compared
to the comparable month in the preceding year):
Jan.
Feb.
Mar.
Apr.
May
June
July
Aug.
Sept.
Oct.
Nov.
Dec.
2010
-2.1%
-0.5%
7.4%
2009
-12.4%
-14.3%
-21.5%
-25.2%
-25.2%
-26.3%
-26.6%
-24.7%
-24.2%
-21.7%
-15.0%
-12.1%
2008
8.9%
8.8%
9.9%
10.5%
10.4%
11.2%
9.7%
11.3%
8.5%
6.8%
0.9%
-5.1%
Stores opened greater than two years – Our stores opened greater
than two years (store sites opened as follows: 2010 group – opened
2008 and earlier, 2009 group – opened 2007 and earlier, and 2008
group – opened 2006 and earlier) represent a consistent same-store
view of our business. During each of the first three months in
2010 and each of the twelve months in 2009 and 2008, the stores
opened greater than two years had daily sales growth rates of
(compared to the comparable month in the preceding year):
Jan.
Feb.
Mar.
Apr.
May
June
July
Aug.
Sept.
Oct.
Nov.
Dec.
2010
0.6%
2.3%
9.6%
2009
-11.2%
-13.8%
-20.1%
-24.0%
-23.7%
-25.1%
-25.4%
-24.0%
-23.1%
-20.9%
-13.7%
-10.6%
2008
12.0%
11.1%
12.5%
13.1%
12.0%
12.0%
10.9%
12.8%
10.5%
8.1%
2.3%
-3.9%
All company sales – During each of the first three months in
2010 and each of the twelve months in 2009 and 2008, all of our
selling locations combined had daily sales growth rates of
(compared to the comparable month in the preceding year):
Jan.
Feb.
Mar.
Apr.
May
June
July
Aug.
Sept.
Oct.
Nov.
Dec.
2010
2.4%
4.4%
12.1%
2009
-8.5%
-10.5%
-17.4%
-21.0%
-20.7%
-22.5%
-22.9%
-21.4%
-20.8%
-18.7%
-12.0%
-8.6%
2008
15.6%
15.0%
16.9%
17.1%
16.0%
15.9%
14.8%
16.4%
14.3%
11.9%
6.8%
0.0%
The improvement in the first three months of 2010 continues the
trend we saw in the latter half of 2009. The slow-down in the
final three months of 2008 and all of 2009 relate to the general
economic weakness in the global marketplace.
Several additional factors positively impacted our sales growth
in the first quarter of 2010: (1) the strengthening Canadian dollar
(when compared to the United States dollar) added approximately 0.9
percentage points to our daily sales growth and (2) our Holo-Krome
business, which we acquired in December 2009, added approximately
0.6 percentage points to our daily sales growth.
One final thought regarding our store
performance. Historically, our goal is to have over 75% of our
stores grow their daily sales in a given month. During the
first three months of 2010, the daily sales of approximately 45% to
54% of our stores grew in a given month. During 2009 and 2008
this range was approximately 22% to 34% and 41% to 58%,
respectively.
SALES TRENDS:
We find it helpful to think about the monthly sequential changes
in our business using the analogy of climbing a stairway – This
stairway has several predictable landings where there is a pause in
the sequential gain (i.e. April, July, and October to December),
but generally speaking, climbs from January to October. The
October landing then establishes the benchmark for the start of the
next year.
History has identified these landings in our business
cycle. They generally relate to months with impaired business
days (certain holidays). The first landing centers on Easter,
which alternates between March and April (Easter occurred in April
2009 and April 2010), the second landing centers on July 4th, and
the third landing centers on the approach of winter with its
seasonal impact on primarily our construction business and with the
Christmas / New Year holidays. The holidays we noted impact
the trends because they either move from month-to-month or because
they move around during the week.
The table below shows the pattern to the sequential change in
our daily sales. The line labeled 'Past' is an historical
average of the sequential daily sales change for the period 1998 to
2003. We chose this time frame because it had similar
characteristics, a weaker industrial economy in North America, and
could serve as a benchmark for a possible trend line. The
'2009' and '2010' lines represent our actual sequential daily sales
changes. The '09Delta' line is the difference between the
'Past' and '2009', similarly, the '10Delta' is the difference
between the 'Past' and '2010'.
Jan.(1)
Feb.
Mar.
Apr.
May
June
July
Aug.
Sept.
Oct.
Nov.
