Fastenal Company (Nasdaq:FAST), a leader in the wholesale
distribution of industrial and construction supplies, today
announced its financial results for the quarter ended September 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
Nine-month Period
Three-month Period
2019
2018
Change
2019
2018
Change
Net sales
$
4,056.8
3,733.5
8.7
%
$
1,379.1
1,279.8
7.8
%
Business days
191
191
64
63
Daily sales
$
21.2
19.5
8.7
%
$
21.5
20.3
6.1
%
Gross profit
$
1,917.0
1,811.1
5.8
%
$
651.1
615.8
5.7
%
% of sales
47.3
%
48.5
%
47.2
%
48.1
%
Operating income
$
818.3
765.8
6.8
%
$
281.9
262.3
7.4
%
% of sales
20.2
%
20.5
%
20.4
%
20.5
%
Earnings before income taxes
$
807.3
757.2
6.6
%
$
278.4
259.4
7.3
%
% of sales
19.9
%
20.3
%
20.2
%
20.3
%
Net earnings
$
612.2
583.1
5.0
%
$
213.5
197.6
8.0
%
Diluted net earnings per share
$
1.07
1.01
5.1
%
$
0.37
0.34
8.0
%
Quarterly Results of Operations
Net sales increased $99.3, or 7.8%, in the third quarter of 2019
when compared to the third quarter of 2018. Adjusting for the one
additional selling day in the current period, our daily sales
increased 6.1% from the third quarter of 2019 when compared to the
third quarter of 2018. This increase was driven by higher unit
sales related primarily to our growth drivers, most notably
contribution from industrial vending and Onsite locations, compared
to the third quarter of 2018. The general slowing in economic
activity that we experienced in the second quarter of 2019
continued in the third quarter of 2019. A lesser contributor to our
sales growth in the third 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 3.0% on a daily basis over the third quarter of 2018
and represented 33.7% of sales in the third quarter of 2019. Sales
of our non-fastener products grew 8.0% on a daily basis over the
third quarter of 2018 and represented 66.3% of sales in the third
quarter of 2019.
Our gross profit, as a percentage of net sales, declined 90
basis points to 47.2% in the third quarter of 2019 from 48.1% in
the third 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 the net effect of inflation on our
product margins as well as net expenses related to freight. In the
cases of all three variables that influenced our gross margin
percentage in the period, the negative impacts did moderate versus
what was experienced in the second quarter of 2019.
Our operating income, as a percentage of net sales, declined to
20.4% in the third quarter of 2019 from 20.5% in the third quarter
of 2018. The nominal decline was due to the lower gross margin,
which 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 third quarter of 2019 compared to 27.6% in the
third quarter of 2018. The primary reason for this improvement was
our ability to leverage employee- and occupancy-related
expenses.
Employee-related expenses, which represent 65% to 70% of total
operating and administrative expenses, increased 4.2% in the third
quarter of 2019 when compared to the third quarter of 2018. The
increase in employee-related expenses was mainly related to an
increase of 4.1% in our full-time equivalent ('FTE') headcount.
Occupancy-related expenses, which represent 15% to 20% of total
operating and administrative expenses, increased 2.8%. Costs
related to facilities were mostly flat in the period, while costs
related to industrial vending equipment increased 11.4% reflecting
the increase in the number of vending machines deployed from
September 2018 to September 2019, as discussed in more detail
below. All other operating and administrative expenses, which
represent 15% to 20% of total operating and administrative
expenses, increased 8.6%. This was due to higher information
technology spending to support our business and an increase in
selling-related transportation expenses reflecting fewer truck
sales in the third quarter of 2019 versus the third quarter of
2018.
Our net interest expense was $3.5 in the third quarter of 2019
compared to $3.0 in the third quarter of 2018. This increase was
caused by a higher average debt balance during the period and
higher average interest rates.
We recorded income tax expense of $64.9 in the third quarter of
2019, or 23.3% of earnings before income taxes. Income tax expense
was $61.8 in the third quarter of 2018, or 23.8% of earnings before
income taxes. Our income tax expense was affected by discrete items
in both periods. In the third quarter of 2019, our income tax
expense was reduced by $3.6 as a result of benefits associated with
changes made in certain international tax jurisdictions and
additional adjustments related to tax reform. This reduced our tax
rate in the period by 130 basis points. In the third quarter of
2018, our income tax was reduced by $1.9 as a result of a slight
reduction in our estimated transition tax liability and
accelerating depreciation for certain physical assets. This reduced
our tax rate in the period by 80 basis points. We believe our
ongoing tax rate, absent any discrete tax items, will be in the
lower portion of a 24.5% to 25.0% range.
Our net earnings during the third quarter of 2019 were $213.5,
an increase of 8.0% when compared to the third quarter of 2018. Our
diluted net earnings per share were $0.37 during the third quarter
of 2019 compared to $0.34 during the third quarter of 2018, an
increase of 8.0%. Adjusting for the discrete tax items that
benefited net earnings in both the third quarter of 2019 and the
third quarter of 2018, our net earnings and diluted net earnings
per share in the third quarter of 2019 would have grown 7.2% and
7.3%, respectively, over the prior year period.
