10-QPeriod: Q3 FY2012

FASTENAL CO Quarterly Report for Q3 Ended Sep 30, 2012

Filed October 18, 2012For Securities:FAST

Summary

Fastenal Company reported strong financial performance for the nine months and third quarter ended September 30, 2012. Net sales increased by 14.9% for the nine months and 10.4% for the quarter, indicating robust demand for its industrial and construction supplies. Net earnings also saw significant growth, reaching $321.8 million for the nine-month period and $109.3 million for the quarter, reflecting effective cost management and operational efficiency. The company's 'FAST Solutions' (industrial vending) initiative continues to be a key growth driver, showing substantial increases in machine installations and a growing percentage of total net sales from customers utilizing this technology. This strategic investment is proving effective in driving sales and customer engagement. Furthermore, Fastenal is focused on improving profitability through its 'pathway to profit' strategy, which aims to increase average store sales and optimize store mix.

Financial Highlights

48 data points
Beta

Revenue

$802.58M

51.6% Gross Margin

Net Income

$109.32M

13.6% Net Margin

EPS (Diluted)

$0.09

Total Assets

$1.92B

Cash & Equivalents

$195.60M

Free Cash Flow

$61.32M

Financial Statements
Beta
Revenue$802.58M
Cost of Revenue$388.20M
Gross Profit$414.38M
SG&A Expenses$238.81M
Operating Income$175.72M
Interest Expense$0
Net Income$109.32M
EPS (Basic)$0.09
EPS (Diluted)$0.09
Shares Outstanding (Basic)1.18B
Shares Outstanding (Diluted)1.19B

Key Highlights

  • 1Net sales increased by 14.9% year-over-year for the first nine months of 2012 ($2.38 billion) and 10.4% for the third quarter ($802.6 million).
  • 2Net earnings for the first nine months of 2012 were $321.8 million, a significant increase from $270.5 million in the prior year.
  • 3Diluted earnings per share (EPS) rose to $1.08 for the nine months and $0.37 for the quarter, up from $0.91 and $0.33 respectively in the prior year.
  • 4The FAST Solutions (industrial vending) initiative continues to expand, with cumulative machines installed reaching 17,013 by the end of Q3 2012, and sales to customers with vending machines representing 23.2% of total net sales.
  • 5Gross profit margin remained strong, hovering around 51.5% to 51.9% for the reported periods, indicating effective pricing and cost of goods sold management.
  • 6Operating and administrative expenses as a percentage of net sales improved, demonstrating operational leverage.
  • 7The company maintained a strong balance sheet with $1.92 billion in total assets and a healthy cash flow from operations of $289.1 million for the first nine months of 2012.

Frequently Asked Questions

Sales growth was primarily driven by higher unit sales across both existing and new store locations. The 'FAST Solutions' (industrial vending) initiative also played a significant role, stimulating faster growth and increasing sales to customers utilizing this technology. Growth in older store locations, particularly those opened more than five and ten years ago, also contributed, indicating strong performance in established markets.

Fastenal's gross profit margins remained in a healthy range, between 51.5% and 51.9% for the reported periods. Management considers a normal gross profit percentage range for the business to be between 51% and 53%. This is influenced by transactional gross profit, organizational gross profit (buying scale), and vendor incentive gross profit. Improvements in the current period were largely due to better transactional gross margins.

FAST Solutions refers to Fastenal's industrial vending machine offering. This initiative is a key growth driver, with a significant increase in machine installations and a growing percentage of total net sales coming from customers who use these vending solutions. Management views this as a transformative element for industrial distribution and is investing aggressively to capitalize on its 'first mover' advantage.

Operating and administrative expenses, as a percentage of net sales, improved in the reported periods. The two largest components are employee-related expenses (payroll, benefits, etc.) and occupancy-related expenses (rent, utilities, equipment). Increases in employee expenses were driven by headcount growth and increased sales commissions, while increases in occupancy expenses were significantly influenced by the expansion of the FAST Solutions equipment.