The Fastenal Company of Winona, MN (Nasdaq:FAST) reported the
results of the quarter ended September 30, 2010. Except for per
share information or as otherwise noted below, dollar amounts are
in thousands.
Net sales, net earnings, and earnings per share were as follows
for the periods ended September 30:
|
Nine-month period |
Three-month period |
|
2010 |
2009 |
Change |
2010 |
2009 |
Change |
|
|
|
|
|
|
|
|
|
Net sales |
$ |
1,695,705 |
1,453,580 |
16.7% |
$ |
603,750 |
489,339 |
23.4% |
|
|
|
|
|
|
|
|
|
Net earnings |
$ |
200,195 |
139,821 |
43.2% |
$ |
74,994 |
47,589 |
57.6% |
|
|
|
|
|
|
|
|
|
Basic and diluted earnings per share |
$ |
1.36 |
0.94 |
44.7% |
$ |
0.51 |
0.32 |
59.4% |
During the first nine months of 2010, we opened 90 new stores
(we opened 45 new stores in the same period of 2009). The 90 new
stores represent an increase of 3.8% since December 31,
2009. (We had 2,369 stores on December 31, 2009.) There
were 12,827 total employees as of September 30, 2010, an increase
of 6.5% from the 12,045 total employees on December 31, 2009.
COMMENTS REGARDING MONTHLY SALES CHANGES, SEQUENTIAL
TRENDS, AND END MARKET PERFORMANCE
Note – Daily sales are defined as the sales for the period
divided by the number of business days in the period.
This section focuses on three distinct views of our business –
monthly sales changes, sequential trends, and end market
performance. The discussion of monthly sales
changes provides a good mechanical view of our business based on
the age of our stores. The discussion of sales trends provides
a framework for understanding the sequential trends (that is,
comparing a period to the immediately preceding period) in our
business since the market declined late in 2008. Finally, we
believe the discussion regarding end market performance provides
insight into activities with our various types of customers.
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 nine 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% |
14.9% |
17.3% |
16.2% |
19.8% |
18.2% |
18.9% |
|
|
|
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 nine 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% |
16.3% |
18.5% |
18.3% |
21.3% |
19.2% |
19.8% |
|
|
|
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
nine 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% |
18.6% |
21.1% |
21.1% |
24.4% |
22.1% |
23.5% |
|
|
|
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 nine 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 nine months of 2010: (1) the strengthening Canadian
dollar (when compared to the United States dollar) added
approximately 0.8 percentage points to our daily sales growth and
(2) our Holo-Krome business, which we acquired in December 2009,
added approximately 0.5 percentage points to our daily sales
growth.
SEQUENTIAL 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
in both 2009 and 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% |
0.6% |
4.8% |
1.7% |
-1.0% |
3.5% |
4.5% |
|
|
|
10Delta |
2.0% |
-4.0% |
3.0% |
0.9% |
1.4% |
-1.1% |
1.3% |
0.9% |
1.9% |
|
|
|
(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%. During
2010, sales have been strong - our business exceeded the trend line
in January, February took a step back due to inclement weather, and
March reestablished the trend of being at or above the trend line
(see graph below).
A graph of the sequential daily sales change pattern discussed
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/8940.pdf
END MARKETS:
Fluctuations in end market business –The
sequential trends noted above were directly linked to fluctuations
in our end markets. To place this in perspective –
approximately 50% of our business has historically been with
customers engaged in some type of manufacturing. The daily
sales to these customers grew, on an annual basis, approximately
15.7%, 29.8%, and 30.6% in the first, second, and third
quarters of 2010, respectively. In the first, second, third, and
fourth quarters of 2009, the daily sales of this business
contracted 16.0%, 25.2%, 22.8%, and 10.1%, respectively. For
the year, our total sales to our manufacturing customers contracted
18.8% from 2008 to 2009. 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. The daily sales of
this business contracted approximately 14.7% in the first quarter
of 2010 and then grew 0.5% and 6.3% in the second and third
quarters of 2010, respectively. In the first, second, third,
and fourth quarters of 2009, the contraction was 6.4%, 19.6%,
25.3%, and 24.8%, respectively. For the year, our total sales
to our non-residential construction customers contracted 19.4% from
2008 to 2009.
