10-QPeriod: Q3 FY2016

FASTENAL CO Quarterly Report for Q3 Ended Sep 30, 2016

Filed October 14, 2016For Securities:FAST

Summary

Fastenal Company's (FAST) third-quarter 2016 report indicates a modest increase in net sales, up 1.8% year-over-year to $1.013 billion for the three months ended September 30, 2016. For the nine-month period, net sales grew 2.3% to $3.014 billion. While sales showed some growth, the company experienced a decline in gross profit margin to 49.3% in the third quarter, down from 50.5% in the prior year, attributed to shifts in product and customer mix favoring lower-margin non-fastener products and larger accounts. Operating and administrative expenses as a percentage of net sales also increased slightly, impacting operating income, which saw a decrease for both the quarter and the nine-month period. The company continues to invest in growth drivers such as industrial vending machines, with an installed device count of 60,400, and its Onsite business. However, headcount reductions in stores and overall have been implemented due to a softer North American industrial economy, particularly impacting manufacturing and construction markets. Despite these headwinds, Fastenal maintained a strong balance sheet and generated solid operating cash flow, demonstrating resilience in its business model.

Financial Highlights

51 data points
Beta

Revenue

$1.01B

49.3% Gross Margin

Net Income

$126.90M

12.5% Net Margin

EPS (Diluted)

$0.11

Total Assets

$2.73B

Cash & Equivalents

$147.00M

Free Cash Flow

$60.10M

Financial Statements
Beta
Revenue$1.01B
Cost of Revenue$513.30M
Gross Profit$499.80M
SG&A Expenses$297.10M
Operating Income$202.90M
Interest Expense$1.80M
Net Income$126.90M
EPS (Basic)$0.11
EPS (Diluted)$0.11
Shares Outstanding (Basic)1.16B
Shares Outstanding (Diluted)1.16B

Key Highlights

  • 1Net sales for Q3 2016 increased by 1.8% to $1.013 billion, and for the nine months ended September 30, 2016, increased by 2.3% to $3.014 billion.
  • 2Gross profit margin decreased to 49.3% in Q3 2016 from 50.5% in Q3 2015, primarily due to unfavorable changes in product and customer mix.
  • 3Operating income for Q3 2016 declined to $203.0 million from $220.0 million in Q3 2015.
  • 4The company's industrial vending installed device count reached 60,400, an increase of 12.8% year-over-year.
  • 5Fastenal continued to invest in its Onsite business, with 100 locations operational by September 30, 2016.
  • 6Headcount was reduced by 430 in stores and 115 overall year-over-year due to a softer industrial economy.
  • 7Total assets grew to $2.73 billion as of September 30, 2016, compared to $2.53 billion as of December 31, 2015.
  • 8Long-term debt increased to $432.4 million from $303.0 million year-over-year, partly to fund capital expenditures and stock buybacks.

Frequently Asked Questions

Sales growth in the third quarter of 2016 was primarily driven by higher unit sales resulting from increased sales at existing store locations and, to a lesser extent, new store openings. The industrial vending initiative also stimulated faster growth with a subset of customers.

The decrease in gross profit margin to 49.3% in Q3 2016 was primarily attributed to changes in product and customer mix. The company is experiencing a shift towards lower-margin non-fastener products and an increase in sales to larger customers who generally receive better pricing. These factors are exerting pressure on the gross profit percentage.

Fastenal's industrial vending business continues to expand, with an installed device count of 60,400 as of September 30, 2016, representing a 12.8% increase year-over-year. While overall daily sales to customers with industrial vending grew 2.4% in Q3 2016, sales of fastener products contracted, while non-fastener product sales grew, indicating a positive trend in the product mix within the vending segment.

In response to the softer North American industrial economy, Fastenal has implemented headcount reductions, specifically 430 in stores and 115 overall year-over-year. While investments in growth initiatives like the Onsite business and industrial vending continue, management is scrutinizing staffing levels outside these core areas.