10-KPeriod: FY2015

FASTENAL CO Annual Report, Year Ended Dec 31, 2015

Filed February 5, 2016For Securities:FAST

Summary

Fastenal Company's 2015 Form 10-K reveals a company navigating a dynamic economic landscape, demonstrating resilience and strategic adaptation. Despite a challenging year marked by a slowdown in key industrial sectors like oil and gas, and the impact of a strong U.S. dollar, Fastenal achieved modest net sales growth of 3.6% to $3.87 billion. This growth was driven primarily by increased unit sales, particularly at older, established store locations, and a continued expansion of its non-fastener product lines, which now represent 62% of sales. The company is strategically investing in growth drivers such as expanding its industrial vending solutions and Onsite locations, alongside a planned increase in new store openings for 2016. While net earnings saw a modest increase of 4.5% to $516.4 million, the company is managing operational expenses effectively, even as it increased its workforce by 12.6% to support growth initiatives. Investors should note the slight decrease in gross profit margin to 49.9% in Q4 2015, influenced by product and customer mix shifts, and a temporary squeeze on discretionary spending. However, the company's strong operating income (21.4% of net sales) and robust cash flow from operations ($546.9 million) underscore its financial health and capacity for continued investment and shareholder returns.

Financial Highlights

52 data points
Beta

Revenue

$3.87B

50.4% Gross Margin

Net Income

$516.40M

13.3% Net Margin

EPS (Diluted)

$0.44

Total Assets

$2.53B

Cash & Equivalents

$129.00M

Free Cash Flow

$395.10M

Financial Statements
Beta
Revenue$3.87B
Cost of Revenue$1.92B
Gross Profit$1.95B
SG&A Expenses$1.12B
Operating Income$828.80M
Interest Expense$3.10M
Net Income$516.40M
EPS (Basic)$0.44
EPS (Diluted)$0.44
Shares Outstanding (Basic)1.17B
Shares Outstanding (Diluted)1.17B

Key Highlights

  • 1Net sales increased by 3.6% to $3.87 billion in 2015, driven by higher unit sales, especially from established stores.
  • 2Net earnings grew by 4.5% to $516.4 million, indicating effective cost management despite increased headcount.
  • 3The company is shifting its product mix, with non-fastener products representing 62% of sales in 2015, up from 58% in 2013.
  • 4Fastenal plans to increase new store openings in 2016 (60-75 stores), reversing a recent trend of store consolidation.
  • 5Investments in growth drivers like industrial vending (43.9% of sales) and Onsite locations are a strategic focus.
  • 6Gross profit margin saw a slight decrease to 49.9% in Q4 2015, influenced by product/customer mix and reduced discretionary customer spending.
  • 7Operating and administrative expenses as a percentage of sales improved to 29.0% in 2015, demonstrating cost control.

Frequently Asked Questions

Sales growth in 2015 was primarily driven by increased unit sales, particularly at older, established store locations that have a greater market share. The continued success and expansion of non-fastener product lines also contributed significantly. Additionally, the industrial vending initiative stimulated faster growth with a subset of customers.

The gross profit margin saw a slight decline, ending at 49.9% in the fourth quarter of 2015. This was influenced by changes in product and customer mix, with a trend towards lower-margin non-fastener products and larger customers. Additionally, a noticeable squeeze on discretionary customer spending in November and December 2015 impacted sales of less frequently purchased items, further pressuring the gross profit margin.

Fastenal's growth strategy centers on investing in key drivers such as expanding its industrial vending solutions and Onsite locations. The company plans to increase the pace of new store openings in 2016, targeting 60 to 75 new locations. They are also focusing on enhancing their sales machine by investing in people and expanding inventory offerings at existing store locations (CSP 16 format) to improve same-day capabilities.

Key risks include a general economic downturn affecting customer spending, particularly in the manufacturing and construction sectors. Specific challenges mentioned include the impact of commodity price fluctuations (like oil and steel), foreign currency exchange rate fluctuations (especially with the Canadian dollar), increased competition, and the potential for disruptions in information systems. The company also notes the impact of shifts in customer and product mix on gross profit margins.