Fastenal Company (Nasdaq:FAST), a leader in the wholesale
distribution of industrial and construction supplies, today
announced its financial results for the quarter ended
March 31, 2019. Except for share and per share information, or
as otherwise noted below, dollar amounts are stated in millions.
Throughout this document, percentage and dollar calculations, which
are based on non-rounded dollar values, may not be able to be
recalculated using the dollar values included in this document due
to the rounding of those dollar values.
PERFORMANCE SUMMARY
|
Three-month Period |
|
2019 |
|
2018 |
|
Change |
Net sales |
$ |
1,309.3 |
|
|
1,185.8 |
|
|
10.4 |
% |
Business
days |
63 |
|
|
64 |
|
|
|
Daily
sales |
$ |
20.8 |
|
|
18.5 |
|
|
12.2 |
% |
Gross profit |
$ |
624.7 |
|
|
577.6 |
|
|
8.2 |
% |
%
of sales |
47.7 |
% |
|
48.7 |
% |
|
|
Operating income |
$ |
261.4 |
|
|
234.5 |
|
|
11.4 |
% |
%
of sales |
20.0 |
% |
|
19.8 |
% |
|
|
Earnings before income
taxes |
$ |
257.5 |
|
|
231.9 |
|
|
11.0 |
% |
%
of sales |
19.7 |
% |
|
19.6 |
% |
|
|
Net earnings |
$ |
194.1 |
|
|
174.3 |
|
|
11.4 |
% |
Diluted net earnings
per share |
$ |
0.68 |
|
|
0.61 |
|
|
11.9 |
% |
Quarterly Results of Operations
Net sales increased $123.6, or 10.4%, in the first quarter of
2019 when compared to the first quarter of 2018. Due to the one
fewer selling day in the current period, our daily sales increased
12.2% in the first quarter of 2019 when compared to the first
quarter of 2018. This increase was driven by higher unit sales
related primarily to continued strength in underlying market demand
and contribution from our growth drivers, most notably industrial
vending, Onsite locations, and construction. A lesser contributor
to our sales growth in the first quarter of 2019 was higher product
pricing as a result of increases implemented over the course of
2018 to mitigate the impacts of general and tariff-related
inflation in the marketplace. These positive factors were slightly
offset by adverse weather across many of our northern regions in
both periods that created temporary disruptions in activity and
reduced sales. Sales of our fastener products grew 11.8% on a daily
basis over the first quarter of 2018 and represented 34.8% of sales
in the first quarter of 2019. Sales of our non-fastener products
grew 12.7% on a daily basis over the first quarter of 2018 and
represented 65.2% of sales in the first quarter of 2019.
Our gross profit, as a percentage of net sales, declined 100
basis points to 47.7% in the first quarter of 2019 from 48.7% in
the first quarter of 2018. The most significant factors behind the
decline in our gross profit percentage in the period were the
impacts of customer and product mix and net inflation on product
margins, higher freight costs, and lower net rebates reflecting our
inventory control programs. Relative to the fourth quarter of 2018,
our first quarter of 2019 gross profit percentage was flat with
lower freight costs offset by lower net rebates.
Our operating income, as a percentage of net sales, improved to
20.0% in the first quarter of 2019 from 19.8% in the first quarter
of 2018. Our operating and administrative expenses (including
the (gain) loss on sales of property and equipment), as a
percentage of net sales, improved to 27.8% in the first quarter of
2019 compared to 28.9% in the first quarter of 2018. The primary
reason for this improvement was our ability to leverage
employee-related and occupancy-related expenses.
