Fastenal Company (Nasdaq:FAST), a leader in the wholesale
distribution of industrial and construction supplies, today
announced its financial results for the quarter and year ended
December 31, 2019. Except for share and per share information, or
as otherwise noted below, dollar amounts are stated in millions.
Share and per share information in this release, and in the
financial statements attached to this release, has been adjusted to
reflect the two-for-one stock split effective at the close of
business on May 22, 2019. 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
Twelve-month Period
Three-month Period
2019
2018
Change
2019
2018
Change
Net sales
$
5,333.7
4,965.1
7.4
%
$
1,276.9
1,231.6
3.7
%
Business days
254
254
63
63
Daily sales
$
21.0
19.5
7.4
%
$
20.3
19.6
3.7
%
Gross profit
$
2,515.4
2,398.9
4.9
%
$
598.4
587.8
1.8
%
% of sales
47.2
%
48.3
%
46.9
%
47.7
%
Operating income
$
1,057.2
999.2
5.8
%
$
238.9
233.4
2.4
%
% of sales
19.8
%
20.1
%
18.7
%
19.0
%
Earnings before income taxes
$
1,043.7
987.0
5.7
%
$
236.4
229.8
2.9
%
% of sales
19.6
%
19.9
%
18.5
%
18.7
%
Net earnings
$
790.9
751.9
5.2
%
$
178.7
168.8
5.9
%
Diluted net earnings per share
$
1.38
1.31
5.2
%
$
0.31
0.29
5.4
%
Quarterly Results of Operations
Net sales increased $45.3, or 3.7%, in the fourth quarter of
2019 when compared to the fourth quarter of 2018. This increase was
driven by higher unit sales related to our growth drivers, most
notably contribution from industrial vending and Onsite locations,
compared to the fourth quarter of 2018. The general slowing in
economic activity that we experienced in the second and third
quarters of 2019 continued in the fourth quarter of 2019. This
general softness was exacerbated in December by holiday timing and
longer than usual year-end plant shutdowns. A lesser contributor to
our sales growth in the fourth quarter of 2019 was higher product
pricing as a result of increases implemented in late 2018 and
throughout 2019 to mitigate the impacts of general and
tariff-related inflation in the marketplace. Sales of our fastener
products grew 1.8% on a daily basis over the fourth quarter of 2018
and represented 33.6% of sales in the fourth quarter of 2019. Sales
of our non-fastener products grew 5.1% on a daily basis over the
fourth quarter of 2018 and represented 66.4% of sales in the fourth
quarter of 2019.
Our gross profit, as a percentage of net sales, declined 80
basis points to 46.9% in the fourth quarter of 2019 from 47.7% in
the fourth quarter of 2018. The most significant factor behind the
decline in our gross profit percentage in the period was the
success we have had generating sales growth as a result of our
growth drivers (industrial vending and Onsite locations). These two
channels have a lower gross margin, due to customer and product
mix, when compared to the company average. The gross margin
percentage was also affected by net expenses related to freight.
Weaker business conditions resulted in lower freight revenues, even
as the overall cost of our fleet assets is relatively stable. As a
result, the combination of seasonal and cyclical softness in the
fourth quarter of 2019 resulted in lower freight revenue in the
period, and reduced absorption of our fixed fleet costs.
Our operating income, as a percentage of net sales, declined to
18.7% in the fourth quarter of 2019 from 19.0% in the fourth
quarter of 2018, which was primarily due to the lower gross margin.
While we leveraged our operating expenses in the period, we did not
do so to the same degree as in preceding quarters in 2019 as a
result of the slower top line growth. Our operating and
administrative expenses (including the (gain) loss on sales of
property and equipment), as a percentage of net sales, improved to
28.2% in the fourth quarter of 2019 compared to 28.8% in the fourth
quarter of 2018. The primary reason for this improvement was our
ability to leverage employee and general corporate expenses.
Employee-related expenses, which represent 65% to 70% of total
operating and administrative expenses, increased 2.4% in the fourth
quarter of 2019 when compared to the fourth quarter of 2018. The
increase in employee-related expenses was mainly related to
slightly higher year-over-year headcount through the period.
