The Fastenal Company of Winona, MN (Nasdaq:FAST) reported the
results of the quarter ended June 30, 2011. Except for per share
information, or as otherwise noted below, dollar amounts are in
thousands. Share and per share information in this release has been
adjusted to give effect to the two-for-one stock split effected
with respect to our common stock effective at the close of business
on May 20, 2011.
Net sales, pre-tax earnings, net earnings, and net earnings per
share were as follows for the periods ended June 30:
|
Six-month period |
Three-month period |
|
2011 |
2010 |
Change |
2011 |
2010 |
Change |
|
|
|
|
|
|
|
Net sales |
$ 1,342,313 |
1,091,955 |
22.9% |
$ 701,730 |
571,183 |
22.9% |
|
|
|
|
|
|
|
Pre-tax earnings |
$ 278,993 |
202,794 |
37.6% |
$ 150,182 |
112,125 |
33.9% |
|
|
|
|
|
|
|
% of sales |
20.8% |
18.6% |
|
21.4% |
19.6% |
|
|
|
|
|
|
|
|
Net earnings |
$ 173,659 |
125,201 |
38.7% |
$ 94,112 |
69,167 |
36.1% |
|
|
|
|
|
|
|
Basic and diluted net earnings per share |
$ 0.59 |
0.42 |
40.5% |
$ 0.32 |
0.23 |
39.1% |
During the first six months of 2011, we opened 75 new stores (we
opened 45 new stores in the same period of 2010). The 75 new stores
represent an increase of 3.0% since December 31, 2010. (We had
2,490 stores on December 31, 2010.) We had 14,563 employees as
of June 30, 2011, an increase of 9.6% from the 13,285 employees on
December 31, 2010.
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 first discussion regarding monthly sales changes
provides a good mechanical view of our business based on the age of
our stores. The second discussion provides a framework for
understanding the sequential trends (that is, comparing a period to
the immediately preceding period) in our business. Finally, we
believe the third discussion regarding end market performance
provides insight into activities with our various types of
customers.
MONTHLY SALES CHANGES:
All company sales – During each of the first
six months in 2011 and each of the months in 2010 and 2009, all of
our selling locations, when 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. |
2011 |
18.8% |
21.5% |
22.8% |
23.2% |
22.6% |
22.5% |
|
|
|
|
|
|
2010 |
2.4% |
4.4% |
12.1% |
18.6% |
21.1% |
21.1% |
24.4% |
22.1% |
23.5% |
22.4% |
17.9% |
20.9% |
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% |
The growth in 2010, and into 2011, generally continues the
improving trend we saw in the latter half of 2009. The
negative growth in 2009 relates to the general economic weakness in
the global marketplace. The strengthening Canadian dollar
(when compared to the United States dollar) added approximately 0.7
percentage points to our daily sales growth in the first six months
of 2011.
Stores opened greater than two years – Our
stores opened greater than two years (store sites opened as
follows: 2011 group – opened 2009 and earlier, 2010 group – opened
2008 and earlier, and 2009 group – opened 2007 and earlier)
represent a consistent 'same-store' view of our
business. During each of the first six months in 2011 and each
of the months in 2010 and 2009, 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. |
2011 |
16.0% |
18.4% |
19.4% |
19.6% |
19.2% |
19.1% |
|
|
|
|
|
|
2010 |
0.6% |
2.3% |
9.6% |
16.3% |
18.5% |
18.3% |
21.3% |
19.2% |
19.8% |
18.8% |
14.1% |
16.8% |
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% |
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: 2011 group – opened 2006 and earlier, 2010
group – opened 2005 and earlier, and 2009 group – opened 2004 and
earlier). This group is more cyclical due to the increased
market share these stores enjoy in their local markets. During
each of the first six months in 2011 and each of the months in 2010
and 2009, 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. |
2011 |
15.3% |
17.9% |
19.2% |
19.1% |
17.9% |
18.2% |
|
|
|
|
|
|
2010 |
-2.1% |
-0.5% |
7.4% |
14.9% |
17.3% |
16.2% |
19.8% |
18.2% |
18.9% |
17.9% |
13.2% |
16.0% |
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% |
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 2011 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 our sequential change in
our daily sales. The line labeled 'Past' is an historical
average of our 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
'2010' and '2011' lines represent our actual sequential daily sales
changes. The '10Delta' line is the difference between the
'Past' and '2010'; similarly, the '11Delta' is the difference
between the 'Past' and '2011'.
|
Jan.(1) |
Feb. |
Mar. |
Apr. |
May |
June |
July |
Aug. |
Sept. |
Oct. |
|
Past |
0.9% |
3.3% |
2.9% |
-0.3% |
3.4% |
2.8% |
-2.3% |
2.6% |
2.6% |
-0.7% |
|
|
|
|
|
|
|
|
|
|
|
|
|
2010 |
2.9% |
-0.7% |
5.9% |
0.6% |
4.8% |
1.7% |
-1.0% |
3.5% |
4.5% |
-1.5% |
|
10Delta |
2.0% |
-4.0% |
3.0% |
0.9% |
1.4% |
-1.1% |
1.3% |
0.9% |
1.9% |
-0.8% |
|
|
|
|
|
|
|
|
|
|
|
|
|
2011 |
-0.2% |
1.6% |
7.0% |
0.9% |
4.3% |
1.7% |
|
|
|
|
|
11Delta |
-1.1% |
-1.7% |
4.1% |
1.2% |
0.9% |
-1.1% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) The January figures
represent the percentage change from the previous October, whereas
the remaining figures represent the percentage change from the
previous month. |
|
|
|
|
|
|
|
|
|
|
|
During 2010, and year-to-date in 2011, sales were strong - our
business has closely followed the trend line since the fall of
2009. The months of February 2011 and 2010 were both
negatively impacted by weather.
