Fastenal Company (Nasdaq:FAST), a leader in the wholesale
distribution of industrial and construction supplies, today
announced its financial results for the quarter ended June 30,
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
Six-month Period
Three-month Period
2019
2018
Change
2019
2018
Change
Net sales
$
2,677.7
2,453.7
9.1%
$
1,368.4
1,267.9
7.9%
Business days
127
128
64
64
Daily sales
$
21.1
19.2
10.0%
$
21.4
19.8
7.9%
Gross profit
$
1,265.9
1,195.3
5.9%
$
641.2
617.7
3.8%
% of sales
47.3
%
48.7
%
46.9
%
48.7
%
Operating income
$
536.4
503.5
6.5%
$
275.0
269.0
2.2%
% of sales
20.0
%
20.5
%
20.1
%
21.2
%
Earnings before income taxes
$
528.9
497.8
6.2%
$
271.4
265.9
2.0%
% of sales
19.8
%
20.3
%
19.8
%
21.0
%
Net earnings
$
398.7
385.5
3.4%
$
204.6
211.2
-3.1%
Diluted net earnings per share
$
0.69
0.67
3.7%
$
0.36
0.37
-3.2%
Quarterly Results of Operations
Net sales increased $100.5, or 7.9%, in the second quarter of
2019 when compared to the second quarter of 2018. This increase was
driven by higher unit sales related primarily to our growth
drivers, most notably contribution from industrial vending, Onsite
locations, and construction, as well as higher underlying market
demand compared to the second quarter of 2018. While general
economic activity remained positive, we did see slowing in the
second quarter of 2019 relative to activity levels experienced in
the first quarter of 2019. A lesser contributor to our sales growth
in the second quarter of 2019 was higher product pricing as a
result of increases implemented in late 2018 and early 2019 to
mitigate the impacts of general and tariff-related inflation in the
marketplace. Sales of our fastener products grew 5.5% on a daily
basis over the second quarter of 2018 and represented 34.5% of
sales in the second quarter of 2019. Sales of our non-fastener
products grew 9.5% on a daily basis over the second quarter of 2018
and represented 65.5% of sales in the second quarter of 2019.
Our gross profit, as a percentage of net sales, declined 180
basis points to 46.9% in the second quarter of 2019 from 48.7% in
the second 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, the latter of which had a larger negative impact on our
margin than in the first quarter of 2019. While we successfully
raised prices as one element of our strategy to offset tariffs
placed to date on products sourced from China, those increases were
not sufficient to also counter general inflation in the
marketplace. We have taken additional actions in the third quarter
of 2019 to counter the broader pressures we are experiencing on our
costs as well as the additional tariffs that were levied on
China-sourced products in May 2019.
Our operating income, as a percentage of net sales, declined to
20.1% in the second quarter of 2019 from 21.2% in the second
quarter of 2018. The decline was due to the lower gross margin,
which more than offset our ability to leverage our operating
expenses. Our operating and administrative expenses (including the
gain on sales of property and equipment), as a percentage of net
sales, improved to 26.8% in the second quarter of 2019 compared to
27.5% in the second quarter of 2018. The primary reason for this
improvement was our ability to leverage occupancy-related and
general corporate expenses.
Employee-related expenses, which represent 65% to 70% of total
operating and administrative expenses, increased 6.8% in the second
quarter of 2019 when compared to the second quarter of 2018. The
increase in employee-related expenses was mainly related to an
increase of 6.6% in our full-time equivalent ('FTE') headcount.
Occupancy-related expenses, which represent 15% to 20% of total
operating and administrative expenses, increased 2.5%. This
primarily reflected an increase of 7.6% in expenses related to
industrial vending equipment as total expenses related to branch
and non-branch facility costs were mostly unchanged. All other
operating and administrative expenses, which represent 15% to 20%
of total operating and administrative expenses, decreased 0.6%.
Our net interest expense was $3.6 in the second quarter of 2019
compared to $3.1 in the second 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 $66.8 in the second quarter of
2019, or 24.6% of earnings before income taxes. Income tax expense
was $54.7 in the second quarter of 2018, or 20.6% of earnings
before income taxes, which included the impact of a one-time
benefit of approximately $9.7 related to accelerating depreciation
for certain physical assets. This one-time benefit reduced our tax
rate during the period by 3.7 percentage points. 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 second quarter of 2019 were $204.6,
a decrease of 3.1% when compared to the second quarter of 2018. Our
diluted net earnings per share were $0.36 during the second quarter
of 2019 compared to $0.37 during the second quarter of 2018, a
decrease of 3.2%. Adjusting for the one-time tax item that
benefited net earnings during the second quarter of 2018, our net
earnings and diluted net earnings per share in the second quarter
of 2019 each would have grown 1.5% over the prior year period.
Growth Driver Performance
We signed 11,042 industrial vending devices during the first six
months of 2019 and 5,439 devices during the second quarter of 2019.