Growth Driver Performance
We signed 16,713 industrial vending devices during the first
nine months of 2019 and 5,671 devices during the third quarter of
2019. Our installed device count on September 30, 2019 was 88,327,
an increase of 12.2% over September 30, 2018. Daily sales through
our vending devices grew at a mid-teens pace in the third quarter
of 2019 over the third 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. We believe slower economic activity has lengthened the
sales cycle for vending. As a result, we currently expect to sign
approximately 22,000 vending devices in 2019, slightly below our
previous goal of 23,000 to 25,000 units.
We signed 283 new Onsite locations (defined as dedicated sales
and service provided from within, or in close proximity to, the
customer's facility) during the first nine months of 2019 and 84
new Onsite locations during the third quarter of 2019. We had 1,076
active sites on September 30, 2019, which represented an increase
of 30.0% from September 30, 2018. Daily sales through our Onsite
locations, excluding sales transferred from branches to new
Onsites, grew at a low-teens pace in the third quarter of 2019 over
the third quarter of 2018, with weak demand impacting more mature
sites. Our goal for Onsite signings in 2019 remains 375 to 400.
We signed 50 new national account contracts (defined as new
customer accounts with a multi-site contract) in the third quarter
of 2019, and revenues attributable to national account customers
represented 53.5% of our total revenues in the period. Daily sales
to our national account customers grew 10.2% in the third quarter
of 2019 over the third quarter of 2018.
Balance Sheet and Cash Flow
We produced operating cash flow of $590.3 in the first nine
months of 2019, an increase of 19.0% from the first nine months of
2018, representing 96.4% of the period's net earnings versus 85.1%
in the first nine months of 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 the first
nine months of 2018 and, to a lesser degree, higher net income. Our
investment in property and equipment, net of proceeds from sales,
was $179.3 in the first nine months of 2019 compared to $88.8 in
the first nine 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, an increase from $166.8 in 2018. This increase is a result
of higher spending for property and equipment to expand our hub
capacity, vending devices, and hub vehicles. The progress of our
investments in hub capacity will likely be the primary determinant
of where we fall within our range.
We returned $126.2 in dividends to our shareholders in the third
quarter of 2019, compared to $114.8 in dividends in the third
quarter of 2018. We did not repurchase any of our common stock in
either period.
Total debt on our balance sheet was $445.0 at the end of the
third quarter of 2019, or 14.7% of total capital (the sum of
stockholders' equity and total debt). This compares to $390.0, or
14.4% of total capital, at the end of the third quarter of 2018,
and $500.0, or 17.8% of total capital, at the end of the fourth
quarter of 2018.
Accounts receivable were $817.3 at the end of the third quarter
of 2019, an increase of $44.8 or 5.8%, over the third quarter 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. Our accounts receivable balance
in the third quarter of 2019 also benefited from the timing of the
quarter end close. We continue to see customers delaying payments
late in the quarter, a trend that began in the fourth quarter of
2017. Based on the aging, however, there has been no erosion in the
quality of our receivables. Inventories were $1,354.7 at the end of
the third quarter of 2019, an increase of $160.0, or 13.4%, over
the third quarter 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, we have reduced other
spending which is expected to moderate inventory growth through the
balance of 2019. Accounts payable were $215.2 at the end of the
third quarter of 2019, an increase of $29.2, or 15.7%, from the end
of the third quarter of 2018, driven by an increase in inventory
demand.