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/10812.pdf
END MARKET PERFORMANCE:
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 or contracted in the first, second,
third, and fourth quarters (when compared to the same quarter in
the previous year), and for the year, as follows:
|
Q1 |
Q2 |
Q3 |
Q4 |
Annual |
|
|
|
|
|
|
2011 |
15.5% |
18.5% |
|
|
|
2010 |
15.7% |
29.8% |
30.6% |
17.7% |
22.4% |
2009 |
-16.0% |
-25.2% |
-22.8% |
-10.1% |
-18.8% |
The 2011 and 2010 growth was more pronounced 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 pronounced 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). The 2009 contraction was more severe in our
industrial production business and less severe in the maintenance
portion of our manufacturing business. These patterns continue to
reflect the strength noted in the ISM Index. This is the index
published by the Institute for Supply Management
(http://www.ism.ws/).
Our non-residential construction customers have historically
represented 20% to 25% of our business. The daily sales to
these customers grew or contracted in the first, second, third, and
fourth quarters (when compared to the same quarter in the
previous year), and for the year, as follows:
|
Q1 |
Q2 |
Q3 |
Q4 |
Annual |
|
|
|
|
|
|
2011 |
17.7% |
15.8% |
|
|
|
2010 |
-14.7% |
0.5% |
6.3% |
10.3% |
-0.3% |
2009 |
-6.4% |
-19.6% |
-25.3% |
-24.8% |
-19.4% |
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 daily sales trends to these two end
markets in 2009, 2010, and 2011, 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/10813.pdf
http://media.globenewswire.com/cache/11647/file/10814.pdf
PATHWAY TO PROFIT AND ITS IMPACT ON OUR
BUSINESS:
In 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,
resulting in a growth of our pre-tax earnings to 23% of net sales
by 2012, 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 new store openings to a range of 2% to 5% per
year, and (2) temporarily stopping headcount additions except for
new store openings and for stores that are growing. (See later
discussion on future store openings.)
One side benefit of the 'pathway to profit' initiative,
described above, is a slow altering of our cost structure to
increase the portion of our operating costs that are variable
versus fixed. This dramatically improved our ability to manage
through the economic environment of the last several years. As
discussed in our third quarter 2009 earnings release, we began to
stabilize our store headcount in October 2009. (See 'Store
Size, Store Count and Full-Time Equivalent (FTE) Headcount' table
later in this document.)
The 'pathway to profit' initiative allows us to focus on the
three drivers of our business: (1) sales force headcount, (2) store
(or unit) growth, and (3) average sales volume per store, which
ultimately drive our level of profitability. Our original goal
was to hit the $125 thousand per month store average, and grow our
pre-tax earnings to 23% of net sales, by 2012. We previously
disclosed that we believed the duration of the economic weakness
could delay the timing of when we achieve these goals by 24-30
months. However, as described below, we have modified our
thinking regarding our pre-tax earnings goals.
During 2010, we modified our thought process around the 'pathway
to profit' in two regards: (1) with a structurally lowered
cost structure and improved gross margins, we concluded we could
hit our profitability target in the 'pathway to profit' initiative
with average store sales of $100-$110 thousand per month by 2013
(see evidence of this in our 'Store Size and Profitability' table
later in this document) and (2) we decided to hire fewer
store-based people and instead added resources focused on specific
sales opportunities, such as national accounts personnel and
dedicated sales specialists (manufacturing, government, industry
focused, and industrial vending solutions). The decision to
accelerate the addition of non-store selling resources into the
areas of national accounts and dedicated sales specialists
reinforces our belief that these areas represent an efficient
manner to accelerate sales at existing stores.
Future store openings and increases in automated
solutions (industrial vending solutions) – 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 second half of 2010 we opened 82
stores. For 2011, we previously disclosed our intention to
open 150 to 200 new stores, or an annualized rate of 6.0% to
8.0%. In the first six months of 2011, we opened 75 new
stores. During each of the first six months of 2011 and 2010,
we closed seven stores. We have closed 41 stores in our 40+
year history.