Dec.
Past
0.9%
3.3%
2.9%
-0.3%
3.4%
2.8%
-2.3%
2.6%
2.6%
-0.7%
-4.7%
-6.0%
2009
-18.3%
-2.6%
-1.4%
-4.9%
2.7%
1.7%
-3.6%
5.5%
3.3%
-0.7%
-2.0%
-9.0%
09Delta
-19.2%
-5.9%
-4.3%
-4.6%
-0.7%
-1.1%
-1.3%
2.9%
0.7%
0.0%
2.7%
-3.0%
2010
2.9%
-0.7%
5.9%
10Delta
2.0%
-4.0%
3.0%
(1) The January figures represent the percentage change from the
previous October, whereas the remaining figures represent the
percentage change from the previous month.
The 18.3% drop from October 2008 to January 2009 represents the
immediate impact of the economy on our business. During this time
frame, our daily sales change, on a year-over-year basis, dropped
from 11.9% growth in October to a contraction of 8.5% in
January. After January, the trend continued downward as the
'Delta' (or spread between the benchmark and the 2009 actual) in
February, March, and April 2009 averaged a negative 4.9%. The
daily sales contraction, on a year-over-year basis, was 21.0% in
April. The 'Delta' from May 2009 to July 2009 was not as
significant, averaging a negative 1.0%. While this period was
still painful, it began to show what we believe was the bottom of
the drop. Finally, in the period from August 2009 to December 2009,
the 'Delta' improved, and averaged a positive 0.7%. The first
quarter of 2010 began strong, our business exceeded the trend line
in January, February took a step back due to inclement weather, and
March reestablished the positive trend.
A graph of the sequential daily sales change pattern noted
above, starting with a base of '100' in the previous October and
ending with the next October, would be as follows:
http://media.globenewswire.com/cache/11647/file/8085.jpg
PATHWAY TO PROFIT AND ITS IMPACT ON OUR BUSINESS:
During April 2007 we disclosed our intention to alter the growth
drivers of our business – For most of the preceding ten years, we
used store openings as the primary growth driver of our business
(our historical rate was approximately 14% new stores each
year). As announced in April 2007, we began to add outside
sales personnel into existing stores at a faster rate than
historical patterns. We funded this sales force expansion with
the occupancy savings generated by opening stores at the rate of 7%
to 10% per year (see our disclosure below regarding the temporary
slowing of our store growth in 2009 and the first half of
2010). Our goal was four-fold: (1) to continue growing our
business at a similar rate with the new outside sales investment
model, (2) to grow the sales of our average store to $125 thousand
per month in the five year period from 2007 to 2012, (3) to enhance
the profitability of the overall business by capturing the natural
expense leverage that has historically occurred in our existing
stores as their sales grow, and (4) to improve the performance of
our business due to the more efficient use of working capital
(primarily inventory) as our average sales volume per store
increases. The economic weakness that dramatically worsened in
the fall of 2008 and continued into 2009 and 2010 caused us to
alter the 'pathway to profit' beginning in 2009. These changes
centered on two aspects (1) temporarily slowing store openings to a
range of 2% to 5%, and (2) stopping headcount additions except for
store openings and for stores that are growing.
Our 'pathway to profit' initiative has slowly altered our cost
structure over the last several years to increase the portion of
our operating costs which are variable versus fixed. This
dramatically improved our ability to manage through the current
economic environment. As discussed in our third quarter 2009
release, we began to stabilize our store headcount in October
2009. From October 2009 to March 2010 our store full-time
headcount has remained stable and our store full-time equivalent
(FTE) headcount has increased from 6,944 to
6,993. This initiative allows us to focus on the
three drivers of our business: (1) store headcount, (2) store (or
unit) growth, and (3) average sales volume per store, which
ultimately drives our level of profitability.
Our original goal was to hit the $125 thousand per month store
average by 2012. We believe the duration of the economic
weakness could delay the timing of when we achieve the $125
thousand per month average by several years. However, the
current economic weakness only serves to strengthen our belief in
the 'pathway to profit'.
Future store openings – We indicated in our January 2010
earnings release our plan is to continue increasing the rate of
store openings, with the goal of resuming our historical rate of
openings of 7% to 10% in the second half of 2010. As of March
31, 2010, we expect to continue with this plan.