Occupancy-related expenses, which represent 15% to 20% of total
operating and administrative expenses, increased 3.4%. Facility
costs were mostly flat in the period, which was more than offset by
an increase in costs related to industrial vending equipment of
11.2% reflecting the increase in the number of vending machines
deployed from December 2018 to December 2019, as discussed in more
detail below. All other operating and administrative expenses,
which represent 15% to 20% of total operating and administrative
expenses, decreased 6.5%. Higher information technology spending to
support our business was more than offset by a reduction in our net
bad debt write-offs and other costs, such as the absence of certain
legal and foreign costs that existed in the fourth quarter of
2018.
Our net interest expense was $2.5 in the fourth quarter of 2019
compared to $3.6 in the fourth quarter of 2018. This decrease was
caused by a lower average debt balance during the period and lower
average interest rates.
We recorded income tax expense of $57.7 in the fourth quarter of
2019, or 24.4% of earnings before income taxes. Income tax expense
was $61.0 in the fourth quarter of 2018, or 26.6% of earnings
before income taxes, which included the impact of a discrete
expense of approximately $3.2 related to the impact of the change
in our tax rate on inter-entity transactions. This discrete expense
increased our tax rate during the period by 1.4 percentage points.
We 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 fourth quarter of 2019 were $178.7,
an increase of 5.9% when compared to the fourth quarter of 2018.
Our diluted net earnings per share were $0.31 during the fourth
quarter of 2019 compared to $0.29 during the fourth quarter of
2018, an increase of 5.4%. Adjusting for the discrete tax item that
adversely affected net earnings in the fourth quarter of 2018, our
net earnings and diluted net earnings per share in the fourth
quarter of 2019 would have grown by 4.0% and 3.4%,
respectively.
Growth Driver Performance
We signed 21,857 industrial vending devices during 2019 and
5,144 devices during the fourth quarter of 2019. Our installed
device count on December 31, 2019 was 89,937, an increase of 10.8%
over December 31, 2018. Daily sales through our vending devices
grew at a low double-digit pace in the fourth quarter of 2019 over
the fourth quarter of 2018 due 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 2020 is 22,000 to 24,000
units.
We signed 362 new Onsite locations (defined as dedicated sales
and service provided from within, or in close proximity to, the
customer's facility) during 2019 and 79 new Onsite locations during
the fourth quarter of 2019. We had 1,114 active sites on December
31, 2019, which represented an increase of 24.6% from December 31,
2018. Daily sales through our Onsite locations, excluding sales
transferred from branches to new Onsites, grew at a low
double-digit rate in the fourth quarter of 2019 over the fourth
quarter of 2018. New revenue from relatively new actives continues
to offset the impact of weak demand on more mature sites. Our goal
for Onsite signings in 2020 is 375 to 400.
Daily sales to our national account customers (defined as
customer accounts with a multi-site contract) grew 8.2% in the
fourth quarter of 2019 over the fourth quarter of 2018. Revenues
attributable to national account customers represented 54.8% of our
total revenues in the period.
Balance Sheet and Cash Flow
We produced operating cash flow of $842.7 in 2019, an increase
of 25.0% from 2018, representing 106.5% of the period's net
earnings versus 89.7% in 2018. The increase in our operating cash
flow as a percentage of net earnings reflects a reduced drag from
working capital investment than was experienced in 2018 and, to a
lesser degree, higher net income. Our investment in property and
equipment, net of proceeds from sales, was $239.8 in 2019 compared
to $166.8 in 2018. The increase for the year was a result of
greater spending to develop or expand certain of our distribution
center assets, purchase vending equipment to support our growth,
and add vehicles to our fleet. We expect our net capital
expenditures in 2020 to be within a range of $180.0 to $205.0, a
decrease from $195.0 to $225.0 in 2019. This decrease is primarily
attributable to a reduction in projects that would develop and
expand certain distribution center assets and, to a lesser degree,
reduced fleet vehicle investment.
We returned $498.6 to our shareholders in 2019 (all in the form
of dividends), compared to $544.9 in 2018 (in the form of dividends
of $441.9 and common stock purchases of $103.0).
Total debt on our balance sheet was $345.0 at the end of the
fourth quarter of 2019, or 11.5% of total capital (the sum of
stockholders' equity and total debt). This compares to $500.0, or
17.8% of total capital, at the end of 2018.