As was discussed at our investor day in May 2011, we have made
significant progress in the development of automated solutions
(industrial vending) for our customers. We believe these
solutions have the potential to be transformative to industrial
distribution. Some key statistics regarding this business
include the following:
|
|
Q1 |
Q2 |
Q3 |
Q4 |
|
|
|
|
|
|
Number of vending machines in |
2011 |
1,391 |
2,103 |
|
|
contracts signed during the
period1 |
2010 |
246 |
409 |
419 |
776 |
|
2009 |
106 |
214 |
194 |
327 |
|
|
|
|
|
|
Cumulative machines installed |
2011 |
2,905 |
4,009 |
|
|
|
2010 |
1,144 |
1,452 |
1,803 |
2,195 |
|
2009 |
148 |
312 |
558 |
787 |
|
|
|
|
|
|
Percent of total net sales to |
2011 |
9.2% |
10.8% |
|
|
customers with vending
machines2 |
2010 |
3.8% |
5.2% |
6.4% |
7.7% |
|
2009 |
0.7% |
1.2% |
1.8% |
2.5% |
|
|
|
|
|
|
Daily sales growth to customers |
2011 |
49.5% |
49.8% |
|
|
with vending machines3 |
2010 |
29.4% |
53.5% |
54.9% |
59.6% |
|
2009 |
Not meaningful, due to start-up
phase |
|
|
|
|
|
|
1 This represents the number of
machines, not the number of contracts. |
2 The percentage of total sales
(vended and traditional) to customers currently using a vending
solution. |
3 The growth in total sales
(vended and traditional) to customers currently using a vending
solution compared to the comparable period in the preceding
year. |
Store Count and Full-Time Equivalent (FTE) Headcount
– The table that follows highlights certain impacts of the
'pathway to profit'. Under the 'pathway to profit' we increased
both our store count and our store FTE headcount during 2007 and
2008. However, as indicated earlier, the rate of increase in
store locations slowed and our FTE headcount for all types of
personnel was reduced when the economy weakened late in
2008. In the two tables that follow, we refer to our 'store'
sales, 'store' locations, 'store' personnel and 'store'
profitability. When we discuss 'stores' in the first table, we
are referring to (1) 'Fastenal' stores and (2) strategic account
stores. 'Fastenal' stores are either a 'traditional' store, a
format utilized typically in North America, or an 'overseas' store,
which is the typical format outside the United States and
Canada. This is discussed in greater detail in our 2010 Annual
Report. Strategic account stores are stores that are focused
on selling to a group of strategic account customers in a limited
geographic market. When we discuss in the second table our
profitability as the average monthly 'store' sales grow, we are
referring to 'traditional' stores. The sales, outside of our
'store' group, relate to either (1) our in-plant locations, (2) our
manufacturing business that is sold directly to a customer and not
through a store (including our Holo-Krome business acquired in
December 2009), or (3) our direct import business.
The breakdown of our sales, the average monthly sales per store,
the number of stores at quarter end, the average headcount at our
stores during a quarter, the average FTE headcount during a
quarter, and the percentage change were as follows for the first
quarter of 2007 (the last completed quarter before we began the
'pathway to profit'), for the third quarter of 2008 (our peak
quarter before the economy weakened), and for each of the last five
quarters:
|
Q1 2007 |
Q3 2008 |
Q2 2010 |
Q3 2010 |
Q4 2010 |
Q1 2011 |
Q2 2011 |
|
|
|
|
|
|
|
|
Total net sales reported |
$489,157 |
$625,037 |
$571,183 |
$603,750 |
$573,766 |
$640,583 |
$701,730 |
Less: Non-store sales (approximate) |
40,891 |
57,267 |
72,725 |
76,826 |
68,911 |
78,021 |
85,535 |
Store net sales (approximate) |
$448,266 |
$567,770 |
$498,458 |
$526,924 |
$504,855 |
$562,562 |
$616,195 |
% change since Q1 2007 |
|
26.7% |
11.2% |
17.5% |
12.6% |
25.5% |
37.5% |
% change (twelve months) |
|
17.5% |
17.3% |
21.4% |
22.3% |
25.2% |
23.6% |
|
|
|
|
|
|
|
|
Percentage of sales through
store |
92% |
91% |
87% |
87% |
88% |
88% |
88% |
|
|
|
|
|
|
|
|
Average monthly sales per
store (using ending store count) |
$72 |
$82 |
$69 |
$72 |
$68 |
$74 |
$80 |
% change since Q1 2007 |
|
13.9% |
-4.2% |
0.0% |
-5.6% |
2.8% |
11.1% |
% change (twelve months) |
|
9.3% |
15.0% |
16.1% |
17.2% |
17.5% |
15.9% |
|
|
|
|
|
|
|
|
Store locations - quarter end count |
2,073 |
2,300 |
2,407 |
2,453 |
2,490 |
2,522 |
2,558 |
% change since Q1 2007 |
|
11.0% |
16.1% |
18.3% |
20.1% |
21.7% |
23.4% |
% change (twelve months) |
|
7.2% |
2.4% |
4.3% |
5.1% |
5.4% |
6.3% |
|
|
|
|
|
|
|
|
Store personnel - absolute headcount |