Store count on March 31, 2010 – During the first quarter of 2010
we opened 29 new stores (24 were traditional stores and 5 were
strategic account stores). We closed five traditional store
locations and converted one strategic account store location to a
customer-only type. On March 31, 2010 we had 2,392 stores,
this consisted of the 2,369 stores at the start of the year, plus
the 29 stores we opened, less the five stores we closed, and less
the one store we converted. Over the last several years, we
have considered whether or not to close any store where (1) the
lease for that store is up for renewal and (2) there is another
store in reasonably close proximity to the customer base served by
that store. We closed/consolidated eight stores in 2008, ten
in 2009, and five in the first quarter of 2010. While we
intend to continue this practice, we do not anticipate more than
one or two potential closures for the remainder of 2010.
Store Count and Full-Time Equivalent (FTE) Headcount – In
response to the 'pathway to profit', we increased both our store
count (opening 7.5% and 8.1% new stores in calendar 2008 and 2007,
respectively) and our store FTE headcount. However, the rate
of increase in store locations has slowed (we opened 3.0% new
stores in calendar 2009) and our FTE headcount for all types of
personnel has been reduced since the economy weakened late in
2008. The number of stores at quarter end, the average FTE
headcount per quarter, and the percentage change were as follows
for each of the last five quarters and for first quarter of 2007,
the last completed quarter before we began the 'pathway to
profit':
March
December
September
June
March
March
2010
2009
2009
2009
2009
2007
Store locations
2,392
2,369
2,352
2,350
2,342
2,073
% change (twelve months)
2.1%
2.5%
2.3%
3.4%
5.8%
% change since March 2007
15.4%
14.3%
13.5%
13.4%
13.0%
Store personnel - FTE
7,004
7,007
7,087
7,203
7,754
6,383
Distribution and manufacturing personnel - FTE
1,800
1,768
1,763
1,856
1,972
1,962
Administrative and sales support personnel - FTE
1,300
1,298
1,322
1,362
1,393
1,383
Total - average FTE headcount
10,104
10,073
10,172
10,421
11,119
9,728
% change (twelve months)
Store personnel - FTE
-9.7%
-15.1%
-14.4%
-9.2%
2.4%
Distribution and manufacturing personnel - FTE
-8.7%
-20.3%
-21.4%
-13.5%
-7.3%
Administrative and sales support personnel - FTE
-6.7%
-8.1%
-5.8%
1.1%
4.6%
Total - average FTE headcount
-9.1%
-15.2%
-14.7%
-8.8%
0.8%
% change since March 2007
Store personnel - FTE
9.7%
9.8%
11.0%
12.8%
21.5%
Distribution and manufacturing personnel - FTE
-8.3%
-9.9%
-10.1%
-5.4%
0.5%
Administrative and sales support personnel - FTE
-6.0%
-6.1%
-4.4%
-1.5%
0.7%
Total - average FTE headcount
3.9%
3.5%
4.6%
7.1%
14.3%
We have reduced our FTE headcount at our store locations 15.4%
since our peak of 8,280 FTE headcount in third quarter of 2008,
much of this decrease relates to a reduction in part-time hours
worked as our absolute headcount numbers related to store personnel
declined by 7.9% during this time period. Since the first
quarter of 2007, the last completed quarter before we began the
'pathway to profit', our store count is up 15.4%, our store FTE
headcount is up 9.7% and our absolute store headcount has increased
22.7% from 6,849 to 8,404. During this timeframe, our
non-store FTE headcount has decreased. We believe these
fluctuations allow us to manage our expense in the short-term while
maintaining our ability to sell into the marketplace.
