10-QPeriod: Q2 FY2016

FASTENAL CO Quarterly Report for Q2 Ended Jun 30, 2016

Filed July 15, 2016For Securities:FAST

Summary

Fastenal Company reported its financial results for the six months ended June 30, 2016, reflecting a period of mixed performance. While net sales saw a modest increase of 2.6% year-over-year to $2,000,967 thousand for the six months, profitability experienced a decline. Net earnings for the period were $257,748 thousand, a decrease from $267,963 thousand in the prior year, leading to a slight dip in both basic and diluted earnings per share. This performance was impacted by a decrease in gross profit margin and an increase in operating and administrative expenses as a percentage of net sales. The company highlighted ongoing investments in growth drivers, including expanding its industrial vending machine footprint and employee headcount, particularly in support roles. However, sales trends indicated weakness in key end markets, specifically manufacturing and non-residential construction, with a notable increase in contracting sales within its top 100 customers during the second quarter. Despite these headwinds, Fastenal continues to focus on its customer service model and strategic initiatives like the CSP 16 format to enhance operational efficiency and product availability.

Financial Highlights

51 data points
Beta

Revenue

$1.01B

49.5% Gross Margin

Net Income

$131.50M

13.0% Net Margin

EPS (Diluted)

$0.11

Total Assets

$2.70B

Cash & Equivalents

$155.40M

Free Cash Flow

$28.00M

Financial Statements
Beta
Revenue$1.01B
Cost of Revenue$512.70M
Gross Profit$501.60M
SG&A Expenses$292.60M
Operating Income$209.20M
Interest Expense$1.50M
Net Income$131.50M
EPS (Basic)$0.12
EPS (Diluted)$0.11
Shares Outstanding (Basic)1.16B
Shares Outstanding (Diluted)1.16B

Key Highlights

  • 1Net sales for the first six months of 2016 increased by 2.6% to $2,000,967 thousand, compared to $1,951,144 thousand in the same period of 2015.
  • 2Net earnings for the six months ended June 30, 2016, decreased to $257,748 thousand from $267,963 thousand in the prior year.
  • 3Diluted earnings per share for the six months decreased to $0.89 from $0.91 in the prior year.
  • 4Gross profit margin declined from 50.5% in the first six months of 2015 to 49.6% in the same period of 2016, primarily due to changes in product and customer mix.
  • 5Operating and administrative expenses increased as a percentage of net sales, rising from 28.6% in the first six months of 2015 to 29.1% in 2016.
  • 6The company's industrial vending machine installations increased by 15.3% to 58,346 devices by June 30, 2016.
  • 7Sales to manufacturing customers saw only a 0.7% growth in the first six months of 2016, while non-residential construction sales contracted by 0.4%.

Frequently Asked Questions

For the first six months of 2016, Fastenal reported a modest increase in net sales, rising 2.6% to $2,000,967 thousand. However, net earnings declined to $257,748 thousand from $267,963 thousand in the same period of 2015, leading to a decrease in diluted earnings per share from $0.91 to $0.89.

Fastenal's gross profit margin decreased from 50.5% to 49.6% in the first six months of 2016 compared to the prior year. This decline was primarily attributed to changes in product mix (a shift away from higher-margin fasteners) and customer mix (growth in larger accounts which typically have lower margins), as well as some price deflation in fastener products.

Fastenal continues to invest in growth drivers such as expanding its industrial vending machine installations, which increased by 15.3% to 58,346 devices. However, key end markets like manufacturing and non-residential construction are showing signs of weakness. In the second quarter of 2016, the ratio of growing versus contracting sales to its top 100 customers shifted to 47% growing and 53% contracting, indicating a challenging economic environment impacting these sectors.

Fastenal's board of directors declared a quarterly dividend of $0.30 per share. The company had previously been active in share repurchases but did not purchase any shares in the second quarter of 2016, though it retained authority to purchase up to 1,300,000 additional shares. Capital expenditures for the first half of 2016 were $86 million, and the company expects approximately $200 million for the full year.