UPDATE: Fastenal 4Q Net Up 34%; More Use Of Vending Machines
January 18 2012 - 2:30PM
Dow Jones News
Fastenal Co.'s (FAST) fourth-quarter profit rose 34%, as the
distributor of industrial supplies continued to rapidly deploy
factory-floor vending machines to sell items to customers.
Fastenal has about 7,500 vending machines in customers' shops,
up from 1,925 machines at the end of 2010. Fastenal's base of
installed machines grew by 32% from the third quarter to the fourth
quarter. The machines, which are stocked with items ranging from
first aid supplies to materials consumed during welding and metal
cutting, accounted for 16% of the company's sales in 2011, double
the percentage of sales from the machines in 2010.
The vending machines, which resemble those used to sell candy
bars and potato chips, reduce the need for customers to visit
Fastenal stores to replenish supplies. Connected through Internet
software, they allow Fastenal and its customers to tightly monitor
the sales of supplies and inventory levels.
"Vending is a more convenient way for our customers to buy
products from Fastenal," said CEO Will Oberton during a conference
call Wednesday with analysts. "If we can make things more
convenient and more efficient, we believe we'll sell more products.
That's why we're so heavily invested in this project."
The company is aiming to add 10,000 machines a year for the next
several years. Oberton believes the vending machines will
distinguish Fastenal in a field of tough competitors that includes
W.W. Grainger Inc. (GWW), the world's largest distributor of
industrial and maintenance supplies.
"Vending machines may be the biggest land-grab opportunity in
industrial distribution in the past 20 years," said Ryan Merkel, a
analyst for brokerage firm William Blair & Co., in a note
Wednesday to investors. "We agree with Fastenal's strategy to plant
as many vending flags as possible before the competition catches
up."
The machines are reducing Fastenal's need to open new stores to
expand sales. For years Fastenal's store count grew by about 14%
annually. But in 2011, the company opened 122 stores, a 4.9%
increase over 2010. The company expects to increase its store count
by 4% to 6% in 2012.
Fastenal's gross margin, a key metric for company, came in at
51.2% for the fourth quarter, down from 52% a year earlier and
below analysts' expectation. The decrease stemmed from an increase
in large, national customers and the mix of products sold during
the quarter. Nevertheless, the company's pretax operating margin
from the quarter grew by 1 percentage point to 20.2%, indicating
the company's ability to efficiently convert rising sales into
improved profit.
Overall for the quarter ended Dec. 31, Fastenal reported a
profit of $87.5 million, or 30 cents a share, up from $65.2
million, or 22 cents a share, a year earlier. Net sales increased
22% to $697.8 million. Analysts polled by Thomson Reuters had
forecast earnings of 30 cents a share on revenue of $694
million.
For 2011, the Minnesota company earned $357.9 million, or $1.21
a share, up from $265.4 million, or 90 cents a share, in 2010.
Sales grew 22% to $2.77 billion.
Fastenal's stock was recently down 3.5% at $45.15 a share.
-By Bob Tita, Dow Jones Newswires; 312-750-4129;
robert.tita@dowjones.com
--Ben Fox Rubin contributed to this report.
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