Fastenal Company of Winona, MN (Nasdaq:FAST), a leader in the
wholesale distribution of industrial and construction supplies,
today announced its financial results for the quarter and nine
month period ended September 30, 2017. Except for share and
per share information, or as otherwise noted below, dollar amounts
are stated in millions. Throughout this document, percentage
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.
QUARTERLY PERFORMANCE SUMMARY
|
Nine-month Period |
|
Three-month Period |
|
2017 |
|
2016 |
|
Change |
|
2017 |
|
2016 |
|
Change |
Net sales |
$ |
3,302.0 |
|
|
3,014.1 |
|
|
9.6 |
% |
|
$ |
1,132.8 |
|
|
1,013.1 |
|
|
11.8 |
% |
Business
days |
191 |
|
|
192 |
|
|
|
|
|
63 |
|
|
64 |
|
|
|
|
Daily
sales |
$ |
17.3 |
|
|
15.7 |
|
|
10.1 |
% |
|
$ |
18.0 |
|
|
15.8 |
|
|
13.6 |
% |
Gross profit |
$ |
1,632.4 |
|
|
1,492.9 |
|
|
9.3 |
% |
|
$ |
555.9 |
|
|
499.8 |
|
|
11.2 |
% |
%
of sales |
49.4 |
% |
|
49.5 |
% |
|
|
|
|
49.1 |
% |
|
49.3 |
% |
|
|
|
Operating income |
$ |
678.5 |
|
|
613.3 |
|
|
10.6 |
% |
|
$ |
228.5 |
|
|
202.9 |
|
|
12.6 |
% |
%
of sales |
20.5 |
% |
|
20.3 |
% |
|
|
|
|
20.2 |
% |
|
20.0 |
% |
|
|
|
Earnings before income
taxes |
$ |
672.3 |
|
|
608.9 |
|
|
10.4 |
% |
|
$ |
226.0 |
|
|
201.2 |
|
|
12.3 |
% |
%
of sales |
20.4 |
% |
|
20.2 |
% |
|
|
|
|
20.0 |
% |
|
19.9 |
% |
|
|
|
Net earnings |
$ |
426.2 |
|
|
384.6 |
|
|
10.8 |
% |
|
$ |
143.1 |
|
|
126.9 |
|
|
12.7 |
% |
Diluted net earnings
per share |
$ |
1.48 |
|
|
1.33 |
|
|
11.0 |
% |
|
$ |
0.50 |
|
|
0.44 |
|
|
13.4 |
% |
"The third quarter of 2017 ended with September daily sales
growing 15.3%, we have not seen daily sales growth above 15% for
almost three years (late 2014)," said Dan Florness, President and
Chief Executive Officer. "We are pleased with the trust our
customers place in Fastenal, and I am proud of the success realized
by each member of the 'Blue Team'. Our growth drivers, combined
with a solid economy, are resulting in great growth."
Quarterly Results of Operations
Net sales increased $119.7, or 11.8%, from the third quarter of
2016 to the third quarter of 2017. Due to the one fewer selling day
in the current period, our daily sales increased 13.6% from the
third quarter of 2016 to the third quarter of 2017. Further, our
March 31, 2017 acquisition of Manufacturers Supply Company
('Mansco') increased our daily sales growth by 1.3 percentage
points. Adjusting for that, our daily sales on an organic basis
increased 12.3% from the third quarter of 2016 to the third quarter
of 2017. The increase was driven primarily by higher unit sales.
The higher unit sales resulted primarily from improvement in
underlying market demand and contribution from our growth drivers,
notably industrial vending and Onsite locations (defined as
dedicated sales and service provided from within, or in close
proximity to, the customer's facility). Fastener products
represented 35.6% of sales in the third quarter of 2017. Daily
sales of fastener products grew 12.1% in total, of which 3.8
percentage points were attributable to the recently acquired Mansco
business. Our sales of non-fastener products represented 64.4% of
sales in the third quarter of 2017 and grew 14.6% on a daily
basis.
Our gross profit, as a percentage of net sales, declined 20
basis points to 49.1% in the third quarter of 2017 from 49.3% in
the third quarter of 2016. Changes in product and customer
mix, the inclusion of Mansco (which has a lower gross profit
product mix than the Company) in this quarter's results, the
effects of hurricanes during the quarter on some of our Caribbean,
Southeastern, and Gulf Coast regions, the disruptions from which
reduced net sales and gross profit dollars and resulted in an
increase in sales of lower margin products, and commodity inflation
adversely affected our gross profit percentage.
