10-KPeriod: FY2017

FASTENAL CO Annual Report, Year Ended Dec 31, 2017

Filed February 5, 2018For Securities:FAST

Summary

Fastenal Company reported a strong 2017 with a 10.8% increase in net sales, reaching $4.39 billion. This growth was primarily driven by a robust economy and successful execution of its growth initiatives, including national accounts, Onsite locations, and industrial vending. While gross profit margin saw a slight decrease due to a shift in product and customer mix towards lower-margin items, operating income remained stable at 20.1% of net sales. The company also benefited from the Tax Cuts and Jobs Act, which positively impacted its effective tax rate and net earnings. The company continues to invest in its growth drivers, expanding its Onsite locations and industrial vending devices, which are key to its strategy of getting closer to the customer and offering differentiated, sticky services. Despite a continued net decline in traditional public branches, the overall number of "in-market locations" increased, reflecting a strategic shift towards more customer-centric service models. Fastenal remains focused on its "Growth Through Customer Service" motto, aiming to increase market share by providing superior value and service.

Financial Highlights

51 data points
Beta

Revenue

$4.39B

49.3% Gross Margin

Net Income

$578.60M

13.2% Net Margin

EPS (Diluted)

$0.50

Total Assets

$2.91B

Cash & Equivalents

$116.90M

Free Cash Flow

$465.30M

Financial Statements
Beta
Revenue$4.39B
Cost of Revenue$2.23B
Gross Profit$2.16B
SG&A Expenses$1.28B
Operating Income$881.80M
Interest Expense$9.10M
Net Income$578.60M
EPS (Basic)$0.50
EPS (Diluted)$0.50
Shares Outstanding (Basic)1.15B
Shares Outstanding (Diluted)1.15B

Key Highlights

  • 1Net sales increased by 10.8% to $4.39 billion in 2017, driven by improved market demand and growth initiatives.
  • 2Operating income margin remained strong at 20.1% of net sales, indicating stable operational performance.
  • 3The company experienced a 50.9% year-over-year increase in active Onsite locations, highlighting a strategic shift towards embedded customer solutions.
  • 4Industrial vending devices continued to expand, with 71,421 devices installed by year-end 2017, showing strong adoption and growth in this segment.
  • 5National accounts represented a significant portion of sales (48.7%), demonstrating continued success in serving larger customers.
  • 6The Tax Cuts and Jobs Act provided a benefit, reducing the effective tax rate and positively impacting net earnings and EPS.
  • 7Despite a net decrease in public branches, total in-market locations grew by 2.9%, signaling a strategic evolution in the company's service network.

Frequently Asked Questions

Fastenal's net sales increased by 10.8% in 2017, primarily driven by two factors: an improvement in underlying market demand, evidenced by higher Purchasing Managers' Index readings, and the success of its growth initiatives. Key initiatives contributing to this growth included the expansion of Onsite locations, a 7.2% increase in industrial vending devices, and strong growth in daily sales from national account customers, which rose by 14.5%.

Fastenal's gross profit margin decreased slightly to 49.3% in 2017 from 49.6% in 2016, primarily due to changes in product and customer mix. The proportion of sales from the fastener product line, which has higher gross profit margins, decreased. Conversely, sales from non-fastener products and to national account customers, which generally have lower gross profit margins, increased. The acquisition of Mansco also contributed to a lower gross profit mix.

Fastenal is strategically evolving its physical location network. While the number of traditional public branches continued to decline in 2017, the company is aggressively expanding its "in-market locations" by increasing the number of Onsite locations. This strategy aims to get closer to the customer and offer more embedded services, such as industrial vending and Fastenal Managed Inventory (FMI) programs, which provide differentiated and 'sticky' service offerings.

The Tax Cuts and Jobs Act enacted in late 2017 provided a significant benefit to Fastenal. It resulted in a provisional income tax expense of 33.7% of earnings before income taxes, a reduction from the prior year's 36.8%. This reduction was due to an estimated decrease in deferred income tax liabilities following the corporate tax rate cut. Additionally, a one-time transition tax on accumulated foreign earnings was incurred. Excluding the discrete tax impacts, net earnings and EPS for 2017 showed a solid increase of 11.0% and 11.2%/11.3% respectively over 2016.