On a sequential basis, the sales to our manufacturing customers
stabilized in May 2009 and then started to demonstrate patterns
that resemble historical norms. This reversed the negative
trend which began in October 2008. This stabilization and
improvement was partially offset by continued deteriorization in
our non-residential construction business which weakened
dramatically in the first eight months of 2009, and then began to
also demonstrate patterns that resemble historical norms.
A graph of the sequential sales trends to these two end markets
in 2008, 2009, and 2010, 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/8941.pdf
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 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 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% per year, and (2) stopping headcount additions except for
store openings and for stores that are growing. (See later
discussion on future store openings.)
The 'pathway to profit' initiative, described above, 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 the third quarter of 2009 to
the third quarter of 2010 we grew our store average full-time
headcount and also grew our store average full-time equivalent
(FTE) headcount; the store FTE grew from 7,087 to 7,450, or
5.1%. (See later discussion on store count and FTE numbers by
quarter.)
The 'pathway to profit' 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 approximately two years. However, the current
economic weakness only serves to strengthen our belief in the
'pathway to profit'.
Future store openings – In July 2010, we
indicated our intentions to open 80 to 95 new stores during the
second half of 2010, or an annualized rate of 6.8% to
8.0%. During the third quarter of 2010 we opened 45 stores;
our goal for openings in the second half of 2010 remains
unchanged.
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
slowed (we opened 3.0% new stores in calendar 2009) and our FTE
headcount for all types of personnel was reduced when the economy
weakened late in 2008. The number of stores at quarter (QTR)
end, the average FTE headcount per quarter (QTR), and the
percentage change were as follows for each of the last five
quarters, for the third quarter of 2008 (our peak quarter before
the economy weakened), and for the first quarter of 2007 (the last
completed quarter before we began the 'pathway to profit'):
|
QTR 3 |
QTR 2 |
QTR 1 |
QTR 4 |
QTR 3 |
QTR 3 |
QTR 1 |
|
2010 |
2010 |
2010 |
2009 |
2009 |
2008 |
2007 |
|
|
|
|
|
|
|
|
Store locations-quarter end count |
2,453 |
2,407 |
2,392 |
2,369 |
2,352 |
2,300 |
2,073 |
% change (twelve months) |
4.3% |
2.4% |
2.1% |
2.5% |
2.3% |
7.2% |
|
% change since March 2007 |
18.3% |
16.1% |
15.4% |
14.3% |
13.5% |
11.0% |
|
|
|
|
|
|
|
|
|
Store personnel - absolute headcount |
8,643 |
8,401 |
8,404 |
8,519 |
8,608 |
9,123 |
6,849 |
% change (twelve months) |
0.4% |
-3.7% |
-7.8% |
-9.9% |
-5.6% |
17.9% |
|
% change since March 2007 |
26.2% |
22.7% |
22.7% |
24.4% |
25.7% |
33.2% |
|
|
|
|
|
|
|
|
|
Store personnel - FTE |
7,450 |
7,118 |
7,004 |
7,007 |
7,087 |
8,280 |
6,383 |
Distribution and manufacturing personnel -
FTE 1 |
2,007 |
1,884 |
1,800 |
1,768 |
1,763 |
2,244 |
1,962 |
Administrative and sales support personnel -
FTE |
1,365 |
1,298 |
1,300 |
1,298 |
1,322 |
1,404 |
1,383 |
Total - average FTE headcount |
10,822 |
10,300 |
10,104 |
10,073 |
10,172 |
11,928 |
9,728 |
|
|
|
|
|
|
|
|
% change (twelve months) |
|
|
|
|
|
|
|
Store personnel - FTE |
5.1% |
-1.2% |
-9.7% |
-15.1% |
-14.4% |
15.2% |
|
Distribution and manufacturing personnel -
FTE 1 |
13.8% |
1.5% |
-8.7% |
-20.3% |
-21.4% |
5.4% |
|
Administrative and sales support personnel -
FTE |
3.3% |
-4.7% |
-6.7% |
-8.1% |
-5.8% |
3.2% |
|
Total - average FTE headcount |
6.4% |
-1.2% |
-9.1% |
-15.2% |
-14.7% |
11.7% |
|
|
|
|
|
|
|
|
|
% change since March 2007 |
|
|
|
|
|
|
|
Store personnel - FTE |
16.7% |
11.5% |
9.7% |
9.8% |
11.0% |
29.7% |
|
Distribution and manufacturing personnel -
FTE 1 |
2.3% |
-4.0% |
-8.3% |
-9.9% |
-10.1% |
14.4% |
|
Administrative and sales support personnel -
FTE |
-1.3% |
-6.1% |
-6.0% |
-6.1% |
-4.4% |
1.5% |
|
Total - average FTE headcount |
11.2% |
5.9% |
3.9% |
3.5% |
4.6% |
22.6% |
|
We have reduced our FTE headcount at our store locations 10.0%
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 5.3% 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 18.3%, our absolute
store headcount is up 26.2%, and our store FTE headcount is up
16.7%. During this timeframe, our non-store FTE headcount
increased from 3,345 to 3,3721, or 0.8%. We believe these
fluctuations allow us to manage our expense in the short-term while
maintaining our ability to sell into the marketplace.
