10-QPeriod: Q2 FY2007

FASTENAL CO Quarterly Report for Q2 Ended Jun 30, 2007

Filed July 31, 2007For Securities:FAST

Summary

Fastenal Company reported solid performance for the quarter and six months ended June 30, 2007, demonstrating continued revenue growth and improved profitability. Net sales increased by 13.3% for both the quarter and the six-month period compared to the prior year, reaching $519.7 million and $1.01 billion, respectively. This growth was primarily driven by higher unit sales, with a modest contribution from price increases. Profitability saw a significant boost, with net earnings rising 17.0% in the quarter to $60.3 million and 15.0% for the six months to $114.3 million. This improved performance was supported by a higher gross profit margin, which rose to 50.3% in the quarter and 50.6% for the six months, attributed to a freight initiative and improvements in direct sourcing. The company is also actively managing its working capital, showing progress in accounts receivable and inventory management, and has a strong cash flow from operations. Management is focused on strategic initiatives aimed at driving future growth and enhancing shareholder value, including expanding outside sales personnel and optimizing store formats.

Key Highlights

  • 1Net sales for the quarter increased by 13.3% to $519.7 million, and for the six-month period by 13.3% to $1.01 billion.
  • 2Net earnings grew by 17.0% in the quarter to $60.3 million and 15.0% for the six months to $114.3 million.
  • 3Gross profit margin improved to 50.3% for the quarter and 50.6% for the six months, driven by freight initiatives and direct sourcing.
  • 4The company reported strong net cash provided by operating activities of $107.77 million for the first six months of 2007, a significant increase from the prior year.
  • 5Fastenal continues to invest in its store network, converting 64 stores to the CSP2 format in the first six months of 2007.
  • 6The company repurchased 534,200 shares of its common stock during the second quarter of 2007 and declared a quarterly dividend of $0.23 per share.
  • 7Management is shifting its growth strategy from aggressive store openings to increasing outside sales personnel in existing stores, aiming to enhance profitability and returns.

Frequently Asked Questions

Fastenal demonstrated consistent revenue growth, with net sales increasing by 13.3% for both the three-month and six-month periods ended June 30, 2007, compared to the same periods in 2006. This growth was driven primarily by an increase in unit sales.

Profitability has improved significantly. Net earnings grew by 17.0% in the second quarter and 15.0% for the first six months of 2007. This was supported by an expansion in gross profit margins, from 49.9% to 50.3% for the quarter and 50.1% to 50.6% for the six-month period, attributed to operational initiatives.

Management highlights several key initiatives including a new freight model to increase utilization of their own trucking network, tactical changes to working capital management, the expansion of the CSP2 store model, and the development of a 'master stocking hub' distribution model. These are aimed at improving efficiency and profitability.

The company generated strong cash flow from operations, with $107.77 million in the first six months of 2007, a substantial increase from the prior year. This strong operating cash flow, combined with available cash, is expected to fund ongoing expansion plans.