Employee-related expenses, which represent 65% to 70% of total
operating and administrative expenses, increased 7.1% in the first
quarter of 2019 when compared to the first quarter of 2018. The
increase in employee-related expenses was mainly related to: (1) an
increase of 6.2% in our full-time equivalent ('FTE') headcount, (2)
moderate increases in hourly base wages, (3) higher bonuses and
commissions due to growth in net sales and net earnings, and (4)
higher profit sharing expense. Occupancy-related expenses, which
represent 15% to 20% of total operating and administrative
expenses, increased 2.3%. This was primarily due to an increase of
10.9% in expenses related to industrial vending equipment, as
facility costs were essentially flat, with an increase in
non-branch occupancy expenses being mostly offset by a decline in
branch occupancy expenses. All other operating and administrative
expenses, which represent 15% to 20% of total operating and
administrative expenses, increased 4.9%. This was primarily due to
(1) higher spending on information technology and (2) higher
expenses related to legal settlements and a bad debt write-off.
Selling-related transportation costs were roughly flat year over
year.
Our net interest expense was $3.9 in the first quarter of 2019
compared to $2.7 in the first quarter of 2018. This increase was
mainly caused by a higher average debt balance during the period
and higher average interest rates.
We recorded income tax expense of $63.4 in the first quarter of
2019, or 24.6% of earnings before income taxes. Income tax expense
was $57.6 in the first quarter of 2018, or 24.8% of earnings before
income taxes. We continue to believe our ongoing tax rate, absent
any discrete tax items, will be in the 24.5% to 25.0% range.
Our net earnings during the first quarter of 2019 were $194.1,
an increase of 11.4% when compared to the first quarter of 2018.
Our diluted net earnings per share were $0.68 during the first
quarter of 2019 compared to $0.61 during the first quarter of 2018,
an increase of 11.9%.
Growth Driver Performance
We signed 5,603 industrial vending devices during the first
quarter of 2019. Our installed device count on March 31, 2019 was
83,410, an increase of 13.4% over March 31, 2018. Sales through our
vending devices grew at a high-teens pace in the first quarter of
2019 over the first quarter of 2018 due primarily to the increase
in the installed base. These device counts do not include slightly
more than 15,000 vending devices deployed as part of a lease locker
program. Our goal for vending device signings in 2019 remains
23,000 to 25,000 units.
We signed 105 new Onsite locations (defined as dedicated sales
and service provided from within, or in close proximity to, the
customer's facility) during the first quarter of 2019. We had 945
active sites on March 31, 2019, which represented an increase of
39.4% from March 31, 2018. Sales through our Onsite locations,
excluding sales transferred from branches to new Onsites, grew at a
better than 20% pace in the first quarter of 2019 over the first
quarter of 2018. Our goal for Onsite signings in 2019 remains 375
to 400.
We signed 59 new national account contracts (defined as new
customer accounts with a multi-site contract) in the first quarter
of 2019, and revenues attributable to national account customers
represented 52.7% of our total revenues in the period. Daily sales
to our national account customers grew 16.9% in the first quarter
of 2019 over the first quarter of 2018.
Balance Sheet and Cash Flow
Effective January 1, 2019, we adopted the Financial Accounting
Standards Board Accounting Standards Update 2016-02, Leases, which
requires the recognition of lease assets and lease liabilities by
lessees for those leases classified as operating leases under
previous guidance. We have recorded operating lease right-of-use
assets and operating lease liabilities and presented these values
separately on our Condensed Consolidated Balance Sheet as of March
31, 2019. The adoption of this standard did not have a material
impact on our Condensed Consolidated Statement of Earnings or
Condensed Consolidated Statement of Cash Flows for the three-month
period ended March 31, 2019.
We produced operating cash flow of $204.9 in the first quarter
of 2019, an increase of 28.3% from the first quarter of 2018,
representing 105.6% of the period's net earnings versus 91.6% in
the first quarter of 2018. The increase in our operating cash flow
as a percentage of net earnings largely reflects higher net
earnings and a reduced drag from working capital investment than
was experienced in the first quarter of 2018. Our investment in
property and equipment, net of proceeds from sales, was $52.8 in
the first quarter of 2019 compared to $28.8 in the first quarter of
2018. This increase was a result of greater spending to develop or
expand certain of our distribution center assets as well as to
purchase vending equipment to support our growth. We continue to
expect our net capital expenditures in 2019 to be within a range of
$195.0 to $225.0, growth from 2018 of between $28.2 and $58.2, and
16.9% and 34.9%. This increase is a result of higher spending for
property and equipment to expand our hub capacity, vending devices,
and hub vehicles, with our investments in hub capacity likely to be
the primary determinant of where we fall within our range.