6,849 |
9,123 |
8,401 |
8,643 |
9,048 |
9,361 |
9,775 |
% change since Q1 2007 |
|
33.2% |
22.7% |
26.2% |
32.1% |
36.7% |
42.7% |
% change (twelve months) |
|
17.9% |
-3.7% |
0.4% |
6.2% |
11.4% |
16.4% |
|
|
|
|
|
|
|
|
Store personnel - FTE |
6,383 |
8,280 |
7,118 |
7,450 |
7,611 |
7,839 |
8,292 |
Non-store selling personnel - FTE |
616 |
599 |
591 |
639 |
712 |
779 |
850 |
Sub-total of all sales personnel -
FTE |
6,999 |
8,879 |
7,709 |
8,089 |
8,323 |
8,618 |
9,142 |
|
|
|
|
|
|
|
|
Distribution and manufacturing personnel-FTE
1 |
1,962 |
2,244 |
1,884 |
2,007 |
2,040 |
2,055 |
2,210 |
Administrative personnel-FTE |
767 |
805 |
707 |
726 |
744 |
760 |
784 |
Sub-total of non-sales personnel -
FTE |
2,729 |
3,049 |
2,591 |
2,733 |
2,784 |
2,815 |
2,994 |
|
|
|
|
|
|
|
|
Total - average FTE headcount |
9,728 |
11,928 |
10,300 |
10,822 |
11,107 |
11,433 |
12,136 |
|
|
|
|
|
|
|
|
% change since Q1 2007 |
|
|
|
|
|
|
|
Store personnel - FTE |
|
29.7% |
11.5% |
16.7% |
19.2% |
22.8% |
29.9% |
Non-store selling personnel - FTE |
|
-2.8% |
-4.1% |
3.7% |
15.6% |
26.5% |
38.0% |
Sub-total of all sales personnel -
FTE |
|
26.9% |
10.1% |
15.6% |
18.9% |
23.1% |
30.6% |
|
|
|
|
|
|
|
|
Distribution and manufacturing personnel-FTE
1 |
|
14.4% |
-4.0% |
2.3% |
4.0% |
4.7% |
12.6% |
Administrative personnel-FTE |
|
5.0% |
-7.8% |
-5.3% |
-3.0% |
-0.9% |
2.2% |
Sub-total of non-sales personnel -
FTE |
|
11.7% |
-5.1% |
0.1% |
2.0% |
3.2% |
9.7% |
|
|
|
|
|
|
|
|
Total - average FTE headcount |
|
22.6% |
5.9% |
11.2% |
14.2% |
17.5% |
24.8% |
|
|
|
|
|
|
|
|
% change (twelve months) |
|
|
|
|
|
|
|
Store personnel - FTE |
|
15.2% |
-1.2% |
5.1% |
8.6% |
11.9% |
16.5% |
Non-store selling personnel - FTE |
|
-2.4% |
0.3% |
9.0% |
19.3% |
31.1% |
43.8% |
Sub-total of all sales
personnel - FTE |
|
13.8% |
-1.1% |
5.4% |
9.5% |
13.4% |
18.6% |
|
|
|
|
|
|
|
|
Distribution and manufacturing personnel-FTE
1 |
|
5.4% |
1.5% |
13.8% |
15.4% |
14.2% |
17.3% |
Administrative personnel - FTE |
|
7.9% |
-8.5% |
-1.4% |
6.1% |
7.6% |
10.9% |
Sub-total of non-sales
personnel - FTE |
|
6.0% |
-1.4% |
9.4% |
12.8% |
12.3% |
15.6% |
|
|
|
|
|
|
|
|
Total - average FTE headcount |
|
11.7% |
-1.2% |
6.4% |
10.3% |
13.2% |
17.8% |
|
|
|
|
|
|
|
|
1 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 average age,
number of stores, and pre-tax earnings data by store size for the
second quarter of 2011, 2010, and 2009, respectively, were as
follows:
|
|
|
|
|
Sales per
Month |
Average Age
(Years) |
Number of
Stores |
Percentage of
Stores |
Pre-Tax Earnings
Percentage |
Three months
ended June 30, 2011 |
|
|
|
|
|
$0 to $30,000 |
3.6 |
338 |
13.2% |
-12.8% |
$30,001 to $60,000 |
7.1 |
842 |
32.9% |
13.5% |
$60,001 to $100,000 |
9.7 |
700 |
27.4% |
22.6% |
$100,001 to $150,000 |
11.9 |
352 |
13.8% |
26.7% |
Over $150,000 |
15.2 |
243 |
9.5% |
28.3% |
Strategic Account/Overseas Store |
|
83 |
3.2% |
|
Company Total |
|
2,558 |
100.0% |
21.4% |
|
Three months
ended June 30, 2010 |
|
|
|
|
|
$0 to $30,000 |
4.3 |
421 |
17.5% |
-10.2% |
$30,001 to $60,000 |
6.9 |
880 |
36.6% |
13.4% |
$60,001 to $100,000 |
9.7 |
602 |
25.0% |
23.1% |
$100,001 to $150,000 |
11.8 |
293 |
12.2% |
26.5% |
Over $150,000 |
16.2 |
143 |
5.9% |
28.3% |
Strategic Account/Overseas Store |
|
68 |
2.8% |
|
Company Total |
|
2,407 |
100.0% |
19.6% |
|
Three months
ended June 30, 2009 |
|
|
|
|
|
$0 to $30,000 |
3.9 |
565 |
24.0% |
-20.7% |
$30,001 to $60,000 |
6.5 |
874 |
37.2% |
8.8% |
$60,001 to $100,000 |
9.6 |
543 |
23.1% |
19.2% |
$100,001 to $150,000 |
12.2 |
205 |
8.7% |
23.6% |
Over $150,000 |
16.1 |
105 |
4.5% |
26.4% |
Strategic Account/Overseas Store |
|
58 |
2.5% |
|
Company Total |
|
2,350 |
100.0% |
14.8% |
|
|
|
|
|
Note – Amounts may not foot due
to rounding difference. |
Our original intent under the 'pathway to profit' was to
increase the sales of our average store to approximately $125,000
per month (see earlier discussion) in order to meet our pre-tax
earnings profitability goal of 23%. This would have shifted
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 would have allowed us to leverage
our fixed cost and increase our overall productivity. Our goal
today is to continue (1) to grow the business and (2) to grow our
pre-tax earnings as a percent of net sales. As stated earlier,
we now believe, based on the profitability improvements noted in
the table above, we can hit our pre-tax earnings percent goal of
23% with average store sales of approximately $100,000-$110,000 per
month.