Our installed device count on June 30, 2019 was 85,871, an increase
of 12.9% over June 30, 2018. Daily sales through our vending
devices grew at a low-teens pace in the second quarter of 2019 over
the second 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 2019 remains 23,000 to 25,000
units.
We signed 199 new Onsite locations (defined as dedicated sales
and service provided from within, or in close proximity to, the
customer's facility) during the first six months of 2019 and 94 new
Onsite locations during the second quarter of 2019. We had 1,026
active sites on June 30, 2019, which represented an increase of
34.8% from June 30, 2018. Daily sales through our Onsite locations,
excluding sales transferred from branches to new Onsites, grew at a
high-teens pace in the second quarter of 2019 over the second
quarter of 2018. Our goal for Onsite signings in 2019 remains 375
to 400.
We signed 51 new national account contracts (defined as new
customer accounts with a multi-site contract) in the second quarter
of 2019, and revenues attributable to national account customers
represented 53.3% of our total revenues in the period. Daily sales
to our national account customers grew 12.5% in the second quarter
of 2019 over the second quarter of 2018.
Balance Sheet and Cash Flow
We produced operating cash flow of $333.0 in the first six
months of 2019, an increase of 6.9% from the first six months of
2018, representing 83.5% of the period's net earnings versus 80.8%
in the first six months of 2018. The increase in our operating cash
flow as a percentage of net earnings largely reflects a reduced
drag from working capital investment than was experienced in the
first six months of 2018. Our investment in property and equipment,
net of proceeds from sales, was $119.6 in the first six months of
2019 compared to $53.8 in the first six months of 2018. This
increase was a result of greater spending to develop or expand
certain of our distribution center assets, to purchase vending
equipment to support our growth, and to add vehicles to our fleet.
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 $123.1 to our shareholders in the second quarter of
2019 (all in the form of dividends), compared to $146.7 in the
second quarter of 2018 (in the form of dividends of $106.3 and
common stock purchases of $40.4).
Total debt on our balance sheet was $500.0 at the end of the
second quarter of 2019, or 16.6% of total capital (the sum of
stockholders' equity and total debt). This compares to $425.0, or
16.0% of total capital, at the end of the second quarter of 2018,
and $500.0, or 17.8% of total capital, at the end of the fourth
quarter of 2018.
Accounts receivable were $819.8 at the end of the second quarter
of 2019, an increase of $86.1, or 11.7%, over the second quarter of
2018. This partly reflects sales growth, including relatively
stronger growth in our national accounts program where our
customers 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 period. Based
on the aging, there has been no erosion in the quality of our
receivables. Inventories were $1,345.7 at the end of the second
quarter of 2019, an increase of $182.3, or 15.7%, over the second
quarter of 2018. Our inventory has increased to support higher
sales, related to both higher levels of business activity and large
increases in the number of installed vending devices and active
Onsite locations, to support high levels of service, and from
inflation and tariffs. These factors were partly offset by programs
intended to improve our inventory efficiency. We intend to continue
to invest in the inventory necessary to support our vending and
Onsite initiatives. However, we have reduced other spending which
is expected to moderate inventory growth through the balance of
2019. Accounts payable were $203.8 at the end of the second quarter
of 2019, an increase of $31.7, or 18.4%, from the end of the second
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:
Change Since:
Q2 2019
Q1 2019
Q1 2019
Q4 2018
Q4 2018
Q2 2018
Q2 2018
In-market locations - absolute employee
headcount
14,372
14,336
0.3%
14,015
2.5%
13,688
5.0%
In-market locations - FTE employee
headcount
12,903
12,482
3.4%
12,211
5.7%
12,214
5.6%
Total absolute employee headcount (1)
22,232
22,205
0.1%
21,644
2.7%
20,855
6.6%
Total FTE employee headcount (1)
19,660
19,125
2.8%
18,704
5.1%
18,444
6.6%
Number of public branch locations
2,165
2,187
-1.0%
2,227
-2.8%
2,290
-5.5%
Number of active Onsite locations
1,026
945
8.6%
894
14.8%
761
34.8%
Number of in-market locations
3,191
3,132
1.9%
3,121
2.2%
3,051
4.6%
Industrial vending devices (installed
device count) (2)
85,871
83,410
3.0%
81,137
5.8%
76,069
12.9%
Ratio of industrial vending devices to
in-market locations
27:1
27:1
26:1
25:1
(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 684 people in our in-market locations and
1,377 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 second quarter of 2019 and
closed 24 branches. One branch was converted from a public branch
to a non-public location. We activated 95 Onsite locations in the
second quarter of 2019 and closed 14. 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.
