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FASTENAL CO Annual Report, Year Ended Dec 31, 2004

Filing Date
Filed March 1, 2005
Period End
December 31, 2004
Security
FAST
In the record · 2016–202610-K1210-Q348-K100

FAST filed 12 annual reports (10-K), 34 quarterly reports (10-Q) and 100 current reports (8-K) between 2016 and 2026.

  1. Material agreement8-K · Jul ’16Jul ’16
  2. FY2018 annual report10-K · Feb ’19Feb ’19
  3. Leadership change8-K · Aug ’21Aug ’21
  4. Leadership change8-K · Dec ’25Dec ’25

01—Abstract

Summary

Summary of the 10-K filed March 1, 2005. Cited figures are marked; the original filing is the authoritative source.

Fastenal Company (FAST), a North American wholesale distributor of industrial and construction supplies, delivered a strong 2004.

Net sales rose 24.5% to $1.238 billiona, and net earnings climbed 55.7% to $131.0 million, lifting diluted EPS to $1.72 from $1.11. Management attributes the earnings leap mainly to efficiency gains from its Customer Service Project (CSP) store-format upgrade, which lifted sales per store employee by more than 30% since May 2002, along with a 200-basis-point-plus expansion in gross margin to 50.4%, driven by steel-driven price increases and vendor incentives. Operating leverage was also visible, with operating and administrative expenses falling to 33.6% of sales from 35.5%.

The key watch items for investors are working capital and cash generation. Inventory grew 32% to $307 million, operating cash flow fell to $57.4 millionb from $90.6 million, and cash and marketable securities declined, even as the company raised its dividend to $0.40 per share from $0.21. Management expects inventory to keep growing in 2005 as CSP shifts the stocking mix toward stores, and it has guided to roughly $52 million in 2005 capital expenditures.

Network expansion continued, with 219 new stores opened in 2004 (1,533 total) and a stated plan to open 13 to 18%c more per year. The filing also flags inflation-driven import cost pressures (about 40% of fasteners are imported) and steel-price exposure as risks to margins.

Overall, the filing describes a company executing well on store productivity and profitability, with a balance sheet that is strong but increasingly consumed by inventory investment. Investors will want to monitor whether inventory turns stabilize as CSP matures and whether gross margin gains from 2004's steel-price environment can be sustained.

02—Key points

Key Highlights

  1. Net sales grew 24.5% to $1,238.5 million; net earnings rose 55.7% to $131.0 million, and diluted EPS reached $1.72 versus $1.11 in 2003.
  2. Gross margin expanded to 50.4% from 49.2%, aided by steel-driven price increases (about 3-4% of additional sales), vendor incentives, and a higher-margin fastener mix.
  3. Operating and administrative expenses fell to 33.6% of sales from 35.5%, reflecting leverage from the Customer Service Project (CSP) store format; sales per store employee rose more than 30% since CSP began in 2002.
  4. Store network expanded to 1,533 sites, with 219 opened in 2004 (a record, up 45% from 151 in 2003); about 90% of stores have been converted to the CSP format.
  5. Inventory rose 32% to $307.3 million, and operating cash flow dropped to $57.4 million from $90.6 million, signaling significant working capital investment ahead of CSP-driven growth.
  6. The annual dividend was raised to $0.40 per share from $0.21, with a $0.31 semi-annual payment declared in January 2005; management expects comparable semi-annual dividends going forward.
  7. Management flagged inflation in imported steel products (price increases of 5-40% during 2004) and expects inventory to grow further in 2005, with capex guided to about $52 million.

03—Questions

Frequently Asked Questions

  1. What drove Fastenal's earnings growth in 2004?

    Earnings grew 55.7% on 24.5% sales growth, reflecting operating leverage from the CSP store format (which boosted sales per employee), a gross margin increase to 50.4% from steel-driven price increases and vendor incentives, and lower operating expenses as a percentage of sales (33.6% versus 35.5%).

  2. Why did operating cash flow decline in 2004?

    Operating cash flow fell to $57.4 million from $90.6 million mainly because inventory rose by $74 million (about 32%). Drivers included sales growth, import price inflation, new store and CSP conversion stocking, and increased direct purchasing from manufacturers, which turns more slowly.

  3. What is the Customer Service Project (CSP) and why does it matter?

    CSP is Fastenal's store upgrade program that broadens inventory in each store and displays it for customer self-service. It aims to shift the stocking mix from about 60% stores/40% distribution centers toward about 75%/25%, which management believes can improve sales productivity and gross margins while keeping inventory turns near pre-CSP levels, though this is not yet guaranteed.

  4. How much is Fastenal paying shareholders and is the dividend sustainable?

    The company paid $0.40 per share in 2004, up from $0.21 in 2003, and declared a $0.31 semi-annual dividend in January 2005. Management expects to continue semi-annual payments and to be a net producer of cash in 2005, though the dividend's sustainability depends on managing the inventory build.

  5. What are the main risks to Fastenal's business?

    Key risks include economic downturns affecting existing stores and new store profitability, volatility in steel and import product costs (about 40% of fasteners are imported), inventory management under the CSP model, foreign currency and trade-relations exposure in Canada and abroad, and execution risk in new store openings and the new information systems.

04—Continue

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