Our operating income, as a percentage of net sales, improved to
20.2% in the third quarter of 2017 from 20.0% in the third quarter
of 2016. This improvement was the result of a 40 basis point
improvement in our operating and administrative expenses (including
a gain on the sale of property and equipment), which was partially
offset by the 20 basis point decline in gross profit. Our operating
and administrative expenses, as a percentage of net sales, were
28.9% in the third quarter of 2017 compared to 29.3% in the third
quarter of 2016. The primary reason for this improvement was that
growth in key operating and administrative expense categories –
most notably in this period, occupancy-related and selling
transportation expenses – lagged growth in net sales.
Employee-related expenses, which represent 65% to 70% of
operating and administrative expenses, increased 12.3% in the third
quarter of 2017 when compared to the third quarter of 2016. The
increase in employee-related expenses was mainly related to: (1)
higher bonuses and commissions due to growth in net sales and net
earnings, as well as regulatory driven incremental compensation,
(2) a modest increase in our full-time equivalent ('FTE')
headcount, (3) increased health care costs, and (4) the inclusion
of Mansco personnel. Occupancy-related expenses, which represent
15% to 20% of operating and administrative expenses, increased 1.5%
as a decline in our number of public branches was more than offset
by increases related to growth of vending equipment and an increase
in automation at our distribution centers. Selling transportation
expenses, which represent approximately 5% of operating and
administrative expenses, increased 2.7% due to higher fleet
movement expenses to support our growth and higher average fuel
expenses.
The table below summarizes our FTE headcount at the end of the
periods presented and changes in such headcount from the end of the
prior periods to the end of the most recent period:
|
|
|
|
|
Change Since: |
|
|
|
Change Since: |
|
Q3 |
|
Q4 |
|
Q4 |
|
Q3 |
|
Q3 |
|
2017 |
|
2016 |
|
2016 |
|
2016 |
|
2016 |
Branch and Onsite based
FTE headcount |
11,480 |
|
|
10,797 |
|
|
6.3 |
% |
|
11,175 |
|
|
2.7 |
% |
Total FTE
headcount |
17,329 |
|
|
16,265 |
|
|
6.5 |
% |
|
16,811 |
|
|
3.1 |
% |
Note - Full-time
equivalent is based on 40 hours per week. |
|
|
|
|
|
|
|
|
|
Our net interest expense was $2.5 in the third quarter of 2017
compared to $1.7 in the third quarter of 2016. This increase was
mainly caused by higher average interest rates during the
period.
Income tax expense, as a percentage of earnings before income
taxes, was 36.7% for the third quarter of 2017 and 36.9% for the
third quarter 2016.
Our net earnings during the third quarter of 2017 were $143.1,
an increase of 12.7% when compared to the third quarter of 2016.
Our diluted net earnings per share were $0.50 during the third
quarter of 2017 compared to $0.44 during the third quarter of
2016.
Growth Driver Performance
We signed 4,771 industrial vending machines during the third
quarter of 2017, which was comparable to the third quarter of 2016.
Our installed device count on September 30, 2017 was 69,058, an
increase of 14.3% over September 30, 2016. Sales through our
vending machines continued to grow at a double-digit pace in the
third quarter of 2017, primarily due to the increase in the
installed base. These amounts do not include the machines subject
to our leased locker program.
We signed 81 new Onsite locations during the third quarter of
2017 compared to 41 signings in the third quarter of 2016, an
increase of 97.6%. We had 555 active sites on September 30, 2017,
which represented an increase of 47.6% over September 30, 2016.
We signed 42 new national account contracts (defined as new
customer accounts with a multi-site contract) in the third quarter
of 2017, and revenues attributable to national account customers
represented 48.7% of our total revenues in the period. Daily sales
to our national account customers grew 17.3% in the third quarter
of 2017 over the third quarter of 2016. Beyond signings (or growth
activities), our large customers can provide insights into the
trends of our overall marketplace. As recently as the fourth
quarter of 2016, weak industrial demand was depressing growth for
this group with sales to only 51 of our top 100 customers growing
compared to 49 contracting. This dynamic started to improve in the
first quarter of 2017, and has continued to improve, including in
the third quarter of 2017, with sales to 72 of our top 100
customers growing (50 growing 10% or more), and sales to 28 of our
top 100 customers declining (15 declining 10% or more).