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 June 30:
|
Six-month period |
Three-month period |
|
2011 |
2010 |
2011 |
2010 |
|
|
|
|
|
Net sales |
100.0% |
100.0% |
100.0% |
100.0% |
Gross profit |
52.1% |
51.6% |
52.2% |
52.1% |
|
|
|
|
|
Operating and administrative expenses |
31.3% |
33.1% |
30.8% |
32.5% |
Loss on sale of property and equipment |
0.0% |
0.0% |
0.0% |
0.0% |
Operating income |
20.8% |
18.5% |
21.4% |
19.6% |
|
|
|
|
|
Interest income |
0.0% |
0.0% |
0.0% |
0.0% |
Earnings before income taxes |
20.8% |
18.5% |
21.4% |
19.6% |
|
|
|
|
|
Note – Amounts may not foot due
to rounding difference. |
Gross profit percentage for the first half of
2011 increased from the same period in 2010. Sequentially, the
gross profit for the second quarter of 2011 grew from the first
quarter of 2011.
The gross profit percentage in the first, second, third and
fourth quarters was as follows:
|
Q1 |
Q2 |
Q3 |
Q4 |
|
|
|
|
|
2011 |
52.0% |
52.2% |
|
|
2010 |
51.1% |
52.1% |
51.8% |
52.0% |
2009 |
52.9% |
51.1% |
50.0% |
49.9% |
The fluctuations in our gross profit percentages are typically
driven by: (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 2010, and in the first half of 2011,
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 2010, and in the first half of 2011, when compared to the fourth
quarter of 2009.
The slight decrease in the gross profit percentage, from the
second quarter of 2010 to the third and fourth quarters of 2010 and
the first quarter of 2011, was primarily caused by the strong
growth of our industrial production business, which resulted in a
change in our overall business mix. The industrial production
business has a lower gross margin; therefore, the change in mix
pulled our gross margin percentage down. However, since the
operating expenses of our industrial production business are lower,
operating income produced by that business is similar to our
overall business. The increase from the first quarter of 2011
to the second quarter was primarily due to improvements in
organizational gross profit and in vendor volume
allowances. As we indicated in our second quarter 2010
earnings release, vendor volume allowances largely recovered during
the second quarter of 2010 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. Generally speaking, the decline in the
gross margin percentage from 2008 to 2009 was evenly split between
a deterioration in the three components discussed earlier. The
improvement from 2009 to 2010 was primarily related to improvements
in vendor incentive gross profit (about half of the improvement),
with the balance evenly split between improvements in
organizational gross profit and transactional gross
profit. This improvement split is also true in the first half
of 2011 when compared to the first half of 2010.
Operating and administrative expenses improved
relative to sales in the second quarter of 2011 versus the second
quarter of 2010.
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, (3) education, and
(4) social taxes. During 2009, these components had reduced to
a range between 60% and 65% due to the factors noted
below. During the first half of 2011 and during 2010, this
range moved back to the historical level.
The two largest components of employee related costs
grew/contracted as follows for the periods ended June 30:
|
Six-month period |
Three-month period |
|
2011 |
2010 |
2011 |
2010 |
|
|
|
|
|
Payroll cost |
25.2% |
5.4% |
21.7% |
15.3% |
Health care cost |
4.3% |
7.9% |
16.4% |
-5.1% |
The two largest components of operating and administrative
expenses, outside of the employee related costs, grew/contracted as
follows for the periods ended June 30:
|
Six-month period |
Three-month period |
|
2011 |
2010 |
2011 |
2010 |
|
|
|
|
|
Occupancy |
6.5% |
0.8% |
5.1% |
3.6% |
Selling transportation |
19.8% |
0.3% |
27.1% |
-6.6% |
The increase in payroll costs during the first half of 2011 and
2010 noted above was greater than the change in full-time
equivalent headcount noted earlier in this document. This was
driven by several factors: (1) sales commissions earned grew (this
increase is amplified by sales growth and gross margin
fluctuations, both of which have a meaningful impact on the
commissions earned), (2) total bonuses earned increased due to our
profit growth, (3) hours worked per employee grew, and (4) our
profit sharing contribution grew.
Our health care costs in the first half of 2011 increased from
the same period in 2010. Our health care costs in the second
quarter of 2010 decreased from the unusual peak in the same period
of 2009. Health care costs in 2009, and the first quarter of
2010, increased dramatically 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.