Accounts receivable were $741.8 at the end of 2019, an increase
of $27.5 or 3.9%, over the end of 2018. This increase reflects not
only our growth in sales but that our growth is being driven
disproportionately by our national accounts program, where our
customers tend to have longer payment terms than our business as a
whole. Receivables growth slowed over the course of the year due to
the effect on receivables of softer business activity. Inventories
were $1,366.4 at the end of 2019, an increase of $87.7, or 6.9%,
over the end of 2018. Our inventory has risen to support higher
sales, largely reflecting large increases in the number of
installed vending devices and active Onsite locations, to support
high levels of service, and from inflation and tariffs. We intend
to continue to invest in the inventory necessary to support our
vending and Onsite initiatives. However, over the course of the
year, we did reduce other spending, both reflecting proactive
efforts to reduce inventory and in reaction to the effect of softer
business activity, which allowed us to meaningfully decelerate
inventory growth in the fourth quarter of 2019. Accounts payable
were $192.8 at the end of 2019, a decrease of $0.7, or 0.4%, from
the end of 2018, as a result of softer business activity.
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:
Q4 2019
Q3 2019
Q3 2019
Q4 2018
Q4 2018
In-market locations - absolute employee
headcount
13,977
14,128
-1.1
%
14,015
-0.3
%
In-market locations - FTE employee
headcount
12,236
12,417
-1.5
%
12,211
0.2
%
Total absolute employee headcount (1)
21,948
21,938
0.0
%
21,644
1.4
%
Total FTE employee headcount (1)
18,968
19,060
-0.5
%
18,704
1.4
%
Number of public branch locations
2,114
2,146
-1.5
%
2,227
-5.1
%
Number of active Onsite locations
1,114
1,076
3.5
%
894
24.6
%
Number of in-market locations
3,228
3,222
0.2
%
3,121
3.4
%
Industrial vending devices (installed
device count) (2)
89,937
88,327
1.8
%
81,137
10.8
%
Ratio of industrial vending devices to
in-market locations
28:1
27:1
26:1
(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 reduced our absolute employee
headcount by 38 people in our in-market locations and increased by
304 people in total. The reduction in our absolute employee
headcount in our in-market locations reflects actions taken by
leadership in our public branches over the past couple of quarters
to control expenses in response to weaker demand, which was only
partly offset by increases to support growth in our Onsite
locations. The increase in our total absolute employee count is
mostly from additions we have made to support customer acquisition,
implementation, and growth in the field, particularly as it relates
to our growth drivers and to support general corporate and hub
functions.
We opened four branches in the fourth quarter of 2019 and closed
36 branches, net of conversions. We activated 64 Onsite locations
in the fourth quarter of 2019 and closed 26, net of conversions.
For the full year of 2019, we opened twelve branches and closed 125
branches, net of conversions. For the full year of 2019, we
activated 312 Onsite locations and closed 92, net of conversions.
The number of closings reflects both normal churn in our business,
whether due to exiting customer relationships, the shutting or
relocation of a customer facility, or a customer decision, as well
as a review of certain underperforming locations. 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 annual and 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.