We returned $123.0 in dividends to our shareholders in the first
quarter of 2019, compared to $106.4 in dividends in the first
quarter of 2018. We did not repurchase any of our common stock in
either period.
Total debt on our balance sheet was $489.0 at the end of the
first quarter of 2019, or 16.9% of total capital (the sum of
stockholders' equity and total debt). This compares to $405.0, or
15.7% of total capital, at the end of the first quarter of
2018.
Accounts receivable were $793.0 at the end of the first quarter
of 2019, an increase of $104.4, or 15.2%, over the first quarter of
2018. This partly reflects strong sales growth, including
relatively stronger growth in our national accounts and
international businesses, each of which tend to have longer payment
terms than our business as a whole. It also reflects the continued
impact of the timing of customers' payments late in the quarter, a
trend that began in the fourth quarter of 2017 and has intensified
since that time period. Based on the aging of our receivables,
there has been no erosion in the quality of our receivables.
Inventories were $1,293.9 at the end of the first quarter of 2019,
an increase of $159.0, or 14.0%, over the first quarter of 2018. We
continue to see an increase in inventory related to healthy
business activity, large increases in the number of installed
vending devices and active Onsite locations, and inflation and
tariffs. These factors were partly offset by lower purchasing as a
result of our working through foreign-sourced inventory that had
been accelerated into the United States in the fourth quarter of
2018 and programs intended to improve our inventory efficiency.
Accounts payable were $183.9 at the end of the first quarter of
2019, an increase of $35.8, or 24.2%, from the end of the first
quarter of 2018, driven by an increase in inventory demand due to
sales growth.
Additional Information
The table below summarizes our total and FTE (based on 40 hours
per week) employee headcount, our investments in in-market
locations (defined as the sum of the total number of public branch
locations and the total number of active Onsite locations), and
industrial vending devices at the end of the periods presented and
the percentage change compared to the end of the prior periods.
|
|
|
|
|
Change Since: |
|
|
|
Change Since: |
|
Q12019 |
|
Q42018 (1) |
|
Q42018 |
|
Q12018 |
|
Q12018 |
In-market locations -
absolute employee headcount |
14,336 |
|
|
14,015 |
|
|
2.3 |
% |
|
13,745 |
|
|
4.3 |
% |
In-market locations -
FTE employee headcount |
12,482 |
|
|
12,211 |
|
|
2.2 |
% |
|
11,878 |
|
|
5.1 |
% |
Total absolute employee
headcount |
22,205 |
|
|
21,644 |
|
|
2.6 |
% |
|
21,002 |
|
|
5.7 |
% |
Total FTE employee
headcount |
19,125 |
|
|
18,704 |
|
|
2.3 |
% |
|
18,004 |
|
|
6.2 |
% |
|
|
|
|
|
|
|
|
|
|
Number of public branch
locations |
2,187 |
|
|
2,227 |
|
|
-1.8 |
% |
|
2,329 |
|
|
-6.1 |
% |
Number of active Onsite
locations |
945 |
|
|
894 |
|
|
5.7 |
% |
|
678 |
|
|
39.4 |
% |
Number of in-market
locations |
3,132 |
|
|
3,121 |
|
|
0.4 |
% |
|
3,007 |
|
|
4.2 |
% |
Industrial vending
devices (installed device count) (2) |
83,410 |
|
|
81,137 |
|
|
2.8 |
% |
|
73,561 |
|
|
13.4 |
% |
Ratio of
industrial vending devices to in-market locations |
27:1 |
|
|
26:1 |
|
|
|
|
|
24:1 |
|
|
|
|
(1) |
In
materials released on January 17, 2019 related to our fourth
quarter and full year 2018 earnings results, we undercounted our
total employees by 25. We corrected this in the table above. |
(2) |
This number
primarily represents devices which principally dispense product and
produce product revenues, and excludes slightly more than 15,000
devices that are part of a locker lease program where the devices
are principally used for the check-in/check-out of equipment. |
During the last twelve months, we increased our absolute
employee headcount by 591 people in our in-market locations and
1,203 people in total. The increase is mostly a function of
additions we have made to support customer growth in the field as
well as investments in our growth drivers.
