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,
2020. 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
Three-month Period
2020
2019
Change
Net sales
$
1,367.0
1,309.3
4.4
%
Business days
64
63
Daily sales
$
21.4
20.8
2.8
%
Gross profit
$
636.8
624.7
1.9
%
% of sales
46.6
%
47.7
%
Operating income
$
271.3
261.4
3.8
%
% of sales
19.9
%
20.0
%
Earnings before income taxes
$
269.2
257.5
4.6
%
% of sales
19.7
%
19.7
%
Net earnings
$
202.6
194.1
4.4
%
Diluted net earnings per share
$
0.35
0.34
4.0
%
Quarterly Results of Operations
Net sales increased $57.7, or 4.4%, in the first quarter of 2020
when compared to the first quarter of 2019. Adjusting for the one
additional selling day in the current period, our daily sales
increased 2.8% in the first quarter of 2020 when compared to the
first quarter of 2019. Compared to the first quarter of 2019, this
increase was driven by higher unit sales related to our growth
drivers, most notably contribution from industrial vending and
Onsite locations, and from increases in certain products later in
the quarter related to the coronavirus pandemic. A lesser
contributor to our sales growth in the first quarter of 2020 was
higher product pricing as a result of increases implemented
throughout 2019 and in the first quarter of 2020 to mitigate the
impacts of general and tariff-related inflation in the marketplace.
Approximately 50% of our business relates to fastener and safety
products. Together, these two product lines grew 4.3% on a daily
basis. Individually, sales of our fastener products declined 2.6%
on a daily basis over the first quarter of 2019, representing 32.9%
of sales in the first quarter of 2020. Sales of safety products
grew 18.4% on a daily basis over the first quarter of 2019,
representing 19.8% of sales in the first quarter of 2020. Sales of
our remaining products grew 1.6% on a daily basis over the first
quarter of 2019, representing 47.3% of sales in the first quarter
of 2020.
Looking at sales patterns throughout the first quarter of 2020,
business activity in January, February and the first half of March
remained sluggish, as it had been through much of the latter half
of 2019. The second half of March saw activity levels weaken
significantly in response to societal actions meant to address the
coronavirus pandemic. While the company's facilities and in-market
locations continue to operate, our branches did restrict public
access and many of our Onsite locations were closed or operated at
a meaningfully diminished capacity (approximately 120 out of 1,136
North American Onsite locations were closed on March 31 because the
customer was closed), negatively impacting sales at the end of the
quarter. This event also produced significant shifts in the mix of
our business. For instance, March sales of our fastener products
declined 10.1% on a daily basis as industrial activity slowed,
while our safety business grew 31.0% on a daily basis as we were
able to source and deliver critical personal protective equipment
('PPE') supplies to the marketplace. In addition, while our
manufacturing and non-residential construction end markets were
down 1.1% and 7.8% on a daily basis, respectively, our government
business was up 31.1% on a daily basis with sales to healthcare
organizations more than doubling.
Our gross profit, as a percentage of net sales, declined 110
basis points to 46.6% in the first quarter of 2020 from 47.7% in
the first quarter of 2019. The most significant factor behind the
decline in our gross profit percentage in the period was the impact
of product and customer mix. At the start of the first quarter of
2020, the overall impact of mix was moderating and was heavily a
function of a shift toward larger, lower margin customers as a
result of our success generating sales growth through our growth
drivers. In March, this customer mix remained a factor but the
widening growth differential between higher-margin fastener sales
and lower-margin safety sales produced a greater product mix impact
and increased the overall effect of mix on our gross profit
percentage. The gross profit percentage was also affected in the
first quarter of 2020 by the deleveraging of fixed costs and period
costs flowing through our operation. We continued to be challenged
by lower freight revenues and our ability to offset costs related
to our captive truck fleet, but this was offset by more favorable
comparisons in costs for external freight charges.
Our operating income, as a percentage of net sales, declined to
19.9% in the first quarter of 2020 from 20.0% in the first quarter
of 2019, which was due to the lower gross profit. Our operating and
administrative expenses (including the gain on sales of property
and equipment), as a percentage of net sales, improved to 26.7% in
the first quarter of 2020 compared to 27.8% in the first quarter of
2019. The primary reason for this improvement was our ability to
leverage employee, occupancy, and general corporate expenses. The
period also benefited from one more selling day in the first
quarter of 2020, as certain operating costs are not variable to the
number of selling days in a period.