1 Note – The distribution and
manufacturing headcount was impacted by the addition of 92
employees with the acquisition of Holo-Krome in December 2009.
Store Size and Profitability – The store groups
listed in the table below, when combined with our strategic account
stores, represented approximately 87% and 89% of our sales in the
third 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 13% to 11%) relate
to either: (1) our in-plant locations, (2) our direct Fastenal Cold
Heading business (including our Holo-Krome business acquired in
December 2009), or (3) our direct import business. Our average
store had sales of $71,600 and $61,600 per month in the third
quarter of 2010 and 2009, respectively. This average amount
was $71,600 per month in the first quarter of 2007 (the last
completed quarter before we began the 'pathway to
profit'). The average age, number of stores, and pre-tax
margin data by store size for the third 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 September 30, 2010 |
|
|
|
|
|
$0 to $30,000 |
3.8 |
419 |
17.1% |
-11.0% |
$30,001 to $60,000 |
6.7 |
913 |
37.2% |
13.2% |
$60,001 to $100,000 |
9.4 |
595 |
24.3% |
22.7% |
$100,001 to $150,000 |
11.7 |
325 |
13.2% |
26.0% |
Over $150,000 |
15.5 |
166 |
6.8% |
27.5% |
Strategic Account Store |
|
35 |
1.4% |
|
Total |
|
2,453 |
100.0% |
|
|
Three months
ended September 30, 2009 |
|
|
|
|
|
$0 to $30,000 |
3.9 |
541 |
23.0% |
-17.7% |
$30,001 to $60,000 |
6.4 |
929 |
39.5% |
9.7% |
$60,001 to $100,000 |
9.5 |
521 |
22.2% |
20.0% |
$100,001 to $150,000 |
11.8 |
231 |
9.8% |
24.2% |
Over $150,000 |
15.9 |
105 |
4.5% |
26.6% |
Strategic Account Store |
|
25 |
1.1% |
|
Total |
|
2,352 |
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 periods ended September 30:
|
Nine-month period |
Three-month period |
|
2010 |
2009 |
2010 |
2009 |
|
|
|
|
|
Net sales |
100.0% |
100.0% |
100.0% |
100.0% |
Gross profit |
51.7% |
51.3% |
51.8% |
50.0% |
|
|
|
|
|
Operating and administrative expenses |
32.6% |
35.8% |
31.8% |
34.4% |
Loss (gain) on sale of property and
equipment |
0.0% |
-0.1% |
0.0% |
0.0% |
Operating income |
19.1% |
15.5% |
20.0% |
15.6% |
|
|
|
|
|
Interest income |
0.0% |
0.1% |
0.0% |
0.1% |
Earnings before income taxes |
19.1% |
15.6% |
20.0% |
15.7% |
Note – Amounts may not foot due to rounding difference.
Gross profit percentage for the first nine
months of 2010 increased from the same period in 2009, and the
gross profit percentage for the third quarter of 2010 increased
from the same period in 2009. The gross profit percentage was
51.1%, 52.1%, and 51.8% in the first, second, and third quarters of
2010, respectively. 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 decrease from 2008 to 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. This component has generally
improved since August 2009, except for customer mix which is
discussed later. 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, second, and third quarters 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, second, and third quarters of 2010 when compared to
the fourth quarter of 2009. In our second quarter 2010
earnings release, we indicated our belief that the first two
components would continue to improve as we progress into the
remainder of 2010. This belief was based on (1) our focused
effort to raise our transactional margin and (2) the bias which we
believed existed for some inflation in 2010 rather than the
significant deflation we experienced in 2009. In the third
quarter of 2010, our assumptions about the latter half of the year
were proven wrong and these two components had a negative impact on
gross profit percentage. The decrease in gross profit
percentage was primarily caused by the strong growth of our
industrial production business; which resulted in change in our
overall business mix. The industrial production business has a
lower gross margin; therefore, the change in mix pulled our gross
margin down. (However, since the operating expenses are lower,
operating income produced is similar to our overall
business.) The second cause was the relative lack of inflation
in the third quarter. Finally, as we indicated in our second
quarter earnings release, vendor volume allowances largely
recovered during the second quarter to the levels in place in 2008
and in early 2009 due to the reset of vendor allowance programs
which tend to be calendar based.