We opened three branches in the first quarter of 2019 and closed
42 branches. One branch was converted from a public branch to a
non-public location. We activated 66 Onsite locations in the first
quarter of 2019 and closed 15. Our in-market network forms the
foundation of our business strategy, and we will continue to open
or close locations as is deemed necessary to sustain and improve
our network, support our growth drivers, and manage our operating
expenses.
CONFERENCE CALL TO DISCUSS QUARTERLY
RESULTS
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 https://investor.fastenal.com/events.cfm.
ADDITIONAL MONTHLY AND QUARTERLY
INFORMATION
We publish on the 'Investor Relations' page of our website at
www.fastenal.com both our monthly consolidated net sales
information and the presentation for our quarterly conference call
(which includes information, supplemental to that contained in our
earnings announcement, regarding results for the quarter). We
expect to publish the consolidated net sales information for each
month, other than the third month of a quarter, at 6:00 a.m.,
central time, on the fourth business day of the following month. We
expect to publish the consolidated net sales information for the
third month of each quarter and the conference call presentation
for each quarter at 6:00 a.m., central time, on the date our
earnings announcement for such quarter is publicly released.
ANNUAL MEETING OF SHAREHOLDERS WEBCAST
On Tuesday, April 23, 2019, we will be holding our annual
meeting of shareholders at 1858 Service Drive, Winona, Minnesota.
The meeting will be webcast from 10:00 a.m., central time, until
the conclusion of the meeting. To access the webcast, please go to
the Fastenal Company Investor Relations Website at
https://investor.fastenal.com/events.cfm.
FORWARD LOOKING STATEMENTS
Certain statements contained in this document do not relate
strictly to historical or current facts. As such, they are
considered 'forward-looking statements' that provide current
expectations or forecasts of future events. These forward-looking
statements are made pursuant to the safe harbor provisions of the
Private Securities Litigation Reform Act of 1995. Such statements
can be identified by the use of terminology such as anticipate,
believe, should, estimate, expect, intend, may, will, plan, goal,
project, hope, trend, target, opportunity, and similar words or
expressions, or by references to typical outcomes. Any statement
that is not a historical fact, including estimates, projections,
future trends, and the outcome of events that have not yet
occurred, is a forward-looking statement. Our forward-looking
statements generally relate to our expectations regarding the
business environment in which we operate, our projections of future
performance, our perceived marketplace opportunities, our
strategies, goals, mission, and vision, and our expectations about
future capital expenditures, and Onsite and industrial vending
signings. You should understand that forward-looking statements