Balance Sheet and Cash Flow
We produced operating cash flow of $455.9 in the first nine
months of 2017, an increase of 17.8% from the first nine months of
2016, representing 107.0% of the period's net earnings versus
100.6% in the first nine months of 2016. This improvement is mainly
attributable to improved net earnings growth. We invested $76.5 for
property and equipment, net of proceeds from sales, in the first
nine months of 2017 compared to $157.4 in the first nine months of
2016. This reduction resulted from lower spending in 2017 to date
related to: (1) vending equipment due to the 2016 leased locker
rollout, (2) shelving and signage for the CSP 16 initiative, (3)
the expansion of our distribution fleet, and (4) timing associated
with the addition of pickup trucks. Our 2017 net capital
expenditures spend expectation remains at approximately $127.0. We
also paid $277.1 in dividends during the first nine months of 2017,
compared to $259.9 in the first nine months of 2016.
During the third quarter of 2017, we repurchased 600,000 shares
of our common stock at an average price of approximately $43.03 per
share.
Total debt on our balance sheet was $440.0 at the end of the
third quarter of 2017, or 17.8% of total capital (the sum of
stockholders' equity and total debt). This compares to $445.0, or
18.9% of total capital, at the end of the third quarter of
2016.
Accounts receivable were $632.1 at the end of the third quarter
of 2017, an increase of $88.3, or 16.2%, over the third quarter of
2016. Inventories were $1,047.0 at the end of the third quarter of
2017, an increase of $80.1, or 8.3%, over the third quarter of
2016. In both cases, the increases were attributable primarily
to improving business activity and, to a lesser degree, the impact
of the Mansco acquisition. Accounts payable were $147.1 at the end
of the third quarter of 2017, an increase of $29.3, or 24.9%, from
the third quarter of 2016, which was primarily driven by an
increase in inventory demand due to sales growth.
Additional Information
The table below summarizes our branch and Onsite employee count
and our total employee count at the end of the periods presented,
and changes in that count from the end of the prior periods to the
end of the most recent period. The final three items below
summarize our cumulative investments in branch locations, Onsite
locations, and industrial vending machines.
|
|
|
|
|
Change Since: |
|
|
|
Change Since: |
|
Q3 2017 |
|
Q4 2016 |
|
Q4 2016 |
|
Q3 2016 |
|
Q3 2016 |
End of period total
in-market units (1) employee count |
13,298 |
|
|
12,966 |
|
|
2.6 |
% |
|
13,097 |
|
|
1.5 |
% |
End of period total
employee count |
20,242 |
|
|
19,624 |
|
|
3.1 |
% |
|
19,864 |
|
|
1.9 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of public branch
locations |
2,418 |
|
|
2,503 |
|
|
-3.4 |
% |
|
2,545 |
|
|
-5.0 |
% |
Number of active Onsite
locations |
555 |
|
|
401 |
|
|
38.4 |
% |
|
376 |
|
|
47.6 |
% |
Number of in-market
units (1) |
2,973 |
|
|
2,904 |
|
|
2.4 |
% |
|
2,921 |
|
|
1.8 |
% |
Industrial vending
machines (installed device count) (2) |
69,058 |
|
|
62,822 |
|
|
9.9 |
% |
|
60,400 |
|
|
14.3 |
% |
Ratio of
industrial vending machines to in-market units |
23:1 |
|
|
22:1 |
|
|
|
|
|
21:1 |
|
|
|
(1) 'In-market units' is defined as the sum of the total number
of public branch locations and the total number of active Onsite
locations.
(2) In February 2016, we signed an agreement to lease a
significant number of industrial vending lockers to one of our
customers. These devices do not generate product revenue and are
excluded from the count noted above.
During the last twelve months, we have increased our headcount
by 201 people in our in-market units and 378 people in total. Our
total headcount includes 123 people related to our Mansco
acquisition. The remaining 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 5 branches and closed 36 branches in the third quarter
of 2017. Additionally, two branches were converted from a public
branch to a non-public location. Our branch network forms the
foundation of our business strategy, and we will continue to open
or close branches in 2017 as is deemed necessary to sustain and
improve our network and support our growth drivers.
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 http://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.