Operating and administrative expenses improved
relative to sales in the third quarter of 2010 versus the third
quarter of 2009. Sales grew 23.4% for the quarter; employee
related expenses grew 26.3% and all other expenses contracted
5.1%.
Historically, 65% to 70% of our operating and administrative
expenses consist of employee related costs. The components
are: (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 all four quarters of 2009,
this range had reduced to 60% to 65% due to the factors noted
below. During the second and third quarters of 2010, this
range moved back to the historical level.
The payroll cost component for the third quarter of 2010
increased 29.2% from the same quarter in 2009 and increased 7.0%
from the second quarter of 2010. The disparity between the
full-time equivalent headcount increase of 6.4% noted earlier and
the 29.2% annual increase is driven by several factors: (1) the
sales commissions earned grew (this increase was amplified by the
sales growth and the gross margin expansion, both of which have a
meaningful impact on the commissions earned), (2) the total bonuses
earned increased due to our profit growth, (3) the hours worked per
employee grew, and (4) our profit sharing contribution
grew. These four items, when compared to the same quarter in
2009, all grew at a rate faster than the rate of sales growth.
Our health care costs in the third quarter of 2010 decreased
from the third quarter of 2009, but increased for the nine-month
period. Health care costs in 2009 and the first quarter of
2010 increased due to the increase in the percentage of employees
opting for expanded coverage as their spouses lost their insurance
coverage at other employers, increases in COBRA costs due to
changes in federal funding within COBRA, and an increase in health
care utilization when compared to previous years. These
conditions still exist in the second and third quarters of 2010;
however, the spike in costs in the second and third quarters of
2009 changed the comparison. On a two year basis, our health
care costs are still up significantly despite a decrease in
headcount.
The remaining costs within our operating and administrative
expenses, in the third quarter of 2010, decreased 5.1% from the
third quarter of 2009 and decreased 3.3% from the second quarter of
2010. Occupancy expenses increased 7.9% from the third quarter
of 2009 and increased 4.5% from the second quarter of
2010. The annual and sequential changes in occupancy expense
were driven by increases in (1) utilities, (2) taxes, and (3) our
new Holo-Krome facilities as our rent paid increased by 2.3% and
0.4%, respectively. Net transportation costs included in
operating and administrative expenses decreased 7.0% from the third
quarter of 2009 and 8.8% from the second quarter of 2010.
The last several years have seen meaningful swings in
the cost of diesel fuel and gasoline – During the first,
second, and third quarters of 2010, our total vehicle fuel costs
were approximately $6.4 million, $6.8 million, and $6.6 million,
respectively. 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 |
3.06 |
2.96 |
|
Gasoline |
$2.68 |
2.80 |
2.71 |
|
|
|
|
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% |
33.6% |
13.4% |
|
Gasoline |
44.1% |
24.4% |
6.3% |
|
|
|
|
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 38.1% for the first nine
months of 2010 and 2009.
