10-QPeriod: Q2 FY2008

FASTENAL CO Quarterly Report for Q2 Ended Jun 30, 2008

Filed July 23, 2008For Securities:FAST

Summary

Fastenal Company reported strong financial results for the second quarter and the first half of 2008, demonstrating resilience despite a weakening industrial environment. Net sales increased by 16.3% in the quarter and 16.0% year-to-date, driven by both higher unit sales and a modest price increase attributed to inflation. The company's strategic shift towards expanding its outside sales force under the "Pathway to Profit" initiative appears to be yielding positive results, as indicated by strengthening daily sales growth rates in its older store segments and improved average store sales. Profitability also saw significant improvement, with gross profit margins expanding due to effective cost management, sourcing improvements, and successful price adjustments. While operating and administrative expenses grew slightly faster than sales, primarily due to increased payroll and transportation costs influenced by fuel prices and headcount expansion, the company achieved leverage in occupancy costs. Net earnings increased by 26.4% for the quarter and 26.2% year-to-date, with earnings per share rising to $0.51 and $0.97, respectively.

Financial Highlights

22 data points
Beta

Revenue

$604.22M

52.5% Gross Margin

Net Income

$76.17M

12.6% Net Margin

Cash & Equivalents

$76.44M

Free Cash Flow

$63.61M

Financial Statements
Beta
Revenue$604.22M
Cost of Revenue$286.83M
Gross Profit$317.39M
SG&A Expenses$193.90M
Operating Income$123.35M
Net Income$76.17M

Key Highlights

  • 1Net sales for the second quarter of 2008 increased by 16.3% to $604.2 million compared to the same period in 2007.
  • 2For the six months ended June 30, 2008, net sales grew by 16.0% to $1.17 billion.
  • 3Gross profit margin improved to 52.5% for both the quarter and year-to-date periods in 2008, up from 50.3% and 50.6%, respectively, in 2007.
  • 4Net earnings for the second quarter of 2008 rose by 26.4% to $76.2 million, and for the first half of 2008, net earnings increased by 26.2% to $144.3 million.
  • 5Earnings per share (EPS) increased significantly, reaching $0.51 for the quarter and $0.97 for the first half of 2008, representing growth of 27.5% and 27.6%, respectively.
  • 6The company continued its share repurchase program, authorizing an additional 1 million shares, and paid dividends totaling $37.3 million in the first half of 2008.
  • 7Despite increased fuel costs, the company managed its freight costs effectively through its distribution network and increased average store sales, indicating operational efficiency.

Frequently Asked Questions

Fastenal experienced strong sales growth, with net sales increasing by 16.3% to $604.2 million in the second quarter of 2008 compared to the same period in 2007. This growth was driven by higher unit sales and a modest increase in prices.

The 'Pathway to Profit' initiative, focusing on expanding the outside sales force rather than solely on new store openings, appears to be positively impacting the business. Management noted that this strategy is contributing to strengthening daily sales growth rates, particularly in older store segments, and is a key factor in the improved sales performance.

Fastenal's gross profit margins improved significantly in the second quarter and year-to-date 2008. This was achieved through a combination of factors including challenging the sales force to increase margins on lower-margin business, staying ahead of product cost inflation, improving direct sourcing, focusing on the freight initiative, and ensuring product availability. Despite rising fuel costs, the company's freight initiative had a positive impact on gross margins.

Fastenal demonstrated a commitment to returning capital to shareholders. The company paid $37.3 million in dividends during the first half of 2008 and continued its share repurchase program, with its Board authorizing an additional 1 million shares for buyback. This indicates confidence in the company's financial position and future prospects.