involve a variety of risks and uncertainties, known and unknown,
and may be affected by inaccurate assumptions. Consequently, no
forward-looking statement can be guaranteed and actual results may
vary materially. Factors that could cause our actual results to
differ from those discussed in the forward-looking statements
include, but are not limited to, those detailed in our most recent
annual and quarterly reports. Each forward-looking statement speaks
only as of the date on which such statement is made, and we
undertake no obligation to update any such statement to reflect
events or circumstances arising after such date. FAST-E
FASTENAL COMPANY AND SUBSIDIARIES |
Condensed Consolidated Balance Sheets |
(Amounts in millions except share information) |
|
|
|
|
|
|
|
(Unaudited) |
|
|
Assets |
|
March 31, 2019 |
|
December 31, 2018 |
Current assets: |
|
|
|
|
Cash and cash
equivalents |
|
$ |
185.4 |
|
|
167.2 |
|
Trade
accounts receivable, net of allowance for doubtful accounts of
$11.8 and $12.8, respectively |
|
793.0 |
|
|
714.3 |
|
Inventories |
|
1,293.9 |
|
|
1,278.7 |
|
Prepaid
income taxes |
|
— |
|
|
9.0 |
|
Other current assets |
|
116.9 |
|
|
147.0 |
|
Total
current assets |
|
2,389.2 |
|
|
2,316.2 |
|
|
|
|
|
|
Property and equipment,
net |
|
943.3 |
|
|
924.8 |
|
Operating lease
right-of-use assets |
|
220.9 |
|
|
— |
|
Other
assets |
|
98.4 |
|
|
80.5 |
|
|
|
|
|
|
Total assets |
|
$ |
3,651.8 |
|
|
3,321.5 |
|
|
|
|
|
|
Liabilities and Stockholders' Equity |
|
|
|
|
Current
liabilities: |
|
|
|
|
Current
portion of debt |
|
$ |
4.4 |
|
|
3.0 |
|
Accounts
payable |
|
183.9 |
|
|
193.6 |
|
Accrued
expenses |
|
232.8 |
|
|
240.8 |
|
Current
portion of operating lease liabilities |
|
91.8 |
|
|
— |
|
Income
taxes payable |
|
41.7 |
|
|
— |
|
Total current liabilities |
|
554.6 |
|
|
437.4 |
|
|
|
|
|
|
Long-term debt |
|
484.6 |
|
|
497.0 |
|
Operating lease
liabilities |
|
130.4 |
|
|
— |
|
Deferred
income taxes |
|
85.0 |
|
|
84.4 |
|
|
|
|
|
|
Stockholders'
equity: |
|
|
|
|
Preferred
stock: $0.01 par value, 5,000,000 shares authorized, no shares
issued or outstanding |
|
— |
|
|
— |
|
Common
stock: $0.01 par value, 400,000,000 shares authorized, 286,265,537
and 285,901,919 shares issued and outstanding, respectively |
|
2.9 |
|
|
2.9 |
|
Additional paid-in capital |
|
22.7 |
|
|
3.0 |
|
Retained
earnings |
|
2,412.7 |
|
|
2,341.6 |
|
Accumulated other comprehensive loss |
|
(41.1 |
) |
|
(44.8 |
) |
Total stockholders' equity |
|
2,397.2 |
|
|
2,302.7 |
|
|
|
|
|
|
Total liabilities and stockholders' equity |
|
$ |
3,651.8 |
|
|
3,321.5 |
|
FASTENAL COMPANY AND SUBSIDIARIES |
Condensed Consolidated Statements of Earnings |
(Amounts in millions except earnings per share) |
|
|
|
|
|
(Unaudited) |
|
Three Months Ended March 31, |
|
2019 |
|
2018 |
Net sales |
$ |
1,309.3 |
|
|
1,185.8 |
|
|
|
|
|
Cost of
sales |
684.6 |
|
|
608.2 |
|
Gross
profit |
624.7 |
|
|
577.6 |
|
|
|
|
|
Operating and
administrative expenses |
363.6 |
|
|
342.7 |
|
(Gain)
loss on sale of property and equipment |