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 September
30, |
Twelve Month Dollar
Change |
Twelve Month Percentage
Change |
|
|
2010 |
2009 |
2008 |
2010 |
2009 |
2010 |
2009 |
Accounts receivable, net |
$ |
301,721 |
239,323 |
309,184 |
62,398 |
(69,861) |
26.1% |
-22.6% |
Inventories |
|
546,063 |
498,106 |
537,643 |
47,957 |
(39,537) |
9.6% |
-7.4% |
The accounts receivable increase of 26.1% from September 2009 to
September 2010 was created by a daily sales increase of 22.1% and
23.5% in August and September 2010, respectively. The accounts
receivable decrease of 22.6% from September 2008 to September 2009
relates to a daily sales decrease of 21.4% and 20.8% in August and
September 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 two months of 2009
continued to result in inventory consumption that was less than the
amount of inbound product. The inventory decrease began in
March 2009 and continued through most of 2009. 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. At the beginning of the year, our goal was to hold
inventory flat in 2010; based on the first nine months of the year,
we believe this goal will not be achieved in 2010. During
2010, our inventory decreased approximately $1,000 in the first
quarter, increased approximately $15,000 in the second quarter, and
increased approximately $23,000 in the third quarter; or a $37,000
increase year-to-date. This is disappointing to us; however,
the expanding sales trends noted earlier in this discussion
overshadow the disappointment. In its most simplified view,
our expanding inventories are directly related to (1) the expanding
sales growth trends (with emphasis on our large account business –
both OEM & MRO), (2) our confidence in their sustainability,
and (3) an increase in the rate of store openings.
BALANCE SHEET AND CASH FLOW:
Our balance sheet continues to be very strong and our operations
have good cash generating characteristics. During the third
quarter of 2010, we generated $46,766 (or 62.4% of net earnings) of
operating cash flow; year-to-date, we generated $166,293 (or 83.1%
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 and 2010 allowed us to increase our first
dividend payment (declared January 2010 and paid in February 2010)
by 14.3% (from $0.35 per share in 2009 to $0.40 per share in 2010)
and to increase our second dividend payment (declared July 2010 and
paid in September 2010) by 13.5% (from $0.37 per share in 2009 to
$0.42 per share in 2010). Year-to-date, we have paid total
dividends of $120,893, or 60.4% of net earnings.
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 nine months 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/events.cfm.
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 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 expectations regarding our
gross profit percentage in the remainder of 2010, (5) our intent to
increase our range of store openings commencing in the second half
of 2010, and (6) our expectations regarding inventory growth 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 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 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, 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 significant
improvement or deterioration in the economy, additional inflation
or deflation, or a change in our purchasing patterns could affect
our expectations regarding our gross profit percentage in the
remainder of 2010, (5) a prolonged downturn in the economy could
affect our ability to increase our range of store openings
commencing in 2010, and (6) an unexpected dramatic increase or
decrease in sales, or inflation related to the price of steel could
impact our expectations regarding inventory growth in 2010. We
assume no obligation to update any forward looking statement or any
discussion of risks and uncertainties related to such forward
looking statements. 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) |
|
|
September 30, |
December 31, |
Assets |
2010 |
2009 |
|
|
|
Current assets: |
|
|
Cash and cash equivalents |
$ 172,565 |
164,852 |
Marketable securities |
24,641 |
24,400 |
Trade accounts receivable, net of
allowance for doubtful accounts of $4,354 and $4,086,
respectively |
301,721 |
214,169 |
Inventories |
546,063 |
508,405 |
Deferred income tax assets |
14,710 |
12,919 |
Prepaid income taxes |
-- |
11,657 |
Other current assets |
57,103 |
