10-QPeriod: Q3 FY2009

FASTENAL CO Quarterly Report for Q3 Ended Sep 30, 2009

Filed October 23, 2009For Securities:FAST

Summary

Fastenal Company's third-quarter 2009 report highlights a significant downturn in sales, with net sales down 19.0% for the nine months ended September 30, 2009, and 21.7% for the third quarter compared to the prior year. This decline is attributed to the weak economic environment impacting industrial production and non-residential construction markets. Despite reduced sales, the company demonstrated strong operational cash flow generation, up significantly year-over-year, which supported increased dividend payments to shareholders. The company is actively managing costs by slowing store openings and controlling headcount. While sales performance has weakened, Fastenal's balance sheet remains strong, and management is focused on navigating the challenging economic landscape by emphasizing working capital management, particularly inventory reduction.

Financial Highlights

44 data points
Beta

Revenue

$489.34M

50.0% Gross Margin

Net Income

$47.59M

9.7% Net Margin

EPS (Diluted)

$0.04

Total Assets

$1.34B

Cash & Equivalents

$193.74M

Free Cash Flow

$78.14M

Financial Statements
Beta
Revenue$489.34M
Cost of Revenue$244.77M
Gross Profit$244.57M
SG&A Expenses$168.12M
Operating Income$76.41M
Net Income$47.59M
EPS (Basic)$0.04
EPS (Diluted)$0.04
Shares Outstanding (Basic)1.19B
Shares Outstanding (Diluted)1.19B

Key Highlights

  • 1Net sales decreased significantly by 19.0% for the nine months and 21.7% for the third quarter of 2009 compared to the prior year, reflecting broad economic weakness.
  • 2Operating cash flow showed a substantial increase, rising to $253.2 million for the first nine months of 2009 from $173.7 million in the same period of 2008, indicating improved working capital management.
  • 3The company increased its dividend payments in 2009, demonstrating confidence in its financial health and cash generation capabilities despite the sales decline.
  • 4Fastenal has implemented cost-control measures, including slowing store openings to 2-5% and freezing non-essential headcount additions.
  • 5Inventories decreased by 7.4% year-over-year as of September 30, 2009, reflecting successful efforts to reduce inventory levels.
  • 6Gross profit margins declined slightly year-over-year due to deflationary pricing pressures and the reversal of prior year's inflation-related gains.
  • 7The company reported $139.8 million in net earnings for the nine months ended September 30, 2009, a decrease of 35.6% from $217.2 million in the prior year.

Frequently Asked Questions

The economic downturn has significantly impacted Fastenal's sales. For the nine months ended September 30, 2009, net sales decreased by 19.0% compared to the prior year, and the third quarter saw a 21.7% decline. This was primarily due to reduced sales in the manufacturing (industrial production) and non-residential construction sectors, which are highly sensitive to economic conditions.

Fastenal is implementing several cost-management strategies. These include slowing the rate of new store openings to 2-5% for 2009, freezing headcount additions except for essential roles like store openings or growing locations, and stringently managing operating and administrative expenses. They are also focusing on reducing inventory levels and adjusting product ordering patterns to match current sales trends.

Despite the decline in net earnings, Fastenal's cash flow from operating activities has increased significantly. For the first nine months of 2009, it rose to $253.2 million from $173.7 million in the prior year. This stronger cash generation, coupled with reduced capital expenditures, has allowed the company to increase its dividend payments to shareholders in 2009 and maintain a strong balance sheet.

Management expresses 'practical optimism' but acknowledges the continued impact of the weakened economy. While there were sequential improvements in daily sales to manufacturing customers from May 2009, this was offset by continued weakness in construction. Gross margins have also faced pressure from deflationary product costs and reduced vendor allowances. The company anticipates stabilizing store headcount and resuming normal store openings in 2010, contingent on economic stability.