Employee-related expenses, which represent 65% to 70% of total
operating and administrative expenses, increased 0.2% in the first
quarter of 2020 when compared to the first quarter of 2019. The
increase in employee-related expenses was mainly from slightly
higher FTE over the course of the quarter, offset by lower
incentive compensation. Occupancy-related expenses, which represent
15% to 20% of total operating and administrative expenses,
increased 1.8%. Facility costs were slightly down in the period.
This was offset by an increase in costs related to industrial
vending equipment of 12.5% as we grew the number of vending
machines deployed from March 2019 to March 2020, as well as an
increase in costs for warehouse equipment. All other operating and
administrative expenses, which represent 15% to 20% of total
operating and administrative expenses, increased 0.8% with higher
information technology spending and net event costs being partly
offset by lower general corporate expenses.
Our net interest expense was $2.1 in the first quarter of 2020
compared to $3.9 in the first quarter of 2019. This decrease was
caused by a lower average debt balance during the period and lower
average interest rates.
We recorded income tax expense of $66.6 in the first quarter of
2020, or 24.7% of earnings before income taxes. Income tax expense
was $63.4 in the first quarter of 2019, or 24.6% of earnings before
income taxes. 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 first quarter of 2020 were $202.6,
an increase of 4.4% when compared to the first quarter of 2019. Our
diluted net earnings per share were $0.35 during the first quarter
of 2020 compared to $0.34 during the first quarter of 2019, an
increase of 4.0%.
Growth Driver Performance
We signed 4,798 industrial vending devices during the first
quarter of 2020. Our installed device count on March 31, 2020 was
92,124, an increase of 10.4% over March 31, 2019. Daily sales
through our vending devices grew at a low double-digit pace in the
first quarter of 2020 over the first quarter of 2019 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 our
lease locker program.
We signed 85 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 2020. We had 1,179
active sites on March 31, 2020, which represented an increase of
24.8% from March 31, 2019. Daily sales through our Onsite
locations, excluding sales transferred from branches to new
Onsites, grew at a mid single-digit rate in the first quarter of
2020 over the first quarter of 2019. New revenue from relatively
new active locations continues to offset the impact of weak demand
on more mature sites as well as the temporary closing of certain
sites where customers suspended operations.
In January 2020, we established 2020 signing goals of 22,000 to
24,000 vending units and 375 to 400 Onsite locations. However, with
business activity slowing further, many customers closed and
operating below capacity, and our own efforts to source critical
parts for customers diverting energy from growth driver signings,
visibility for signings has become limited. As a result, at this
time we cannot provide guidance for vending and Onsite signings for
2020.
Daily sales to our national account customers (defined as
customer accounts with a multi-site contract) grew 5.5% in the
first quarter of 2020 over the first quarter of 2019. Revenues
attributable to national account customers represented 55.4% of our
total revenues in the period.
Balance Sheet and Cash Flow
We produced operating cash flow of $241.1 in the first quarter
of 2020, an increase of 17.7% from the first quarter of 2019,
representing 119.0% of the period's net earnings versus 105.6% in
the first quarter of 2019. The increase in our operating cash flow
as a percentage of net earnings largely reflects a reduced drag
from net working capital, due to both internal efforts to
streamline inventory and the effects of lower demand, and to a
lesser extent higher net income. Our investment in property and
equipment, net of proceeds from sales, was $46.7 in the first
quarter of 2020 compared to $52.8 in the first quarter of 2019.
This decrease was primarily a result of lower spending to develop
or expand certain of our distribution center assets. We have
reduced our expectations for net capital expenditures in 2020 to a
range of $155.0 to $180.0, down from our previous range of $180.0
to $205.0 and a decrease from $239.8 in 2019. We had anticipated
lower annual spending based on a reduction in projects that would
develop and expand certain distribution center assets and, to a
lesser degree, reduced fleet vehicle investment. The decline
relative to our original projections for 2020 largely reflects a
review and deferral of certain building projects in light of an
increasingly uncertain business climate and lower vending spend due
to a reduction in expected signings and, to a lesser degree, the
impact on the cost of our vending equipment following the Apex
asset purchase.