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, and our
strategies, goals, mission, and vision. 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 and per share
information) |
|
|
|
|
|
|
|
(Unaudited) |
|
|
Assets |
|
September 30, 2017 |
|
December 31, 2016 |
Current assets: |
|
|
|
|
Cash and
cash equivalents |
|
$ |
133.4 |
|
|
112.7 |
|
Trade
accounts receivable, net of allowance for doubtful accounts of
$11.4 and $11.2, respectively |
|
632.1 |
|
|
499.7 |
|
Inventories |
|
1,047.0 |
|
|
993.0 |
|
Prepaid
income taxes |
|
— |
|
|
12.9 |
|
Other current assets |
|
117.7 |
|
|
102.5 |
|
Total
current assets |
|
1,930.2 |
|
|
1,720.8 |
|
|
|
|
|
|
Property and equipment,
net |
|
889.3 |
|
|
899.7 |
|
Other
assets |
|
82.1 |
|
|
48.4 |
|
|
|
|
|
|
Total assets |
|
$ |
2,901.6 |
|
|
2,668.9 |
|
|
|
|
|
|
Liabilities and Stockholders' Equity |
|
|
|
|
Current
liabilities: |
|
|
|
|
Current
portion of debt |
|
$ |
8.0 |
|
|
10.5 |
|
Accounts
payable |
|
147.1 |
|
|
108.8 |
|
Accrued
expenses |
|
198.7 |
|
|
156.4 |
|
Income
taxes payable |
|
6.6 |
|
|
— |
|
Total current liabilities |
|
360.4 |
|
|
275.7 |
|
|
|
|
|
|
Long-term debt |
|
432.0 |
|
|
379.5 |
|
Deferred
income tax liabilities |
|
82.9 |
|
|
80.6 |
|
|
|
|
|
|
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, 287,383,174
and 289,161,924 shares issued and outstanding, respectively |
|
2.9 |
|
|
2.9 |
|
Additional paid-in capital |
|
1.3 |
|
|
37.4 |
|
Retained
earnings |
|
2,050.2 |
|
|
1,940.1 |
|
Accumulated other comprehensive loss |
|
(28.1 |
) |
|
(47.3 |
) |
Total stockholders' equity |
|
2,026.3 |
|
|
1,933.1 |
|
|
|
|
|
|
Total liabilities and stockholders' equity |
|
$ |
2,901.6 |
|
|
2,668.9 |
|
FASTENAL COMPANY AND
SUBSIDIARIES |
Condensed Consolidated Statements of Earnings |
(Amounts in millions except earnings per share) |
|
|
|
|
|
|
|
|
|
(Unaudited) |
|
(Unaudited) |
|
Nine Months Ended September 30, |
|
Three Months Ended September 30, |
|
2017 |
|
2016 |
|
2017 |
|
2016 |
Net sales |
$ |
3,302.0 |
|
|
3,014.1 |
|
|
$ |
1,132.8 |
|
|
1,013.1 |
|
|
|
|
|
|
|
|
|
Cost of
sales |
1,669.6 |
|
|
1,521.2 |
|
|
576.9 |
|
|
513.3 |
|
Gross
profit |
1,632.4 |
|
|
1,492.9 |
|
|
555.9 |
|
|
499.8 |
|
|
|
|
|
|
|
|
|
Operating and
administrative expenses |
955.0 |
|
|
879.9 |
|
|
327.5 |
|
|
297.1 |
|
Gain on
sale of property and equipment |
(1.1 |
) |
|
(0.3 |
) |
|
(0.1 |
) |
|
(0.2 |
) |
Operating
income |
678.5 |
|
|
613.3 |
|
|
228.5 |
|
|
202.9 |
|
|
|
|
|
|
|
|
|
Interest income |
0.3 |
|
|
0.3 |
|
|
0.1 |
|
|
0.1 |
|
Interest
expense |
(6.5 |
) |
|
(4.7 |
) |
|
(2.6 |
) |
|
(1.8 |
) |
|
|
|
|
|
|
|
|
Earnings
before income taxes |
672.3 |
|
|
608.9 |
|
|
226.0 |
|
|
201.2 |
|
|
|
|
|
|
|
|
|
Income
tax expense |
246.1 |
|
|
224.3 |
|
|
82.9 |
|
|
74.3 |
|
|
|
|
|
|
|
|
|
Net earnings |
$ |
426.2 |
|
|
384.6 |
|
|
$ |
143.1 |
|
|
126.9 |
|
|
|
|
|
|
|
|
|
Basic net
earnings per share |
$ |
