01—Abstract
Summary
Summary of the 10-K filed February 6, 2014. Cited figures are marked; the original filing is the authoritative source.
Fastenal (FAST) closed 2013 with net sales of $3.33 billiona, up 6.1% from $3.13 billion in 2012, and net earnings of $448.6 million, up 6.7%.
Diluted EPS rose to $1.51b from $1.42. Growth came mainly from higher unit volume at older stores, with store openings slowing to about 2% of the base (53 net new stores in 2013). Management is shifting spending toward store headcount, distribution automation and FAST Solutions industrial vending, which pushed operating and administrative expenses up 7.0% against sales growth of 6.1%.
Pre-tax margin held at 21.5%c, flat year over year, as gross margin edged up to 51.7% from 51.5%. The filing shows a company in a deliberate investment phase. Average daily sales growth slowed through 2013, from roughly 6.5% in Q1 to a weak spring and a sharp July/December pause, while heavy machinery manufacturers (about one-fifth of the business) remained weak.
Management says daily sales trends improved after September 2013, and it added 1,407 store personnel from May to December. Industrial vending installations reached 33,920 equivalent machines, and vending customers now account for more than a third of total sales. Vending also weighs on occupancy costs, which rose 11.2%, and capital spending nearly doubled to $201.6 milliond.
Balance sheet and cash flow remain strong. Operating cash flow was $416 million, and the company paid $237 million in dividends ($0.80 per share for 2013, after the $1.24 total in 2012 that included a $0.50 supplemental payment). It holds $58.5 million in cash and no outstanding borrowings under its $125 million credit facility.
Inventory of $784 million and receivables of $414 million grew faster than sales, and the sales-to-AR-and-inventory ratio slipped to 2.8:1 from 2.9:1. Investors will be watching whether the 2013 store-hiring and vending investments turn into faster same-store growth and margin recovery in 2014.
02—Key points
Key Highlights
- Net sales rose 6.1% to $3.33 billion; net earnings rose 6.7% to $448.6 million, and diluted EPS was $1.51 versus $1.42 in 2012.
- Gross margin improved to 51.7% from 51.5%, but operating and administrative expenses grew 7.0%, so pre-tax margin held flat at 21.5%.
- Store base reached 2,687 locations after 53 openings in 2013 (about 2% growth); management targets 50-70 openings in 2014.
- FAST Solutions industrial vending reached 33,920 equivalent machines installed, with vending customers now more than a third of total business; occupancy costs rose 11.2% largely from vending equipment.
- Sales growth slowed through 2013 as heavy machinery manufacturing (about one-fifth of the business) remained weak, although daily sales trends improved after September 2013.
- Capital expenditures rose to $201.6 million, and the company expects about $180.7 million in 2014, focused on distribution automation and vending.
- Dividends totaled $0.80 per share in 2013 (down from $1.24 in 2012, which included a $0.50 supplemental payment); the quarterly dividend was raised to $0.25, and the balance sheet holds $58.5 million in cash with no borrowings outstanding.
03—One dollar
Follow one dollar
Of each $1.00 of revenue in FY2013, Fastenal Co kept $0.13.
- Revenue$3.33B100.0%
- Cost of revenue−$1.61B48.3%
- Gross profit$1.72B51.7%
- Operating costs−$1.01B30.3%
- Operating income$712.7M21.4%
- Interest, other & tax−$264.0M7.9%
- Net income$448.6M13.5%
Where FY2013 revenue went
$3.33B- Cost of revenue: $1.61B, 48% of revenue
- SG&A: $1.01B, 30% of revenue
- Net income: $448.6M, 13% of revenue
- Interest, other & tax: $264.0M, 7.9% of revenue
Kept 13% as net income
Full revenue history →04—Financials
Financial Highlights
Figures from 10-KFY2013filed February 6, 2014Financial Statements
FY2013 against FY2012
| Line item | FY2013FY2012 | Change |
|---|---|---|
| Revenue | $3.33B$3.13B | +6.1% |
| Cost of Revenue | $1.61B$1.52B | +5.8% |
| Gross Profit | $1.72B$1.61B | +6.5% |
| SG&A Expenses | $1.01B$941.24M | +7.0% |
| Operating Income | $712.66M$673.69M | +5.8% |
| Interest Expense | $113K$0 | — |
| Net Income | $448.64M$420.54M | +6.7% |
| EPS (Basic) | $0.38$0.35 | +6.3% |
| EPS (Diluted) | $0.38$0.35 | +6.3% |
| Shares Outstanding (Basic) | 1.19B1.18B | +0.2% |
| Shares Outstanding (Diluted) | 1.19B1.19B | +0.2% |
05—Questions
Frequently Asked Questions
Why did net earnings grow more slowly than the company's investment spending suggests?
Net earnings grew 6.7%, slightly ahead of sales growth of 6.1%, because gross margin edged up and the tax rate fell slightly to 37.1%. Operating expenses grew 7.0%, however, driven by store hiring, sales commissions, vending bonuses and occupancy costs for industrial vending equipment. Pre-tax margin therefore held at 21.5% rather than expanding.
How is the company's store growth strategy changing?
Fastenal opened fewer stores (53 net new openings in 2013, about 2%), down from 80 in 2012 and 122 in 2011, and is redirecting spending to store personnel, district and regional leadership, distribution automation and industrial vending. Management believes North America can support at least 3,500 stores, and it expects 50-70 openings in 2014.
What are the main risks highlighted in the filing?
Key risks include weakness in heavy machinery manufacturing and non-residential construction, deflation in fastener pricing that pressures gross margin, the risk that competitors copy industrial vending, consolidation among customers and suppliers, and dependence on attracting and retaining qualified sales staff. The company also flagged the shift toward larger national accounts, which carry lower margins, and currency exposure mainly to the Canadian dollar, though the impact on earnings was described as not material.
How strong is Fastenal's balance sheet and capital return position?
The company ended 2013 with $58.5 million in cash, no loans outstanding under its $125 million credit facility, and equity of $1.77 billion. Operating cash flow of $416 million covered capital spending of $201.6 million and dividends of $237 million. Working capital tied up in receivables and inventory grew about 10%, slightly faster than sales, and the company has authority to repurchase 1.6 million more shares.
06—Continue