10-KPeriod: FY2008

FASTENAL CO Annual Report, Year Ended Dec 31, 2008

Filed February 20, 2009For Securities:FAST

Summary

Fastenal Company's 2008 Form 10-K reflects a company navigating a challenging economic environment, evidenced by a slowdown in sales growth towards the end of the year. Despite this, the company demonstrated resilience, achieving net sales growth of 13.5% to $2.34 billion and a 20.2% increase in net earnings to $279.7 million, with diluted EPS rising to $1.88. This performance was supported by improved gross profit margins (52.8%) and disciplined management of operating expenses, though the latter grew at a faster rate than sales due to increased payroll and legal settlement costs. The company continued its expansion, ending the year with 2,311 store locations, an increase of 7.5% from the prior year. However, management expressed uncertainty regarding the previously stated store opening targets for 2009 due to the economic slowdown. Fastenal's 'pathway to profit' initiative, focusing on adding outside sales personnel to existing stores and optimizing inventory, is a key strategic focus aimed at driving future growth and improving profitability. The company also maintained a strong cash flow from operations, funding its capital expenditures and returning capital to shareholders through dividends and share repurchases.

Financial Highlights

45 data points
Beta

Revenue

$2.34B

52.8% Gross Margin

Net Income

$279.70M

12.0% Net Margin

Total Assets

$1.30B

Cash & Equivalents

$85.89M

Free Cash Flow

$164.59M

Financial Statements
Beta
Revenue$2.34B
Cost of Revenue$1.10B
Gross Profit$1.24B
SG&A Expenses$785.69M
Operating Income$450.24M
Net Income$279.70M
Shares Outstanding (Basic)1.19B
Shares Outstanding (Diluted)1.19B

Key Highlights

  • 1Net sales grew by 13.5% to $2.34 billion in 2008, despite a weakening economy impacting the latter part of the year.
  • 2Net earnings increased by 20.2% to $279.7 million, with diluted EPS reaching $1.88.
  • 3Gross profit margins improved to 52.8% in 2008, driven by pricing strategies, sourcing improvements, and a freight initiative.
  • 4The company continued its physical expansion, ending 2008 with 2,311 store locations, a 7.5% increase year-over-year.
  • 5Fastenal is implementing a 'pathway to profit' strategy to offset slower new store openings by increasing outside sales personnel at existing locations.
  • 6Net cash provided by operating activities was strong at $259.9 million, supporting investing and financing activities.
  • 7A $10 million settlement for a class-action lawsuit regarding assistant general manager overtime was recorded in Q3 2008.

Frequently Asked Questions

The economic slowdown in 2008 impacted Fastenal's sales growth, particularly in the last three months of the year. While net sales still grew 13.5%, the rate of growth decelerated compared to earlier in the year. Operating expenses also increased, partly due to a $10 million legal settlement and increased payroll costs associated with the 'pathway to profit' initiative.

The 'pathway to profit' initiative, introduced in 2007, aims to offset a reduced rate of new store openings (7-10% annually) by investing in additional outside sales personnel at existing stores. The goal is to increase average store sales, improve profitability through expense leverage, and enhance working capital efficiency. The company is funding this initiative with savings from slower store expansion.

Given the significant economic slowdown experienced in late 2008, Fastenal expressed uncertainty regarding its ability to maintain its historical new store opening rate (previously 7-10% per year) in 2009. Management indicated that future capital expenditures and expansion plans would be closely monitored and potentially modified based on economic conditions.

Fastenal focused on improving working capital. While inventory levels increased by 11.8% (less than sales growth), this was slightly higher than expected due to longer lead times impacting inventory consumption relative to sales trends in the final months. Accounts receivable growth was managed to 3.6%. The company aims to maintain an Annual Sales: AR&I ratio better than 3.0:1.