The two largest components of the remaining costs within our
operating and administrative expenses include occupancy and selling
transportation. Occupancy expenses for the second quarter of
2011 increased from the second quarter of 2010 and decreased from
the first quarter of 2011. Approximately 50% of the increase
from the second quarter of 2010 to the second quarter of 2011 was
caused by increases in utility costs, while the decrease from the
first quarter of 2011 to the second quarter was due to the seasonal
savings associated with the end of winter. The selling
transportation costs consist primarily of our store fleet as most
of the distribution fleet costs are included in cost of
sales. Selling transportation costs included in operating and
administrative expenses increased from the second quarter of 2010
to the second quarter of 2011, a sharp contrast to the prior year
trend. Most of the components of selling transportation costs
stayed relatively flat or improved nominally in 2011 and improved
meaningfully in 2010; however, the fuel component increased in both
periods relative to the prior year.
The last several years have seen meaningful swings in
the cost of diesel fuel and gasoline – During the first
and second quarters of 2011, our total vehicle fuel costs were
approximately $8.6 and $10.5 million, respectively. During the
first, second, third, and fourth quarters of 2010, our total
vehicle fuel costs were approximately $6.4 million, $6.8 million,
$6.6 million, and $7.1 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 (in actual dollars) and the
percentage change (on a year-over-year basis) for the last three
years was as follows:
Per gallon average
price |
Q1 |
Q2 |
Q3 |
Q4 |
|
|
|
|
|
2011 price |
|
Diesel fuel |
$3.60 |
4.04 |
|
|
Gasoline |
$3.22 |
3.78 |
|
|
|
|
|
|
|
2010 price |
|
Diesel fuel |
$2.89 |
3.06 |
2.96 |
3.14 |
Gasoline |
$2.68 |
2.80 |
2.71 |
2.84 |
|
|
|
|
|
2009 price |
|
Diesel fuel |
$2.19 |
2.29 |
2.61 |
2.70 |
Gasoline |
$1.86 |
2.25 |
2.55 |
2.54 |
|
|
|
|
|
Per gallon price
change |
Q1 |
Q2 |
Q3 |
Q4 |
|
|
|
|
|
2011 change |
|
Diesel fuel |
24.6% |
32.0% |
|
|
Gasoline |
20.1% |
35.0% |
|
|
|
|
|
|
|
2010 change |
|
Diesel fuel |
32.0% |
33.6% |
13.4% |
16.3% |
Gasoline |
44.1% |
24.4% |
6.3% |
11.8% |
Income taxes – Incomes taxes,
as a percentage of earnings before income taxes, were approximately
37.3% and 38.3% for the second quarter of 2011 and 2010,
respectively. As our international business and profits grow
over time, the lower income tax rates in those jurisdictions have
begun to lower our effective tax rate. Absent any discrete
events, we currently estimate an effective income tax rate of 37.9%
for the second half of 2011.
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 June 30: |
Twelve Month Dollar
Change |
Twelve Month Percentage
Change |
|
2011 |
2010 |
2009 |
2011 |
2010 |
2011 |
2010 |
Accounts receivable, net |
$ 357,195 |
280,823 |
228,257 |
76,372 |
52,566 |
27.2% |
23.0% |
Inventories |
608,657 |
522,214 |
519,119 |
86,443 |
3,095 |
16.6% |
0.6% |
|
|
|
|
|
|
|
|
Sales in last two months |
479,164 |
381,978 |
315,420 |
97,186 |
66,558 |
25.4% |
21.1% |
The growth in accounts receivable noted above is driven by our
sales growth in the final two months of the period. The strong
growth internationally in recent years and with large customer
accounts has caused accounts receivable to grow slightly faster
than sales. Our accounts receivable collections were also
negatively impacted by a postal strike in Canada during the second
quarter of 2011. Many of our customer payments in the United
States and Canada are received through the mail.
Our growth in inventory balances over time does not have as
direct a relationship to our monthly sales patterns as does our
growth in accounts receivable. This is impacted by other
aspects of our business. For example, the dramatic economic
slowdown in late 2008 and early 2009 caused our inventory to
spike. This occurred because the lead time for inventory
procurement is typically longer than the visibility we have into
future monthly sales patterns. Over the last decade, we increased
our relative inventory levels due to the following: (1) new store
openings, (2) expanded stocking breadth at individual stores, (3)
expanded stocking breadth at our distributions centers (for
example, our master stocking hub in Indianapolis expanded its
product breadth over six fold from 2006 to 2011), (4) expanded
direct sourcing, (5) expanded private label brands, and, more
recently, (6) expanded vending solutions. We believe these
were excellent investments for our business. These investments
have, and we believe will continue to, leverage our sales
growth.
The discussion above covers inventory from a longer perspective;
in more recent quarters, our expanding inventories are related to
(1) our expanding sales growth trends (with emphasis on our large
account business – both OEM and MRO), (2) our confidence in their
sustainability, (3) an increase in the rate of store openings, (4)
international expansion, and in recent months, (5) some
inflation. However, this expansion has been at a rate less
than sales growth which has allowed us to improve our inventory
utilization.