Store Size and Profitability – The store groups listed in the
table below, when combined with our strategic account stores,
represented approximately 86% and 89% of our sales in the first
quarter of 2010 and 2009, respectively. Strategic account
stores are stores that are focused on selling to a group of
strategic account customers in a limited geographic
market. Our remaining sales (approximately 11% to 14%) relate
to either: (1) our in-plant locations, (2) our direct Fastenal Cold
Heading business (including our new Holo-Krome business acquired in
December 2009), or (3) our direct import business. Our average
store, excluding the business not sold through a store, had sales
of $62,700 and $61,900 per month in the first quarter of 2010 and
2009, respectively. This average amount was $72,500 per month
in the first quarter of 2007. The average age, number of
stores, and pre-tax margin data by store size for the first quarter
of 2010 and 2009, respectively, were as follows:
Sales per Month
Average
Age
(Years)
Number of
Stores
Percentage
of Stores
Pre-Tax
Margin
Percentage
Three months ended March 31, 2010
$0 to $30,000
4.4
516
21.6%
-14.5%
$30,001 to $60,000
7.4
942
39.4%
11.2%
$60,001 to $100,000
10.1
561
23.5%
21.3%
$100,001 to $150,000
12.9
231
9.7%
24.6%
Over $150,000
16.2
111
4.6%
26.3%
Strategic Account Store
31
1.3%
Total
2,392
100.0%
Three months ended March 31, 2009
$0 to $30,000
3.8
605
25.8%
-23.4%
$30,001 to $60,000
6.6
836
35.7%
9.8%
$60,001 to $100,000
9.5
528
22.5%
20.1%
$100,001 to $150,000
11.9
231
9.9%
24.6%
Over $150,000
15.5
121
5.2%
26.8%
Strategic Account Store
21
0.9%
Total
2,342
100.0%
Note – Amounts may not foot due to rounding difference.
Our goal under the 'pathway to profit' is to increase the sales
of our average store to approximately $125,000 per month (see
earlier discussion). This will shift the store mix emphasis
from the first three categories ($0 to $30,000, $30,001 to $60,000,
and $60,001 to $100,000) to the last three categories ($60,001 to
$100,000, $100,001 to $150,000, and over $150,000), and we believe
will allow us to leverage our fixed cost and increase our overall
productivity.
Note – Dollar amounts in this section are presented in whole
dollars, not thousands.
STATEMENT OF EARNINGS INFORMATION (percentage of net sales) for
the three-month periods ended March 31:
Three-month period
2010
2009
Net sales
100.0%
100.0%
Gross profit
51.1%
52.9%
Operating and administrative expenses
33.7%
36.8%
Loss on sale of property and equipment
0.0%
0.1%
Operating income
17.4%
16.0%
Interest income
0.0%
0.1%
Earnings before income taxes
17.4%
16.1%
Note – Amounts may not foot due to rounding difference.
Gross profit percentage for the first quarter of 2010 decreased
from the same period in 2009. Sequentially, the gross profit
improved from the 49.9% in the fourth quarter of 2009. The
gross profit percentage was 52.9%, 51.1%, 50.0% and 49.9% in the
first, second, third, and fourth quarters of 2009,
respectively.
The gross profit percentage drop in 2009 was driven by decreases
in three components of gross profit: (1) transactional gross
profit, (2) organizational gross profit, and (3) vendor incentive
gross profit. The transactional gross profit represents the
gross profit realized due to the day-to-day fluctuations in
customer pricing relative to product and freight costs. This
component was negatively influenced by the competitive landscape in
2009 which depressed the prices we could charge for our products;
however, this component has generally improved since August
2009. The organizational gross profit represents the component
of gross profit we attribute to buying scale and efficiency
gains. This component was negatively influenced by
deflationary impacts in 2009 as we were selling inventory sourced
at peak costs late in 2008. This component was magnified in
2009 due to the nature of our inventory turns and the dramatic
decrease in sales activity during much of the year. However,
this component improved in the first quarter of 2010 when compared
to the fourth quarter of 2009. The third component relates to
vendor volume allowances. The gross profit dollars associated
with this component dropped dramatically in the second half of
2009. However, this component improved in the first quarter of
2010 when compared to the fourth quarter of 2009. We believe
these three components will continue to improve as we progress into
the remainder of 2010. This belief is based on (1) our focused
effort to raise our transactional margin, (2) the bias we believe
exists for some inflation in 2010 rather than the significant
deflation we experienced in 2009, and (3) the reset of vendor
allowance programs which tend to be calendar based.
Operating and administrative expenses improved in the first
quarter of 2010 versus the first quarter of 2009. Sales grew
6.4% for the quarter, employee related expenses contracted 2.7% and
all other expenses contracted 2.2%.
Historically, 65% to 70% of our operating and administrative
expenses consist of employee related costs. The components
would be: (1) payroll (which includes cash compensation, stock
option expense, and profit sharing), (2) health care, and (3)
education. During the first quarter of 2010 and the four quarters
of 2009, this range has been reduced to 60% to 65% due to the
factors noted below.
