10-KPeriod: FY2018

FASTENAL CO Annual Report, Year Ended Dec 31, 2018

Filed February 6, 2019For Securities:FAST

Summary

Fastenal Company's 2018 10-K filing reveals a year of robust sales growth, with net sales increasing by 13.1% to $4.97 billion. This growth was primarily driven by higher unit sales and, to a lesser extent, increased pricing to offset rising product costs. The company's strategic focus on growth initiatives like Onsite locations, national accounts, and industrial vending continues to yield positive results, with sales growth exceeding 20% through vending devices and Onsite locations. Despite strong top-line performance, the gross profit margin experienced a slight decline of 100 basis points to 48.3% in 2018, attributed to a shift in product and customer mix (fewer fasteners, more national accounts), rising transportation costs, and a lag in passing on product cost inflation to customers. Operating income as a percentage of net sales remained stable at 20.1%. Net earnings saw a significant increase of 29.9% to $751.9 million, partly due to the benefits of the Tax Cuts and Jobs Act which lowered the effective tax rate.

Financial Highlights

51 data points
Beta

Revenue

$4.97B

48.3% Gross Margin

Net Income

$751.90M

15.1% Net Margin

EPS (Diluted)

$0.66

Total Assets

$3.32B

Cash & Equivalents

$167.20M

Free Cash Flow

$497.90M

Financial Statements
Beta
Revenue$4.97B
Cost of Revenue$2.57B
Gross Profit$2.40B
SG&A Expenses$1.40B
Operating Income$999.20M
Interest Expense$12.60M
Net Income$751.90M
EPS (Basic)$0.66
EPS (Diluted)$0.66
Shares Outstanding (Basic)1.15B
Shares Outstanding (Diluted)1.15B

Key Highlights

  • 1Net sales grew by 13.1% to $4.97 billion in 2018, driven by strong unit sales and strategic pricing adjustments.
  • 2Growth drivers such as Onsite locations (up 47.8%), national accounts (revenue up 18.1%), and industrial vending devices (installed count up 13.6%) are performing well.
  • 3Gross profit margin decreased by 100 basis points to 48.3% due to unfavorable product/customer mix and rising transportation costs.
  • 4Net earnings increased by 29.9% to $751.9 million, benefiting from sales growth and a lower effective tax rate due to the Tax Cuts and Jobs Act.
  • 5The company is actively managing its branch network, with a net decrease of 156 public branches in 2018, while expanding its total in-market locations (branches + Onsite) by 4.5%.
  • 6Inventories increased by 17.0% to $1.28 billion, partly due to strategic stocking and acceleration of overseas shipments ahead of potential tariffs.
  • 7Capital expenditures increased by 48.3% to $166.8 million, primarily for hub property and equipment, and vending devices, indicating continued investment in growth.

Frequently Asked Questions

Fastenal's primary growth drivers in 2018 were its Onsite locations, which saw a 47.8% increase in active sites, national accounts, which experienced an 18.1% revenue growth, and industrial vending devices, with an installed base increase of 13.6%. Sales growth through vending devices and Onsite locations exceeded 20%.

The gross profit margin declined by 100 basis points to 48.3% in 2018 primarily due to three factors: a shift in product and customer mix (a decrease in higher-margin fastener sales and an increase in sales to national accounts which typically have lower margins), rising transportation costs (freight, driver wages, fuel), and a lag in passing on product cost inflation to customers.

The Tax Cuts and Jobs Act significantly benefited Fastenal by lowering the U.S. federal corporate income tax rate. This resulted in a lower effective income tax rate in 2018, contributing to a substantial increase in net earnings (29.9% year-over-year) and diluted earnings per share. Excluding the discrete tax benefits related to the Act, net earnings still showed strong organic growth.

Fastenal is actively managing its physical branch network. While it experienced a net decline of 156 public branches in 2018, the company is strategically opening and closing locations to optimize its network and support growth drivers. The overall 'in-market locations' (combining branches and Onsite locations) grew by 4.5% in 2018, indicating a continued focus on customer proximity.