BALANCE SHEET AND CASH FLOW:
Our balance sheet continues to be very strong and our operations
have good cash generating characteristics. During the second
quarter of 2011, we generated $26,993 (or 28.7% of net earnings) of
operating cash flow; year-to-date, we generated $101,277 (or 58.3%
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 2010 and 2011 allowed us to increase our first
dividend payment (declared in January 2011 and paid in February
2011) by 25.0% (from $0.20 per share in 2010 to $0.25 per share in
2011). In addition, we declared the first 'second quarter'
dividend in our history (declared on April 11, 2011, with a payment
date of April 28, 2011); this dividend was $0.13 per share. In
July 2011, our board of directors declared our third quarter
dividend of $0.13 per share (declared on July 11, 2011, with a
payment date of August 22, 2011).
STOCK REPURCHASE:
In July 2009, we announced our board of directors had authorized
purchases by us of up to 4,000,000 shares of our common
stock. This authorization replaced any unused authorization
previously approved by our board of directors. During 2009, we
purchased 2,200,000 shares of our outstanding stock at an average
price of approximately $18.69 per share. These purchases
occurred in the fourth quarter of 2009. We did not purchase
any stock in 2010 or in the first half of 2011. We have
remaining authority to purchase up to 1,800,000 shares.
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 a.m., central time. To
access the webcast, please go to the Fastenal Company Investor
Relations Website at http://investor.fastenal.com/events.cfm.
The Fastenal Company logo is available at
http://www.globenewswire.com/newsroom/prs/?pkgid=6432
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) the goals of our long‑term growth strategy,
'pathway to profit', including anticipated decreases in the rate of
new store openings from our historic rate prior to implementation
of the strategy, planned additions to our 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 that strategy and from
our recent decision to add resources focused on specific sales
opportunities and the expected timeline for achieving that growth,
the leverage, working capital and productivity improvements
expected to result from the strategy, and the growth in
profitability expected to result from the strategy and the expected
timeline for achieving that growth (including our belief that we
can achieve targeted profitability due to a structural lowering of
our costs even if our average store sales do not grow as expected),
(2) the expected rate of new store openings, (3) our
belief in the transformative nature of automated solutions
(industrial vending), (4) our estimated effective tax rate for the
second half of 2011, (5) the sales growth leverage expected to
result from our inventory investments, and (6) our expectations
regarding sales growth and our confidence in the sustainability of
that growth. The following factors are among those that could
cause our actual results to differ materially from those predicted
in such forward looking statements: (1) a downturn or
continued weakness in the economy or in the manufacturing or
commercial construction industries, changes in the expected rate of
new store openings, difficulties in successfully attracting and
retaining additional qualified sales personnel, an inability to
realize anticipated savings from lowering our cost structure, and
difficulties in changing our sales process could adversely impact
our ability to achieve the goals of our 'pathway to profit'
initiative and the expected time frame for achieving those goals,
(2) a downturn or continued weakness in the economy or in the
manufacturing or commercial construction industries, a change from
that projected in the number of North American markets able to
support stores, or an inability to recruit and retain qualified
employees could cause the rate of new store openings to change from
that expected, (3) a weaker level of industry acceptance or
adoption of the vending technology from what we are currently
experiencing could cause the automated solutions to be less
transformative than expected, (4) a change in the geographic source
of our income or a change in tax legislation could cause our
effective tax rate for the rest of 2011 to differ from current
expectations, (5) a decision to stock a greater amount of safety
stock (extra units of inventory carried as protection against
possible stockouts) or to expand product offerings in the
various geographic areas in which we operate could cause
sales growth leverage to result from our inventory investments not
to occur, and (6) a downturn or continued weakness in the economy
or in the manufacturing or commercial construction industries could
affect our ability to sustain our sales growth. 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 2010 annual report on Form 10-K under the sections
captioned Certain Risks and Uncertainties and Item 1A – Risk