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, future tax rates, future inventory
levels, 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)
December 31, 2019
December 31, 2018
Assets
(Unaudited)
Current assets:
Cash and cash equivalents
$
174.9
167.2
Trade accounts receivable, net of
allowance for doubtful accounts of $10.9 and $12.8,
respectively
741.8
714.3
Inventories
1,366.4
1,278.7
Prepaid income taxes
16.7
9.0
Other current assets
157.4
147.0
Total current assets
2,457.2
2,316.2
Property and equipment, net
1,023.2
924.8
Operating lease right-of-use assets
243.2
—
Other assets
76.3
80.5
Total assets
$
3,799.9
3,321.5
Liabilities and Stockholders'
Equity
Current liabilities:
Current portion of debt
$
3.0
3.0
Accounts payable
192.8
193.6
Accrued expenses
251.5
240.8
Current portion of operating lease
liabilities
97.4
—
Total current liabilities
544.7
437.4
Long-term debt
342.0
497.0
Operating lease liabilities
148.2
—
Deferred income taxes
99.4
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, 800,000,000
shares authorized, 574,128,911 and 571,803,838 shares issued and
outstanding, respectively
2.9
2.9
Additional paid-in capital
67.2
3.0
Retained earnings
2,633.9
2,341.6
Accumulated other comprehensive loss
(38.4
)
(44.8
)
Total stockholders' equity
2,665.6
2,302.7
Total liabilities and stockholders'
equity
$
3,799.9
3,321.5
FASTENAL COMPANY AND
SUBSIDIARIES
Condensed Consolidated Statements
of Earnings
(Amounts in millions except
earnings per share)
Year Ended December 31,
Three Months Ended December
31,
2019
2018
2019
2018
(Unaudited)
(Unaudited)
(Unaudited)
Net sales
$
5,333.7
4,965.1
$
1,276.9
1,231.6
Cost of sales
2,818.3
2,566.2
678.5
643.8
Gross profit
2,515.4
2,398.9
598.4
587.8
Operating and administrative expenses
1,459.4
1,400.2
359.9
354.4
(Gain) loss on sale of property and
equipment
(1.2
)
(0.5
)
(0.4
)
0.0
Operating income
1,057.2
999.2
238.9
233.4
Interest income
0.4
0.4
0.1
0.1
Interest expense
(13.9
)
(12.6
)
(2.6
)
(3.7
)
Earnings before income taxes
1,043.7
987.0
236.4
229.8
Income tax expense
252.8
235.1
57.7
61.0
Net earnings
$
790.9
751.9
$
178.7
168.8
Basic net earnings per share
$
1.38
1.31
$
0.31
0.29
Diluted net earnings per share
$
1.38
1.31
$
0.31
0.29
Basic weighted average shares
outstanding
573.2
573.9
574.0
572.2
Diluted weighted average shares
outstanding
574.4
574.3
575.6
572.6
FASTENAL COMPANY AND
SUBSIDIARIES
Condensed Consolidated Statements
of Cash Flows
(Amounts in millions)
Year Ended December 31,
2019
2018
(Unaudited)
Cash flows from operating activities:
Net earnings
$
790.9
751.9
Adjustments to reconcile net earnings to
net cash provided by operating activities, net of acquisition:
Depreciation of property and equipment
144.6
134.1
Gain on sale of property and equipment
(1.2
)
(0.5
)
Bad debt expense
5.5
8.1
Deferred income taxes
15.0
33.8
Stock-based compensation
5.7
5.1
Amortization of intangible assets
4.1
4.1
Changes in operating assets and
liabilities, net of acquisition:
Trade accounts receivable
(30.4
)
(120.3
)
Inventories
(84.4
)
(193.3
)
Other current assets
(10.4
)
(28.9
)
Accounts payable
(0.8
)
46.1
Accrued expenses
10.7
46.8
Income taxes
(7.7
)
(15.5
)
Other
1.1
2.7
Net cash provided by operating
activities
842.7
674.2
Cash flows from investing activities:
Purchases of property and equipment
(246.4
)
(176.3
)
Proceeds from sale of property and
equipment
6.6
9.5
Cash paid for acquisition
—
(3.7
)
Other
0.1
(3.4
)
Net cash used in investing activities
(239.7
)
(173.9
)
Cash flows from financing activities:
Proceeds from debt obligations
910.0
980.0
Payments against debt obligations
(1,065.0
)
(895.0
)
Proceeds from exercise of stock
options
58.5
13.4
Purchases of common stock
—
(103.0
)
Payments of dividends
(498.6
)
(441.9
)
Net cash used in financing activities
(595.1
)
(446.5
)
Effect of exchange rate changes on cash
and cash equivalents
(0.2
)
(3.5
)
Net increase in cash and cash
equivalents
7.7
50.3
Cash and cash equivalents at beginning of
year
167.2
116.9
Cash and cash equivalents at end of
year
$
174.9
167.2
Supplemental disclosure of cash flow
information:
Cash paid for interest
$
13.9
12.6
Net cash paid for income taxes
$
242.7
215.3
View source
version on businesswire.com: https://www.businesswire.com/news/home/20200117005053/en/
Ellen Stolts Assistant Controller – Reporting and Reconciliation
507-313-7282
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