10-QPeriod: Q2 FY2010

FASTENAL CO Quarterly Report for Q2 Ended Jun 30, 2010

Filed July 23, 2010For Securities:FAST

Summary

Fastenal Company reported strong revenue and earnings growth for the second quarter and first half of 2010, indicating a significant recovery from the economic downturn experienced in 2009. Net sales increased by 20.3% in the second quarter and 13.2% for the first six months compared to the prior year, driven primarily by higher unit sales and a recovery in end markets, particularly manufacturing. Profitability also saw a substantial improvement, with net earnings rising significantly year-over-year. The company's "Pathway to Profit" initiative, focused on optimizing store operations and sales personnel, appears to be yielding positive results. Despite some lingering economic uncertainties and ongoing legal matters, Fastenal demonstrates a robust financial position with strong operating cash flow and a disciplined approach to working capital management. The company also continues to reward shareholders through dividend increases, signaling confidence in its future performance.

Financial Highlights

45 data points
Beta

Revenue

$571.18M

52.1% Gross Margin

Net Income

$69.17M

12.1% Net Margin

EPS (Diluted)

$0.06

Total Assets

$1.44B

Cash & Equivalents

$196.39M

Free Cash Flow

$16.43M

Financial Statements
Beta
Revenue$571.18M
Cost of Revenue$273.52M
Gross Profit$297.66M
SG&A Expenses$185.78M
Operating Income$111.84M
Net Income$69.17M
EPS (Basic)$0.06
EPS (Diluted)$0.06
Shares Outstanding (Basic)1.18B
Shares Outstanding (Diluted)1.18B

Key Highlights

  • 1Net sales increased by 20.3% in Q2 2010 and 13.2% for the six months ended June 30, 2010, compared to the prior year.
  • 2Net earnings for the six months ended June 30, 2010, were $125.2 million, a significant increase from $92.2 million in the same period of 2009.
  • 3The company experienced a strong rebound in manufacturing and construction end markets, with daily sales growth showing positive trends.
  • 4Operating income increased substantially in Q2 2010 to $111.8 million, up from $69.9 million in Q2 2009.
  • 5Fastenal declared a semi-annual dividend of $0.42 per share, a 13.5% increase over the prior year's second semi-annual dividend.
  • 6The company is actively managing its working capital, with accounts receivable increasing in line with sales growth and efforts to manage inventory levels.
  • 7Two significant legal matters are ongoing, one with a supplier and another with the DOJ regarding a GSA contract, with management believing the likelihood of material liability is remote for the supplier issue and an unfavorable resolution could result in payments for the GSA matter.

Frequently Asked Questions

Fastenal reported a strong financial performance for the period. Net sales increased significantly year-over-year for both the second quarter and the first six months of 2010. Profitability also improved substantially, with net earnings showing a robust increase compared to the prior year. The company's operating income saw a considerable rise, indicating effective cost management and sales growth.

After experiencing significant downturns in 2009 due to a weakened economy, Fastenal has seen a notable recovery in 2010. The company's sales to manufacturing and construction markets, which were heavily impacted, have shown positive growth. Fastenal attributes this recovery to moderating recessionary impacts, higher unit sales, and strengthened end-market demand. The company's 'Pathway to Profit' initiative also plays a role in managing operations through economic cycles.

Fastenal is involved in two notable legal matters. One is a lawsuit filed by a supplier alleging violation of an exclusive distribution arrangement, for which the company believes a material liability is remote. The second is an ongoing discussion with the Department of Justice regarding a past contract with the GSA, where the DOJ has proposed a settlement. While Fastenal believes it complied with its obligations, an unfavorable resolution could result in payments, though it is not expected to have a material adverse effect on the company's financial position.

Fastenal continues to prioritize shareholder returns. The company declared a semi-annual dividend of $0.42 per share, representing a 13.5% increase over the prior year's second semi-annual dividend. While the company had authorized share repurchases, no shares were purchased in the first half of 2010, suggesting a focus on organic growth and dividends during this period.