The payroll costs for the first quarter of 2010 decreased 4.1%
from the first quarter of 2009 and increased 6.5% from the fourth
quarter of 2009. The disparity between the decrease of 9.1%
full-time equivalent headcount noted above and the 4.1% decrease is
driven by several factors: (1) sales commissions earned were only
nominally below 2009 (this decrease was due to the lower gross
profit percentage, which has a meaningful impact on the commissions
earned), (2) the total bonus expenses increased due to our profit
growth, (3) the hours worked per employee nominally grew, and (4)
our profit sharing expense grew.
Our health care costs in the first quarter of 2010 grew 21.5%
over the first quarter in 2009. The increase in health care
costs is due to the increase in the percentage of employees opting
for expanded coverage as their spouses have lost their insurance
coverage at other employers due to the current economic
environment, increases in COBRA costs due to changes in federal
funding within COBRA, and an increase in health care utilization
when compared to previous years.
The remaining costs within our operating and administrative
expenses decreased 2.2% from the first quarter of 2009 and
increased 7.2% from the fourth quarter of 2009. Occupancy
expenses decreased 1.7% from the first quarter of 2009 and
increased 8.8% from the fourth quarter of 2009. The sequential
change was driven by heating costs during the winter
months. Net transportation costs included in operating and
administrative expenses increased 8.1% from the first quarter of
2009 and 16.1% from the fourth quarter of 2009. This was
driven by our increased activity as demonstrated in our sales
growth and by an increase in per gallon fuel prices.
The last several years have seen meaningful swings in the cost
of diesel fuel and gasoline – During the first quarter of 2010, our
total vehicle fuel costs were approximately $6.4
million. During the first, second, third, and fourth quarters
of 2009, our total vehicle fuel costs were approximately $5.2
million, $5.7 million, $6.2 million, and $6.1 million,
respectively. The changes resulted from variations in fuel
costs, variations in the service levels provided to our stores from
our distribution centers, and changes in the number of vehicles at
our store locations. These fuel costs include the fuel
utilized in our distribution vehicles (semi-tractors, straight
trucks, and sprinter trucks) which is recorded in cost of goods and
the fuel utilized in our store delivery vehicles which is included
in operating and administrative expenses (the split in the last
several years has been approximately 50:50 between distribution and
store use).
The average per gallon fuel costs and the percentage change (on
a year-over-year basis) for the last three years was as
follows:
Per gallon average price
1st
2nd
3rd
4th
2010 - Quarter
Diesel fuel
$2.89
Gasoline
$2.68
2009 - Quarter
Diesel fuel
$2.19
2.29
2.61
2.70
Gasoline
$1.86
2.25
2.55
2.54
2008 - Quarter
Diesel fuel
$3.47
4.30
4.38
3.11
Gasoline
$3.07
3.65
3.85
2.49
Per gallon price change
1st
2nd
3rd
4th
2010 - Quarter
Diesel fuel
32.0%
Gasoline
44.1%
2009 - Quarter
Diesel fuel
-36.9%
-46.7%
-40.4%
-13.2%
Gasoline
-39.4%
-38.4%
-33.8%
2.0%
Income taxes, as a percentage of earnings before income taxes,
were approximately 38.2% and 38.1% for the first quarter of 2010
and 2009, respectively.
WORKING CAPITAL:
The year-over-year comparison and the related dollar and
percentage changes related to accounts receivable and inventories
were as follows:
Balance at March 31,
Twelve Month Dollar
Change
Twelve Month
Percentage Change
2010
2009
2008
2010
2009
2010
2009
Accounts receivable, net
$
262,463
240,658
273,360
21,805
(32,702)
9.1%
-12.0%
Inventories
507,243
555,283
494,360
(48,040)
60,923
-8.7%
12.3%
The accounts receivable increase of 9.1% from March 2009 to
March 2010 was created by a daily sales increase of 4.4% and 12.1%
in February and March 2010, respectively. The accounts
receivable decrease of 12.0% from March 2008 to March 2009 relates
to a daily sales decrease of 10.5% and 17.4% in February and March
2009, respectively. A portion of our inventory procurement has a
longer lead time than our ability to foresee sales trends;
therefore, the drop in sales growth activity in the fourth quarter
of 2008 and during the first quarter of 2009 continued to result in
inventory consumption that was less than the amount of inbound
product, with the exception of March 2009. The inventory
decrease noted in March 2009 continued through most of 2009 and
into 2010. Our inventory dropped approximately $9,000,
$36,000, and $21,000 during the first, second, and third quarters
of 2009, respectively. The inventory grew by approximately
$10,000 in the fourth quarter of 2009; approximately half of this
increase related to our December 2009 acquisition of Holo-Krome and
the balance related to an increase in inventory stocking at our
distribution centers to support the improving sales trends we have
seen since August 2009. During the first quarter of 2010, our
inventory decreased approximately $1,200.