(0.3 |
) |
|
0.4 |
|
Operating
income |
261.4 |
|
|
234.5 |
|
|
|
|
|
Interest income |
0.1 |
|
|
0.1 |
|
Interest
expense |
(4.0 |
) |
|
(2.7 |
) |
|
|
|
|
Earnings
before income taxes |
257.5 |
|
|
231.9 |
|
|
|
|
|
Income
tax expense |
63.4 |
|
|
57.6 |
|
|
|
|
|
Net earnings |
$ |
194.1 |
|
|
174.3 |
|
|
|
|
|
Basic net
earnings per share |
$ |
0.68 |
|
|
0.61 |
|
|
|
|
|
Diluted
net earnings per share |
$ |
0.68 |
|
|
0.61 |
|
|
|
|
|
Basic
weighted average shares outstanding |
286.1 |
|
|
287.6 |
|
|
|
|
|
Diluted
weighted average shares outstanding |
286.5 |
|
|
287.9 |
|
FASTENAL COMPANY AND SUBSIDIARIES |
Condensed Consolidated Statements of Cash Flows |
(Amounts in millions) |
|
|
(Unaudited) |
|
|
Three Months Ended March 31, |
|
|
2019 |
|
2018 |
|
|
|
|
|
Cash flows from
operating activities: |
|
|
|
|
Net earnings |
|
$ |
194.1 |
|
|
174.3 |
|
Adjustments to reconcile net earnings to net cash provided by
operating activities: |
|
|
|
|
Depreciation of property and equipment |
|
35.4 |
|
|
32.4 |
|
(Gain)
loss on sale of property and equipment |
|
(0.3 |
) |
|
0.4 |
|
Bad debt
expense |
|
2.0 |
|
|
1.3 |
|
Deferred
income taxes |
|
0.6 |
|
|
12.1 |
|
Stock-based compensation |
|
1.6 |
|
|
1.4 |
|
Amortization of intangible assets |
|
1.0 |
|
|
1.0 |
|
Changes
in operating assets and liabilities: |
|
|
|
|
Trade
accounts receivable |
|
(79.5 |
) |
|
(82.4 |
) |
Inventories |
|
(13.5 |
) |
|
(41.2 |
) |
Other
current assets |
|
30.1 |
|
|
18.4 |
|
Accounts
payable |
|
(9.7 |
) |
|
0.6 |
|
Accrued
expenses |
|
(8.0 |
) |
|
5.7 |
|
Income
taxes |
|
50.7 |
|
|
35.6 |
|
Other |
|
0.4 |
|
|
0.1 |
|
Net cash provided by operating activities |
|
204.9 |
|
|
159.7 |
|
|
|
|
|
|
Cash flows from
investing activities: |
|
|
|
|
Purchases
of property and equipment |
|
(54.4 |
) |
|
(31.5 |
) |
Proceeds
from sale of property and equipment |
|
1.6 |
|
|
2.7 |
|
Other |
|
0.1 |
|
|
(0.1 |
) |
Net cash used in investing activities |
|
(52.7 |
) |
|
(28.9 |
) |
|
|
|
|
|
Cash flows from
financing activities: |
|
|
|
|
Proceeds
from debt obligations |
|
210.0 |
|
|
180.0 |
|
Payments
against debt obligations |
|
(240.0 |
) |
|
(190.0 |
) |
Proceeds
from exercise of stock options |
|
18.1 |
|
|
3.8 |
|
Payments
of dividends |
|
(123.0 |
) |
|
(106.4 |
) |
Net cash used in financing activities |
|
(134.9 |
) |
|
(112.6 |
) |
|
|
|
|
|
Effect of exchange rate changes on cash and cash equivalents |
|
0.9 |
|
|
2.0 |
|
|
|
|
|
|
Net increase in cash and cash equivalents |
|
18.2 |
|
|
20.2 |
|
|
|
|
|
|
Cash and
cash equivalents at beginning of period |
|
167.2 |
|
|
116.9 |
|
Cash and
cash equivalents at end of period |
|
$ |
185.4 |
|
|
137.1 |
|
|
|
|
|
|
Supplemental disclosure
of cash flow information: |
|
|
|
|
Cash paid
for interest |
|
$ |
4.0 |
|
|
2.7 |
|
Net cash paid for income taxes |
|
$ |
11.7 |
|
|
9.6 |
|
CONTACT: |
Ellen Stolts |
|
Financial Reporting
& Regulatory Compliance Manager |
|
507-313-7282 |
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