10-QPeriod: Q3 FY2013

FASTENAL CO Quarterly Report for Q3 Ended Sep 30, 2013

Filed October 15, 2013For Securities:FAST

Summary

Fastenal Company (FAST) reported a solid third quarter of 2013, demonstrating consistent top-line growth and an improvement in profitability metrics compared to the prior year. Net sales increased by 7.0% for the quarter and 5.7% for the nine-month period, driven primarily by higher unit sales, indicating underlying demand for its industrial and construction supplies. The company's strategic initiatives, particularly the FAST SolutionsSM (industrial vending) program, continue to be a significant growth driver, showing strong daily sales growth among customers utilizing these services. Profitability also saw positive momentum, with operating income increasing to 22.1% of net sales for the nine-month period and 22.0% for the quarter, up from 21.7% in the prior year's comparable periods. This improvement is attributed to better gross margins, partly driven by effective pricing by store personnel and a favorable shift in product mix towards higher-margin non-fastener products. Management appears confident in its 'pathway to profit' strategy, focusing on investing in and supporting its store-based sales force and expanding its FAST SolutionsSM offering.

Financial Highlights

48 data points
Beta

Revenue

$858.42M

51.7% Gross Margin

Net Income

$119.35M

13.9% Net Margin

EPS (Diluted)

$0.10

Total Assets

$2.06B

Cash & Equivalents

$92.19M

Free Cash Flow

$48.41M

Financial Statements
Beta
Revenue$858.42M
Cost of Revenue$415.03M
Gross Profit$443.39M
SG&A Expenses$254.96M
Operating Income$188.55M
Interest Expense$25K
Net Income$119.35M
EPS (Basic)$0.10
EPS (Diluted)$0.10
Shares Outstanding (Basic)1.19B
Shares Outstanding (Diluted)1.19B

Key Highlights

  • 1Net sales increased by 7.0% to $858.4 million for the third quarter of 2013 compared to the prior year, and by 5.7% to $2.51 billion for the nine months ended September 30, 2013.
  • 2Gross profit margin improved to 51.7% for the quarter and 52.1% for the nine months, up from 51.6% and 51.5% respectively in the prior year periods.
  • 3Operating income as a percentage of net sales increased to 22.0% for the quarter and 22.1% for the nine months, reflecting improved profitability.
  • 4The FAST SolutionsSM (industrial vending) program continues to be a key growth driver, with daily sales growth to customers using vending machines at 15.2% in Q3 2013.
  • 5Inventories increased by 11.9% year-over-year to $756 million, while accounts receivable grew by 10.4% to $453.7 million, both contributing to an 11.3% increase in operational working capital.
  • 6The company returned significant cash to shareholders through dividends, paying $0.80 per share for the nine-month period, and also repurchased 200,000 shares of common stock.
  • 7Same-store sales growth, particularly for stores open more than five and ten years, showed deceleration, with growth rates of 2.8% and 1.5% respectively for the nine-month period, indicating some cyclicality and economic sensitivity.

Frequently Asked Questions

Fastenal reported a 7.0% increase in net sales for the third quarter of 2013, reaching $858.4 million, and a 5.7% increase for the first nine months to $2.51 billion. The company also demonstrated improved profitability, with gross profit margins and operating income as a percentage of sales showing year-over-year gains. This suggests a healthy operational performance driven by sales growth and effective cost management.

The FAST SolutionsSM program continues to be a strong performer and growth driver. Customers utilizing these vending solutions showed a daily sales growth of 15.2% in Q3 2013. The company is aggressively investing in this area and has signed over 15,000 machines in the first nine months of 2013, indicating strong adoption and future revenue potential.

Sales growth is primarily driven by higher unit sales. This is supported by the company's strategy of investing in its local store network and sales force, as well as the expansion of its FAST SolutionsSM initiative, which stimulates faster growth with a specific customer segment. Growth at older store locations, particularly those open for more than two years, remains a key indicator of sustained demand.

Fastenal's operational working capital, defined as accounts receivable and inventories, increased by 11.3% year-over-year. While sales growth is a primary driver for accounts receivable, the company notes that managing its growth has been challenging due to the increasing contribution of international business and large customer accounts. Inventory levels have also increased, influenced by factors such as new store openings, expanded stocking breadth, direct sourcing, exclusive brands, and the growth of industrial vending solutions.