BALANCE SHEET AND CASH FLOW:
Our balance sheet continues to be very strong and our operations
have good cash generating characteristics. During the first
quarter of 2010, we generated $79,028 (or 141% of net earnings) of
operating cash flow. Our first quarter typically has stronger
cash flow characteristics due to the timing of tax payments; this
benefit reverses itself in the second, third, and fourth quarters
as income tax payments go out in April, June, September, and
December. The remaining amounts of cash flow from operating
activities are largely linked to the pure dynamics of a
distribution business and its strong correlation to working capital
as discussed above.
The strong free cash flow (operating cash flow less net capital
expenditures) during 2009 allowed us to increase our first dividend
payment (declared January 2010 and paid in February 2010) by 14.3%
(from $.35 per share in 2009 to $.40 per share in 2010).
STOCK REPURCHASE:
In July 2009, we announced our Board of Directors had authorized
purchases by us of up to 2,000,000 shares of our common
stock. This authorization replaced any unused authorization
previously approved by our Board of Directors. During 2009, we
purchased 1,100,000 shares of our outstanding stock at an average
price of approximately $37.37 per share. These purchases
occurred in the fourth quarter of 2009. We did not purchase
any stock in the first quarter of 2010.
CONFERENCE CALL TO DISCUSS QUARTERLY EARNINGS:
As we previously disclosed, we will host a conference call today
to review the quarterly results, as well as current
operations. This conference call will be broadcast live over
the Internet at 9:00 am, central time. To access the webcast,
please go to the Fastenal Company Investor Relations Website at
http://investor.fastenal.com .
ANNUAL MEETING OF SHAREHOLDERS PRESENTATION:
On Tuesday, April 20, 2010, we will be holding our Annual
Meeting of Shareholders at our offices at 2001 Theurer Boulevard,
Winona, Minnesota. The meeting will also be available via
webcast from 10:00 am, central time, until the conclusion of the
meeting. To access the webcast, please go to the Fastenal
Company Investor Relations Website at http://investor.fastenal.com
.
ADDITIONAL INFORMATION:
This press release contains statements that are not historical
in nature and that are intended to be, and are hereby identified
as, "forward looking statements" as defined in the Private
Securities Litigation Reform Act of 1995, including statements
regarding (1) our anticipated sales growth in the near future and
our goals regarding sales growth, (2) the goals of our
long-term growth strategy, 'pathway to profit', including the
anticipated rate of new store openings, planned additions to our
outside sales personnel, the expected funding of such additions out
of cost savings resulting from the slowing of the rate of new store
openings, the growth in average store sales expected to result from
this strategy, our ability to capture leverage and working capital
efficiency expected to result from this strategy, and our ability
to increase overall productivity as a result of this strategy, (3)
our ability to manage our employee related costs in the short-term
while maintaining our sales, (4) our ability to improve our
gross profit percentage in 2010, (5) our intent to stabilize our
total store headcount and increase our range of store openings
commencing in the second half of 2010, and (6) our intent to
continue the practice of rationalizing store locations at the end
of a lease and our expectations regarding the number of store
closures in 2010. The following factors are among those that
could cause the Company's actual results to differ materially from
those predicted in such forward‑looking statements: (1) a more
prolonged downturn in the economy, a significant decline in
industrial production, or a change, from that projected, in the
number of North American markets able to support new stores could
cause store openings to change from that expected and could impede
our sales growth, (2) a more prolonged downturn in the
economy, changes in the expected rate of new store openings,
difficulties in successfully attracting and retaining additional
qualified outside sales personnel, and difficulties in changing our
sales process could adversely impact our ability to achieve the
goals of our 'pathway to profit' initiative, (3) a worsening
trend in the economy and our sales, or changes in government
regulations, could make it difficult to effectively manage our
employee related costs in the short-term while maintaining sales,