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:
Q3 2019
Q2 2019
Q2 2019
Q4 2018
Q4 2018
Q3 2018
Q3 2018
In-market locations - absolute employee
headcount
14,128
14,372
-1.7
%
14,015
0.8
%
13,749
2.8
%
In-market locations - FTE employee
headcount
12,417
12,903
-3.8
%
12,211
1.7
%
11,995
3.5
%
Total absolute employee headcount (1)
21,938
22,232
-1.3
%
21,644
1.4
%
21,182
3.6
%
Total FTE employee headcount (1)
19,060
19,660
-3.1
%
18,704
1.9
%
18,314
4.1
%
Number of public branch locations
2,146
2,165
-0.9
%
2,227
-3.6
%
2,261
-5.1
%
Number of active Onsite locations
1,076
1,026
4.9
%
894
20.4
%
828
30.0
%
Number of in-market locations
3,222
3,191
1.0
%
3,121
3.2
%
3,089
4.3
%
Industrial vending devices (installed
device count) (2)
88,327
85,871
2.9
%
81,137
8.9
%
78,706
12.2
%
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 379 people in our in-market locations and 756
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 two branches in the third quarter of 2019 and closed
22 branches. One branch was converted from a public branch to a
non-public location, and two non-public locations were converted to
public branches. We activated 87 Onsite locations in the third
quarter of 2019 and closed 35. 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 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
September 30, 2019
December 31, 2018
Current assets:
Cash and cash equivalents
$
191.2
167.2
Trade accounts receivable, net of
allowance for doubtful accounts of $11.5 and $12.8,
respectively
817.3
714.3
Inventories
1,354.7
1,278.7
Prepaid income taxes
0.4
9.0
Other current assets
137.2
147.0
Total current assets
2,500.8
2,316.2
Property and equipment, net
997.7
924.8
Operating lease right-of-use assets
238.4
—
Other assets
77.3
80.5
Total assets
$
3,814.2
3,321.5
Liabilities and Stockholders'
Equity
Current liabilities:
Current portion of debt
$
3.0
3.0
Accounts payable
215.2
193.6
Accrued expenses
241.3
240.8
Current portion of operating lease
liabilities
95.6
—
Total current liabilities
555.1
437.4
Long-term debt
442.0
497.0
Operating lease liabilities
144.8
—
Deferred income taxes
86.6
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, 573,526,178 and 571,803,838 shares issued and
outstanding, respectively
2.9
2.9
Additional paid-in capital
50.3
3.0
Retained earnings
2,581.5
2,341.6
Accumulated other comprehensive loss
(49.0
)
(44.8
)
Total stockholders' equity
2,585.7
2,302.7
Total liabilities and stockholders'
equity
$
3,814.2
3,321.5
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,
2019
2018
2019
2018
Net sales
$
4,056.8
3,733.5
$
1,379.1
1,279.8
Cost of sales
2,139.8
1,922.4
728.0
664.0
Gross profit
1,917.0
1,811.1
651.1
615.8
Operating and administrative expenses
1,099.5
1,045.8
369.2
353.8
Gain on sale of property and equipment
(0.8
)
(0.5
)
—
(0.3
)
Operating income
818.3
765.8
281.9
262.3
Interest income
0.3
0.3
0.1
0.1
Interest expense
(11.3
)
(8.9
)
(3.6
)
(3.0
)
Earnings before income taxes
807.3
757.2
278.4
259.4
Income tax expense
195.1
174.1
64.9
61.8
Net earnings
$
612.2
583.1
$
213.5
197.6
Basic net earnings per share
$
1.07
1.02
$
0.37
0.34
Diluted net earnings per share
$
1.07
1.01
$
0.37
0.34
Basic weighted average shares
outstanding
572.9
574.5
573.5
574.0
Diluted weighted average shares
outstanding
574.0
574.9
574.4
574.5
FASTENAL COMPANY AND
SUBSIDIARIES
Condensed Consolidated Statements
of Cash Flows
(Amounts in millions)
(Unaudited)
Nine Months Ended September
30,
2019
2018
Cash flows from operating activities:
Net earnings
$
612.2
583.1
Adjustments to reconcile net earnings to
net cash provided by operating activities, net of acquisition:
Depreciation of property and equipment
107.8
99.3
Gain on sale of property and equipment
(0.8
)
(0.5
)
Bad debt expense
4.9
5.1
Deferred income taxes
2.2
24.1
Stock-based compensation
4.3
3.8
Amortization of intangible assets
3.0
3.0
Changes in operating assets and
liabilities, net of acquisition:
Trade accounts receivable
(108.0
)
(172.0
)
Inventories
(76.9
)
(104.9
)
Other current assets
9.8
(8.3
)
Accounts payable
21.6
38.5
Accrued expenses
0.5
33.6
Income taxes
8.6
(8.7
)
Other
1.1
0.1
Net cash provided by operating
activities
590.3
496.2
Cash flows from investing activities:
Purchases of property and equipment
(184.3
)
(97.1
)
Proceeds from sale of property and
equipment
5.0
8.3
Cash paid for acquisition
—
(3.7
)
Other
0.2
(6.4
)
Net cash used in investing activities
(179.1
)
(98.9
)
Cash flows from financing activities:
Proceeds from debt obligations
745.0
640.0
Payments against debt obligations
(800.0
)
(665.0
)
Proceeds from exercise of stock
options
43.0
11.3
Purchases of common stock
—
(40.4
)
Payments of dividends
(372.3
)
(327.5
)
Net cash used in financing activities
(384.3
)
(381.6
)
Effect of exchange rate changes on cash
and cash equivalents
(2.9
)
(2.9
)
Net increase in cash and cash
equivalents
24.0
12.8
Cash and cash equivalents at beginning of
period
167.2
116.9
Cash and cash equivalents at end of
period
$
191.2
129.7
Supplemental disclosure of cash flow
information:
Cash paid for interest
$
11.3
8.9
Net cash paid for income taxes
$
182.6
158.0
View source
version on businesswire.com: https://www.businesswire.com/news/home/20191011005066/en/
Ellen Stolts Financial Reporting & Regulatory Compliance
Manager 507-313-7282
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