We invested $125.0 in the first quarter of 2020 to acquire
certain assets, primarily intangible, of Apex Industrial
Technologies LLC.
We returned $195.6 to our shareholders in the first quarter of
2020 in the form of dividends ($143.6) and purchases of our common
stock ($52.0), compared to $123.0 in dividends in the first quarter
of 2019.
Total debt on our balance sheet was $455.0 at the end of the
first quarter of 2020, or 14.6% of total capital (the sum of
stockholders' equity and total debt). This compares to $489.0, or
16.9% of total capital, at the end of the first quarter of
2019.
Accounts receivable were $833.9 at the end of the first quarter
of 2020, an increase of $40.9 or 5.2%, over the first quarter of
2019. 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. Inventories were $1,345.5 at
the end of the first quarter of 2020, an increase of $51.6, or
4.0%, over the first quarter of 2019. Our inventory has risen to
support higher sales, largely reflecting significant increases in
the number of installed vending devices and active Onsite
locations, to support high levels of service. The rate of growth in
inventories continued to slow in the first quarter of 2020 based on
slowing economic activity and internal efforts to reduce hub
inventory. We intend to continue to invest in the inventory
necessary to support our vending and Onsite initiatives. Accounts
payable were $212.1 at the end of the first quarter of 2020, an
increase of $28.2, or 15.4%, over the first quarter of 2019, as a
result of an increase in sourcing of PPE products late in the
quarter.
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:
Q1
Q4
Q4
Q1
Q1
2020
2019
2019
2019
2019
In-market locations - absolute employee
headcount
14,001
13,977
0.2%
14,336
-2.3%
In-market locations - FTE employee
headcount
12,334
12,236
0.8%
12,482
-1.2%
Total absolute employee headcount
22,131
21,948
0.8%
22,205
-0.3%
Total FTE employee headcount
19,235
18,968
1.4%
19,125
0.6%
Number of public branch locations
2,091
2,114
-1.1%
2,187
-4.4%
Number of active Onsite locations
1,179
1,114
5.8%
945
24.8%
Number of in-market locations
3,270
3,228
1.3%
3,132
4.4%
Industrial vending devices (installed
device count) (1)
92,124
89,937
2.4%
83,410
10.4%
Ratio of industrial vending devices to
in-market locations
28:1
28:1
27:1
(1) 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 our 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 335 people in our in-market locations and 74 people in
total. The reduction in our absolute employee headcount in our
in-market locations reflects efforts to control branch expenses as
a response to weaker demand, which was only partly offset by
increases to support growth in our Onsite locations. The decrease
in our total absolute employee count is mostly from personnel
reductions in our in-market locations only partly offset by
additions in non-branch selling and support roles to support
customer acquisition and implementation, particularly as it relates
to our growth drivers and to support general corporate
functions.
We opened three branches in the first quarter of 2020 and closed
26 branches, net of conversions. We activated 87 Onsite locations
in the first quarter of 2020 and closed 22, 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 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
As previously disclosed, the Annual Meeting of Shareholders (the
'Annual Meeting') will be held Saturday, April 25, 2020 at 10:00
a.m., central time. In light of public health concerns regarding
the coronavirus outbreak (COVID-19), the Annual Meeting will be
held in a virtual meeting format only. Shareholders will not be
able to attend the Annual Meeting physically. 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 or
www.virtualshareholdermeeting.com/FAST2020. It is
our intention to resume our tradition of a publicly attended event
in 2021.