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)
(Unaudited)
Assets
June 30, 2019
December 31, 2018
Current assets:
Cash and cash equivalents
$
175.0
167.2
Trade accounts receivable, net of
allowance for doubtful accounts of $11.4 and $12.8,
respectively
819.8
714.3
Inventories
1,345.7
1,278.7
Prepaid income taxes
4.0
9.0
Other current assets
123.8
147.0
Total current assets
2,468.3
2,316.2
Property and equipment, net
975.1
924.8
Operating lease right-of-use assets
234.5
—
Other assets
78.5
80.5
Total assets
$
3,756.4
3,321.5
Liabilities and Stockholders'
Equity
Current liabilities:
Current portion of debt
$
3.0
3.0
Accounts payable
203.8
193.6
Accrued expenses
226.0
240.8
Current portion of operating lease
liabilities
95.1
—
Total current liabilities
527.9
437.4
Long-term debt
497.0
497.0
Operating lease liabilities
141.1
—
Deferred income taxes
86.7
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, 573,396,959 and 571,803,838 shares issued and
outstanding, respectively
2.9
2.9
Additional paid-in capital
46.0
3.0
Retained earnings
2,494.2
2,341.6
Accumulated other comprehensive loss
(39.4
)
(44.8
)
Total stockholders' equity
2,503.7
2,302.7
Total liabilities and stockholders'
equity
$
3,756.4
3,321.5
FASTENAL COMPANY AND
SUBSIDIARIES
Condensed Consolidated Statements
of Earnings
(Amounts in millions except
earnings per share)
(Unaudited)
(Unaudited)
Six Months Ended June 30,
Three Months Ended June 30,
2019
2018
2019
2018
Net sales
$
2,677.7
2,453.7
$
1,368.4
1,267.9
Cost of sales
1,411.8
1,258.4
727.2
650.2
Gross profit
1,265.9
1,195.3
641.2
617.7
Operating and administrative expenses
730.3
692.0
366.7
349.3
Gain on sale of property and equipment
(0.8
)
(0.2
)
(0.5
)
(0.6
)
Operating income
536.4
503.5
275.0
269.0
Interest income
0.2
0.2
0.1
0.1
Interest expense
(7.7
)
(5.9
)
(3.7
)
(3.2
)
Earnings before income taxes
528.9
497.8
271.4
265.9
Income tax expense
130.2
112.3
66.8
54.7
Net earnings
$
398.7
385.5
$
204.6
211.2
Basic net earnings per share
$
0.70
0.67
$
0.36
0.37
Diluted net earnings per share
$
0.69
0.67
$
0.36
0.37
Basic weighted average shares
outstanding
572.7
574.8
573.2
574.3
Diluted weighted average shares
outstanding
573.8
575.1
574.6
574.5
FASTENAL COMPANY AND
SUBSIDIARIES
Condensed Consolidated Statements
of Cash Flows
(Amounts in millions)
(Unaudited)
Six Months Ended June 30,
2019
2018
Cash flows from operating activities:
Net earnings
$
398.7
385.5
Adjustments to reconcile net earnings to
net cash provided by operating activities:
Depreciation of property and equipment
71.5
65.5
Gain on sale of property and equipment
(0.8
)
(0.2
)
Bad debt expense
3.1
2.7
Deferred income taxes
2.3
19.4
Stock-based compensation
2.9
2.5
Amortization of intangible assets
2.0
2.0
Changes in operating assets and
liabilities:
Trade accounts receivable
(106.4
)
(132.0
)
Inventories
(64.3
)
(75.0
)
Other current assets
23.2
10.0
Accounts payable
10.2
24.6
Accrued expenses
(14.8
)
10.4
Income taxes
5.0
(4.5
)
Other
0.4
0.7
Net cash provided by operating
activities
333.0
311.6
Cash flows from investing activities:
Purchases of property and equipment
(123.1
)
(60.6
)
Proceeds from sale of property and
equipment
3.5
6.8
Other
—
(0.1
)
Net cash used in investing activities
(119.6
)
(53.9
)
Cash flows from financing activities:
Proceeds from debt obligations
525.0
415.0
Payments against debt obligations
(525.0
)
(405.0
)
Proceeds from exercise of stock
options
40.1
5.6
Purchases of common stock
—
(40.4
)
Payments of dividends
(246.1
)
(212.7
)
Net cash used in financing activities
(206.0
)
(237.5
)
Effect of exchange rate changes on cash
and cash equivalents
0.4
(1.6
)
Net increase in cash and cash
equivalents
7.8
18.6
Cash and cash equivalents at beginning of
period
167.2
116.9
Cash and cash equivalents at end of
period
$
175.0
135.5
Supplemental disclosure of cash flow
information:
Cash paid for interest
$
7.8
5.9
Net cash paid for income taxes
$
122.3
96.8
View source
version on businesswire.com: https://www.businesswire.com/news/home/20190711005172/en/
Ellen Stolts Financial Reporting & Regulatory Compliance
Manager 507-313-7282
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