45,962 |
Total current assets |
1,116,803 |
982,364 |
|
|
|
Marketable securities |
5,166 |
6,238 |
Property and equipment, less accumulated
depreciation |
343,848 |
335,004 |
Other assets, net |
3,520 |
3,752 |
|
|
|
Total assets |
$ 1,469,337 |
1,327,358 |
|
|
|
|
|
|
Liabilities and Stockholders'
Equity |
|
|
|
|
|
Current liabilities: |
|
|
Accounts payable |
$ 73,605 |
53,490 |
Accrued expenses |
95,225 |
66,019 |
Income taxes payable |
8,313 |
-- |
Total current
liabilities |
177,143 |
119,509 |
|
|
|
Deferred income tax liabilities |
16,819 |
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 |
3,348 |
333 |
Retained earnings |
1,254,943 |
1,175,641 |
Accumulated other
comprehensive income |
15,610 |
13,395 |
Total stockholders'
equity |
1,275,375 |
1,190,843 |
|
|
|
Total liabilities and
stockholders' equity |
$ 1,469,337 |
1,327,358 |
|
|
|
|
|
FASTENAL COMPANY AND
SUBSIDIARIES |
|
|
|
|
|
Consolidated Statements of
Earnings |
(Amounts in thousands except
earnings per share) |
|
|
|
(Unaudited) |
(Unaudited) |
|
Nine months
ended |
Three months
ended |
|
September
30, |
September
30, |
|
2010 |
2009 |
2010 |
2009 |
|
|
|
|
|
|
|
|
|
|
Net sales |
$ 1,695,705 |
1,453,580 |
603,750 |
489,339 |
|
|
|
|
|
Cost of sales |
819,486 |
707,860 |
291,102 |
244,772 |
Gross profit |
876,219 |
745,720 |
312,648 |
244,567 |
|
|
|
|
|
|
|
|
|
|
Operating and administrative expenses |
553,333 |
520,171 |
192,140 |
168,119 |
Loss (gain) on sale of property and
equipment |
103 |
790 |
(2) |
38 |
Operating income |
322,783 |
224,759 |
120,510 |
76,410 |
|
|
|
|
|
Interest income |
713 |
1,312 |
192 |
592 |
|
|
|
|
|
Earnings before income taxes |
323,496 |
226,071 |
120,702 |
77,002 |
|
|
|
|
|
Income tax expense |
123,301 |
86,250 |
45,708 |
29,413 |
|
|
|
|
|
Net earnings |
$ 200,195 |
139,821 |
74,994 |
47,589 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic net earnings per share |
$ 1.36 |
0.94 |
0.51 |
0.32 |
|
|
|
|
|
Diluted net earnings per
share |
$ 1.36 |
0.94 |
0.51 |
0.32 |
|
|
|
|
|
Basic weighted average shares
outstanding |
147,431 |
148,531 |
147,431 |
148,531 |
|
|
|
|
|
Diluted weighted average shares
outstanding |
147,431 |
148,531 |
147,431 |
148,531 |
|
|
|
|
FASTENAL COMPANY AND
SUBSIDIARIES |
|
|
|
Consolidated Statements of Cash
Flows |
(Amounts in thousands) |
|
|
|
|
(Unaudited) |
|
Nine months
ended |
|
September
30, |
|
2010 |
2009 |
|
|
|
Cash flows from operating activities: |
|
|
Net earnings |
$ 200,195 |
139,821 |
Adjustments to reconcile net earnings to
net cash provided by operating activities: |
|
|
Depreciation of property and
equipment |
30,432 |
30,147 |
Loss on sale of property and
equipment |
103 |
790 |
Bad debt expense |
6,004 |
7,300 |
Deferred income taxes |
(1,978) |
(3,104) |
Stock based compensation |
3,015 |
2,850 |
Amortization of non-compete
agreement |
50 |
50 |
Changes in operating assets and
liabilities: |
|
|
Trade accounts receivable |
(93,556) |
(1,683) |
Inventories |
(37,658) |
66,141 |
Other current assets |
(11,141) |
16,938 |
Accounts payable |
20,115 |
(3,925) |
Accrued expenses |
29,206 |
(11,328) |
Income taxes |
19,970 |
4,676 |
Other |
1,536 |
4,511 |
Net cash provided by
operating activities |
166,293 |
253,184 |
|
|
|
Cash flows from investing activities: |
|
|
Purchase of property and equipment |
(42,643) |
(40,128) |
Proceeds from sale of property and
equipment |
3,264 |
4,264 |
Net decrease (increase) in marketable
securities |
831 |
(5,149) |
Net decrease
(increase) in other assets |
182 |
(18) |
Net cash used in
investing activities |
(38,366) |
(41,031) |
|
|
|
Cash flows from financing activities: |
|
|
Purchase of common stock |
-- |
-- |
Payment of dividends |
(120,893) |
(106,943) |
Net cash used in
financing activities |
(120,893) |
(106,943) |
|
Effect of exchange rate changes on
cash |
679 |
2,642 |
|
|
|
Net increase in cash and cash
equivalents |
7,713 |
107,852 |
|
|
|
Cash and cash equivalents at beginning
of period |
164,852 |
85,892 |
Cash and cash equivalents at end of
period |
$ 172,565 |
193,744 |
|
|
|
Supplemental disclosure of cash flow
information: |
|
|
Cash paid during each
period for income taxes |
$ 105,309 |
81,574 |
|
CONTACT: Fastenal Company
Dan Florness, EVP and Chief Financial Officer
507.454.5374
Fastenal (NASDAQ:FAST)
Historical Stock Chart
From May 2024 to Jun 2024
Fastenal (NASDAQ:FAST)
Historical Stock Chart
From Jun 2023 to Jun 2024