Factors. FAST-E
FASTENAL COMPANY AND
SUBSIDIARIES |
|
|
|
Consolidated Balance
Sheets |
(Amounts in thousands except
share information) |
|
|
|
Assets |
(Unaudited) June 30,
2011 |
December 31, 2010 |
|
|
|
|
|
|
Current assets: |
|
|
Cash and cash equivalents |
$ 89,409 |
143,693 |
Marketable securities |
26,243 |
26,067 |
Trade accounts receivable, net of
allowance for doubtful accounts of $4,712 and $4,761,
respectively |
357,195 |
270,133 |
Inventories |
608,657 |
557,369 |
Deferred income tax assets |
17,413 |
17,897 |
Other current assets |
72,898 |
70,539 |
Total current assets |
1,171,815 |
1,085,698 |
|
|
|
Marketable securities |
0 |
5,152 |
Property and equipment, less accumulated
depreciation |
396,461 |
363,419 |
Other assets, net |
13,595 |
14,014 |
|
|
|
Total assets |
$ 1,581,871 |
1,468,283 |
|
|
|
|
|
|
Liabilities and
Stockholders' Equity |
|
|
|
|
|
Current liabilities: |
|
|
Accounts payable |
$ 83,120 |
60,474 |
Accrued expenses |
100,428 |
96,412 |
Income taxes
payable |
20,846 |
5,299 |
Total current
liabilities |
204,394 |
162,185 |
|
|
|
Deferred income tax liabilities |
23,306 |
23,586 |
|
|
|
Stockholders' equity: |
|
|
Preferred stock, 5,000,000
shares authorized |
0 |
0 |
Common stock, 400,000,000
shares authorized, 295,099,324 and 294,861,424 shares issued
and outstanding, respectively |
2,951 |
2,948 |
Additional paid-in capital |
10,039 |
2,889 |
Retained earnings |
1,319,795 |
1,258,183 |
Accumulated
other comprehensive income |
21,386 |
18,492 |
Total stockholders' equity |
1,354,171 |
1,282,512 |
|
|
|
Total liabilities and stockholders'
equity |
$ 1,581,871 |
1,468,283 |
|
FASTENAL COMPANY AND
SUBSIDIARIES |
|
|
|
|
|
Consolidated Statements of
Earnings |
(Amounts in thousands except
earnings per share) |
|
|
|
|
(Unaudited) Six
months ended June 30, |
(Unaudited)
Three months ended June 30, |
|
2011 |
2010 |
2011 |
2010 |
|
|
|
|
|
|
|
|
|
|
Net sales |
$ 1,342,313 |
1,091,955 |
701,730 |
571,183 |
|
|
|
|
|
Cost of sales |
642,700 |
528,384 |
335,497 |
273,525 |
Gross profit |
699,613 |
563,571 |
366,233 |
297,658 |
|
|
|
|
|
|
|
|
|
|
Operating and administrative expenses |
420,560 |
361,193 |
215,868 |
185,783 |
Loss on sale of property and
equipment |
284 |
106 |
259 |
39 |
Operating income |
278,769 |
202,272 |
150,106 |
111,836 |
|
|
|
|
|
Interest income |
224 |
522 |
76 |
289 |
|
|
|
|
|
Earnings before income
taxes |
278,993 |
202,794 |
150,182 |
112,125 |
|
|
|
|
|
Income tax expense |
105,334 |
77,593 |
56,070 |
42,958 |
|
|
|
|
|
Net earnings |
$ 173,659 |
125,201 |
94,112 |
69,167 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic net earnings per share |
$ 0.59 |
0.42 |
0.32 |
0.23 |
|
|
|
|
|
Diluted net earnings per
share |
$ 0.59 |
0.42 |
0.32 |
0.23 |
|
|
|
|
|
Basic weighted average shares
outstanding |
294,918 |
294,861 |
294,974 |
294,861 |
|
|
|
|
|
Diluted weighted average shares
outstanding |
295,690 |
295,020 |
295,916 |
295,159 |
|
FASTENAL COMPANY AND
SUBSIDIARIES |
|
|
|
Consolidated Statements of Cash
Flows |
(Amounts in thousands) |
|
|
|
|
(Unaudited) Six
months ended June 30, |
|
2011 |
2010 |
|
|
|
Cash flows from operating activities: |
|
|
Net earnings |
$ 173,659 |
125,201 |
Adjustments to reconcile net
earnings to net cash provided by operating activities: |
|
|
Depreciation of property and
equipment |
21,363 |
20,404 |
Loss on sale of property and
equipment |
284 |
106 |
Bad debt expense |
4,258 |
3,370 |
Deferred income taxes |
204 |
(2,025) |
Stock based compensation |
1,800 |
2,000 |
Amortization of non-compete
agreements |
297 |
34 |
Changes in operating assets and
liabilities: |
|
|
Trade accounts receivable |
(91,320) |
(70,024) |
Inventories |
(51,288) |
(13,809) |
Other current assets |
(2,359) |
(3,871) |
Accounts payable |
22,646 |
17,945 |
Accrued expenses |
4,016 |
19,769 |
Income taxes |
15,547 |
20,598 |
Other |
2,170 |
(171) |
Net cash provided by
operating activities |
101,277 |
119,527 |
|
|
|
Cash flows from investing activities: |
|
|
Purchase of property and
equipment |
(56,324) |
(32,211) |
Proceeds from sale of property
and equipment |
1,635 |
2,240 |
Net decrease in marketable
securities |
4,976 |
977 |
Net decrease in
other assets |
122 |
11 |
Net cash used in
investing activities |
(49,591) |
(28,983) |
|
|
|
Cash flows from financing activities: |
|
|
Proceeds from exercise of stock
options |
5,353 |
0 |
Payment of
dividends |
(112,047) |
(58,972) |
Net cash used in
financing activities |
(106,694) |
(58,972) |
|
|
|
Effect of exchange rate changes on
cash |
724 |
(32) |
|
|
|
Net (decrease) increase in cash
and cash equivalents |
(54,284) |
31,540 |
|
|
|
Cash and cash equivalents at beginning
of period |
143,693 |
164,852 |
Cash and cash equivalents at end of
period |
$ 89,409 |
196,392 |
|
|
|
Supplemental disclosure of cash flow
information: |
|
|
Cash paid during each
period for income taxes |
$ 89,583 |
59,020 |
CONTACT: Sheryl Lisowski, Controller
507.453.8550
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