(4) a more prolonged downturn in the economy, additional
deflation, or a change in our purchasing patterns could affect our
ability to improve our gross profit percentage in 2010, and (5) a
more prolonged downturn in the economy could affect our ability to
stabilize our total store headcount and increase our range of store
openings commencing in 2010 and could impact our store
rationalization practice. A discussion of other risks and
uncertainties which could cause our operating results to vary from
anticipated results or which could materially adversely effect our
business, financial condition, or operating results is included in
our 2009 annual report on Form 10-K under the sections
captioned Certain Risks and Uncertainties and Item 1A – Risk
Factors. FAST-E
The Fastenal Company logo is available at
http://www.globenewswire.com/newsroom/prs/?pkgid=6432
FASTENAL COMPANY AND SUBSIDIARIES
Consolidated Balance Sheets
(Amounts in thousands except share information)
(Unaudited)
March 31,
December 31,
Assets
2010
2009
Current assets:
Cash and cash equivalents
$178,822
164,852
Marketable securities
24,440
24,400
Trade accounts receivable, net of allowance for doubtful
accounts of $4,084 and $4,086, respectively
262,463
214,169
Inventories
507,243
508,405
Deferred income tax assets
12,908
12,919
Prepaid income taxes
--
11,657
Other current assets
43,307
45,962
Total current assets
1,029,183
982,364
Marketable securities
5,210
6,238
Property and equipment, less accumulated depreciation
332,103
335,004
Other assets, net
3,779
3,752
Total assets
$1,370,275
1,327,358
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable
$65,778
53,490
Accrued expenses
74,728
66,019
Income taxes payable
21,803
--
Total current liabilities
162,309
119,509
Deferred income tax liabilities
17,001
17,006
Stockholders' equity:
Preferred stock, 5,000,000 shares authorized
--
--
Common stock, 200,000,000 shares authorized, 147,430,712 shares
issued and outstanding
1,474
1,474
Additional paid-in capital
1,333
333
Retained earnings
1,172,703
1,175,641
Accumulated other comprehensive income
15,455
13,395
Total stockholders' equity
1,190,965
1,190,843
Total liabilities and stockholders' equity
$1,370,275
1,327,358
FASTENAL COMPANY AND SUBSIDIARIES
Consolidated Statements of Earnings
(Amounts in thousands except earnings per share)
(Unaudited)
Three months ended
March 31,
2010
2009
Net sales
$520,772
489,347
Cost of sales
254,859
230,699
Gross profit
265,913
258,648
Operating and administrative expenses
175,410
179,909
Loss on sale of property and equipment
67
328
Operating income
90,436
78,411
Interest income
233
256
Earnings before income taxes
90,669
78,667
Income tax expense
34,635
29,973
Net earnings
$56,034
48,694
Basic and diluted net earnings per share
$0.38
0.33
Basic and diluted weighted average shares outstanding
147,431
148,531
FASTENAL COMPANY AND SUBSIDIARIES
Consolidated Statements of Cash Flows
(Amounts in thousands)
(Unaudited)
Three months ended
March 31,
2010
2009
Cash flows from operating activities:
Net earnings
$56,034
48,694
Adjustments to reconcile net earnings to net cash provided by
operating activities:
Depreciation of property and equipment
10,287
10,300
Loss on sale of property and equipment
67
328
Bad debt expense
1,624
2,567
Deferred income taxes
6
--
Stock based compensation
1,000
900
Amortization of non-compete agreement
17
17
Changes in operating assets and liabilities:
Trade accounts receivable
(49,918)
1,715
Inventories
1,162
8,964
Other current assets
2,655
18,600
Accounts payable
12,288
(12,948)
Accrued expenses
8,709
(9,998)
Income taxes
33,460
26,394
Other
1,637
(1,999)
Net cash provided by operating activities
79,028
93,534
Cash flows from investing activities:
Purchase of property and equipment
(8,138)
(19,033)
Proceeds from sale of property and equipment
685
1,973
Net decrease (increase) in marketable securities
988
(19)
Net (increase) decrease in other assets
(44)
63
Net cash used in investing activities
(6,509)
(17,016)
Cash flows from financing activities:
Payment of dividends
(58,972)
(51,986)
Net cash used in financing activities
(58,972)
(51,986)
Effect of exchange rate changes on cash
423
(557)
Net increase in cash and cash equivalents
13,970
23,975
Cash and cash equivalents at beginning of period
164,852
85,892
Cash and cash equivalents at end of period
$178,822
109,867
Supplemental disclosure of cash flow information:
Cash paid during each period for income taxes
$1,169
3,579
CONTACT: Fastenal Company
Dan Florness, EVP and Chief Financial Officer
507.454.5374
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