10-QPeriod: Q1 FY2009

FASTENAL CO Quarterly Report for Q1 Ended Mar 31, 2009

Filed April 24, 2009For Securities:FAST

Summary

Fastenal Company (FAST) reported its first quarter 2009 results, showing a challenging economic environment impacting sales and profitability. Net sales decreased by 13.6% year-over-year to $489.3 million, primarily due to lower unit sales driven by the weakening global economy. This decline in sales led to a 28.5% decrease in net earnings to $48.7 million, or $0.33 per diluted share, down from $0.46 in the prior year's quarter. Despite the top-line pressure, the company demonstrated strong operational cash flow generation, increasing by 7.8% to $93.5 million, and managed operating and administrative expenses effectively, with a 3.6% decrease year-over-year. The company also continued to return capital to shareholders through dividends, with a 39.4% increase in dividend payments for the quarter. The company is adapting to the economic conditions by temporarily slowing store openings and pausing headcount expansion, except for essential roles. Management remains focused on its long-term 'pathway to profit' initiative, aiming to improve store sales and overall business productivity, believing that the current economic weakness strengthens the rationale for this strategy despite potential delays in achieving targets. Inventory levels saw a moderate increase, which management plans to address by adjusting ordering patterns to align with current sales trends.

Financial Highlights

22 data points
Beta

Revenue

$489.35M

52.9% Gross Margin

Net Income

$48.69M

10.0% Net Margin

EPS (Diluted)

$0.04

Cash & Equivalents

$109.87M

Free Cash Flow

$74.50M

Financial Statements
Beta
Revenue$489.35M
Cost of Revenue$230.70M
Gross Profit$258.65M
SG&A Expenses$179.91M
Operating Income$78.41M
Net Income$48.69M
EPS (Basic)$0.04

Key Highlights

  • 1Net sales declined 13.6% to $489.3 million for Q1 2009 compared to Q1 2008, reflecting significant economic headwinds.
  • 2Net earnings decreased by 28.5% to $48.7 million, with diluted EPS falling to $0.33 from $0.46 year-over-year.
  • 3Operating cash flow saw a robust increase of 7.8% to $93.5 million, demonstrating strong cash generation despite lower sales.
  • 4Operating and administrative expenses were reduced by 3.6% year-over-year, showcasing effective cost management.
  • 5The company increased its dividend payment by 39.4% in Q1 2009, returning more capital to shareholders.
  • 6Store openings have been temporarily slowed to a range of 2-5% annually, and headcount expansion has been paused due to economic conditions.
  • 7Inventory levels increased by 12.3% year-over-year, and management plans to adjust ordering patterns to better align with sales trends.

Frequently Asked Questions

The primary driver behind the decline in net sales for the first quarter of 2009 was a decrease in unit sales, largely attributed to the general weakness in the global industrial and construction markets due to prevailing economic conditions. This impacted sales at older, more established store locations significantly.

Fastenal is managing expenses through a combination of strategies. They have temporarily slowed store openings, paused most headcount expansion, and are diligently managing operating and administrative expenses, which decreased by 3.6% year-over-year. Specific actions include reductions in sales commissions, bonuses, overtime, and profit sharing contributions due to lower sales and profitability.

Inventory levels increased by 12.3% year-over-year as of March 31, 2009. This increase is partly due to longer lead times for some inventory procurement and a reduction in sales trends late in 2008 and early 2009. Fastenal plans to address this by continuing to analyze and adjust ordering patterns for products with longer lead times to better match current sales trends.

Fastenal increased its dividend payment by 39.4% in the first quarter of 2009 because it generated strong operating cash flow ($93.5 million) which, after accounting for capital expenditures, provided the capacity to increase shareholder returns. The company views its strong balance sheet and cash-generating operations as enabling it to manage cash flow well and continue returning capital to shareholders.