FAST Fastenal Company

Fastenal Co. (FAST) posted a 36% increase in profit to $94.1 million in the second quarter of the year from $69.2 million a year-ago.

On a per share basis, profit improved 39% to 32 cents from 23 cents a year ago, nearly meeting the Zacks Consensus Estimate of 31 cents.

Sales in the quarter rose 23% to $701.7 million, higher than the Zacks Consensus Estimate of $699 million. Gross profit during the quarter increased 23% to $366.2 million (52.2%) from $297.7 million (52.1%) in the second quarter of 2010.

The increase in sales was due to aggressive store openings and an increase in the company’s non-residential customers, accounting for 20%–25% of sales historically. Sales to non-residential construction increased to 15.8% from 0.5% in the same quarter last year. Meanwhile, sales to manufacturing customers (accounting for 50% of sales historically) declined to 18.5% from 29.8% a year ago.

During the first half of 2011, Fastenal opened 75 stores compared with 45 stores in the same period of 2010. The company had 2,565 stores as of June 30, 2011. During each of the first six months of 2011 and 2010, the company closed seven stores. The company intends to open 80 to 95 stores during the second half of 2010 (which is equivalent to an annualized rate of 6.8% to 8.0%).

Fastenal had cash and cash equivalents of $89.4 million as on June 30, 2011 compared with $143.7 million as on December 31, 2010.

In the first half of the year, the company had a cash flow of $101.3 million from operating activities, a decline from $119.6 million in the prior-year period. Despite an improvement in profit, cash flow declined primarily due to increases in trade accounts receivable and inventories. Meanwhile, capital expenditures (net) increased to $54.7 million from $30.1 million in the year-ago period.

Fastenal has a widespread customer base. The company’s large number of customers belong to varied markets, which protects its market position in tough economies. Further, the company has employed a hub and spoke model along with the opening of new stores and service centers to ensure efficient customer service in all aspects. Under the Pathway to Profit growth strategy, the company aims to push sales of its average store to 100,000-$110,000 per month by 2013.

These factors have led the company to maintain a Zacks #2 Rank on its stock, which translated to a short-term (1–3 months) rating of Buy.

 
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