1.48 |
|
|
1.33 |
|
|
$ |
0.50 |
|
|
0.44 |
|
|
|
|
|
|
|
|
|
Diluted
net earnings per share |
$ |
1.48 |
|
|
1.33 |
|
|
$ |
0.50 |
|
|
0.44 |
|
|
|
|
|
|
|
|
|
Basic
weighted average shares outstanding |
288.5 |
|
|
288.9 |
|
|
287.5 |
|
|
289.0 |
|
|
|
|
|
|
|
|
|
Diluted
weighted average shares outstanding |
288.6 |
|
|
289.1 |
|
|
287.6 |
|
|
289.1 |
|
FASTENAL COMPANY AND SUBSIDIARIES |
Condensed Consolidated Statements of Cash Flows |
(Amounts in millions) |
|
|
(Unaudited) |
|
|
Nine Months Ended September 30, |
|
|
2017 |
|
2016 |
|
|
|
|
|
Cash flows from
operating activities: |
|
|
|
|
Net
earnings |
|
$ |
426.2 |
|
|
384.6 |
|
Adjustments to reconcile net earnings to net cash provided by
operating activities, net of acquisition: |
|
|
|
|
Depreciation of property and equipment |
|
92.3 |
|
|
74.5 |
|
Gain on
sale of property and equipment |
|
(1.1 |
) |
|
(0.3 |
) |
Bad debt
expense |
|
6.2 |
|
|
6.6 |
|
Deferred
income taxes |
|
2.3 |
|
|
2.7 |
|
Stock-based compensation |
|
4.0 |
|
|
2.9 |
|
Amortization of intangible assets |
|
2.8 |
|
|
0.4 |
|
Changes
in operating assets and liabilities, net of acquisition: |
|
|
|
|
Trade
accounts receivable |
|
(126.2 |
) |
|
(80.4 |
) |
Inventories |
|
(31.2 |
) |
|
(51.0 |
) |
Other
current assets |
|
(15.2 |
) |
|
11.6 |
|
Accounts
payable |
|
35.9 |
|
|
(8.2 |
) |
Accrued
expenses |
|
42.3 |
|
|
3.8 |
|
Income
taxes |
|
19.5 |
|
|
39.8 |
|
Other |
|
(1.9 |
) |
|
(0.1 |
) |
Net cash provided by operating activities |
|
455.9 |
|
|
386.9 |
|
|
|
|
|
|
Cash flows from
investing activities: |
|
|
|
|
Purchases
of property and equipment |
|
(82.7 |
) |
|
(162.0 |
) |
Proceeds
from sale of property and equipment |
|
6.2 |
|
|
4.6 |
|
Cash paid
for acquisition |
|
(58.7 |
) |
|
— |
|
Other |
|
(3.0 |
) |
|
(0.2 |
) |
Net cash used in investing activities |
|
(138.2 |
) |
|
(157.6 |
) |
|
|
|
|
|
Cash flows from
financing activities: |
|
|
|
|
Proceeds
from debt obligations |
|
805.0 |
|
|
760.0 |
|
Payments
against debt obligations |
|
(750.0 |
) |
|
(680.0 |
) |
Proceeds
from exercise of stock options |
|
3.5 |
|
|
25.0 |
|
Purchases
of common stock |
|
(82.6 |
) |
|
(59.5 |
) |
Payments of dividends |
|
(277.1 |
) |
|
(259.9 |
) |
Net cash used in financing activities |
|
(301.2 |
) |
|
(214.4 |
) |
|
|
|
|
|
Effect of exchange rate changes on cash and cash equivalents |
|
4.2 |
|
|
3.1 |
|
|
|
|
|
|
Net
increase in cash and cash equivalents |
|
20.7 |
|
|
18.0 |
|
|
|
|
|
|
Cash and
cash equivalents at beginning of period |
|
112.7 |
|
|
129.0 |
|
Cash and
cash equivalents at end of period |
|
$ |
133.4 |
|
|
147.0 |
|
|
|
|
|
|
Supplemental disclosure
of cash flow information: |
|
|
|
|
Cash paid
for interest |
|
$ |
6.1 |
|
|
4.4 |
|
Net cash paid for income taxes |
|
$ |
223.8 |
|
|
181.2 |
|
CONTACT:
Ellen Trester
Financial Reporting & Regulatory Compliance Manager
507-313-7282
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