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 future operating results and business activity in light
of the coronavirus pandemic. 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)
March 31,
December 31,
Assets
2020
2019
Current assets:
Cash and cash equivalents
$
160.7
174.9
Trade accounts receivable, net of
allowance for doubtful accounts of $11.6 and $10.9,
respectively
833.9
741.8
Inventories
1,345.5
1,366.4
Prepaid income taxes
—
16.7
Other current assets
124.2
157.4
Total current assets
2,464.3
2,457.2
Property and equipment, net
1,027.7
1,023.2
Operating lease right-of-use assets
242.4
243.2
Other assets
200.3
76.3
Total assets
$
3,934.7
3,799.9
Liabilities and Stockholders'
Equity
Current liabilities:
Current portion of debt
$
4.9
3.0
Accounts payable
212.1
192.8
Accrued expenses
227.5
251.5
Current portion of operating lease
liabilities
96.4
97.4
Income taxes payable
39.5
—
Total current liabilities
580.4
544.7
Long-term debt
450.1
342.0
Operating lease liabilities
147.7
148.2
Deferred income taxes
99.9
99.4
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, 572,817,649 and 574,128,911 shares issued and
outstanding, respectively
2.9
2.9
Additional paid-in capital
24.2
67.2
Retained earnings
2,692.9
2,633.9
Accumulated other comprehensive loss
(63.4
)
(38.4
)
Total stockholders' equity
2,656.6
2,665.6
Total liabilities and stockholders'
equity
$
3,934.7
3,799.9
FASTENAL COMPANY AND
SUBSIDIARIES
Condensed Consolidated Statements
of Earnings
(Amounts in millions except
earnings per share)
(Unaudited)
Three Months Ended
March 31,
2020
2019
Net sales
$
1,367.0
1,309.3
Cost of sales
730.2
684.6
Gross profit
636.8
624.7
Operating and administrative expenses
365.9
363.6
Gain on sale of property and equipment
(0.4
)
(0.3
)
Operating income
271.3
261.4
Interest income
0.1
0.1
Interest expense
(2.2
)
(4.0
)
Earnings before income taxes
269.2
257.5
Income tax expense
66.6
63.4
Net earnings
$
202.6
194.1
Basic net earnings per share
$
0.35
0.34
Diluted net earnings per share
$
0.35
0.34
Basic weighted average shares
outstanding
573.9
572.2
Diluted weighted average shares
outstanding
575.3
573.0
FASTENAL COMPANY AND
SUBSIDIARIES
Condensed Consolidated Statements
of Cash Flows
(Amounts in millions)
(Unaudited)
Three Months Ended
March 31,
2020
2019
Cash flows from operating activities:
Net earnings
$
202.6
194.1
Adjustments to reconcile net earnings to
net cash provided by operating activities, net of acquisition:
Depreciation of property and equipment
37.6
35.4
Gain on sale of property and equipment
(0.4
)
(0.3
)
Bad debt expense
1.9
2.0
Deferred income taxes
0.5
0.6
Stock-based compensation
1.6
1.6
Amortization of intangible assets
1.0
1.0
Changes in operating assets and
liabilities, net of acquisition:
Trade accounts receivable
(101.4
)
(79.5
)
Inventories
10.6
(13.5
)
Other current assets
33.2
30.1
Accounts payable
19.3
(9.7
)
Accrued expenses
(24.0
)
(8.0
)
Income taxes
56.2
50.7
Other
2.4
0.4
Net cash provided by operating
activities
241.1
204.9
Cash flows from investing activities:
Purchases of property and equipment
(48.8
)
(54.4
)
Proceeds from sale of property and
equipment
2.1
1.6
Cash paid for acquisition
(125.0
)
—
Other
—
0.1
Net cash used in investing activities
(171.7
)
(52.7
)
Cash flows from financing activities:
Proceeds from debt obligations
325.0
210.0
Payments against debt obligations
(215.0
)
(240.0
)
Proceeds from exercise of stock
options
7.4
18.1
Purchases of common stock
(52.0
)
—
Payments of dividends
(143.6
)
(123.0
)
Net cash used in financing activities
(78.2
)
(134.9
)
Effect of exchange rate changes on cash
and cash equivalents
(5.4
)
0.9
Net (decrease) increase in cash and cash
equivalents
(14.2
)
18.2
Cash and cash equivalents at beginning of
period
174.9
167.2
Cash and cash equivalents at end of
period
$
160.7
185.4
Supplemental information:
Cash paid for interest
$
2.2
4.0
Net cash paid for income taxes
$
10.2
11.7
Leased assets obtained in exchange for new
operating lease liabilities
$
25.0
21.8
View source
version on businesswire.com: https://www.businesswire.com/news/home/20200414005219/en/
Ellen Stolts Assistant Controller – Reporting and Reconciliation
507-313-7282
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