10-Q/APeriod: Q3 FY2017

FASTENAL CO Quarterly Report (Amendment) for Q3 Ended Sep 30, 2017

Filed October 23, 2017For Securities:FAST

Summary

Fastenal Company reported solid top-line growth for the third quarter of 2017, with net sales increasing by 11.8% year-over-year to $1,132.8 million. This growth was driven by improved market demand and the company's strategic growth initiatives, including an expansion in national account contracts, Onsite locations, and industrial vending machines. Diluted earnings per share also saw a healthy increase of 13.6% to $0.50. Despite slight pressure on gross profit margins due to a shift in product and customer mix, the company demonstrated improved operating income as a percentage of net sales, reflecting effective cost management. The company's balance sheet remains robust, with total assets growing to $2,901.6 million. Cash flow from operations was strong, providing $455.9 million for the nine-month period, supporting investments in growth and shareholder returns through dividends and share repurchases. Fastenal's strategic focus on customer service and expanding its distribution network, particularly through Onsite locations and vending solutions, positions it for continued growth in a recovering industrial and construction market.

Financial Highlights

51 data points
Beta

Revenue

$1.13B

49.1% Gross Margin

Net Income

$143.10M

12.6% Net Margin

EPS (Diluted)

$0.13

Total Assets

$2.90B

Cash & Equivalents

$133.40M

Free Cash Flow

$137.30M

Financial Statements
Beta
Revenue$1.13B
Cost of Revenue$576.90M
Gross Profit$555.90M
SG&A Expenses$327.50M
Operating Income$228.50M
Interest Expense$2.60M
Net Income$143.10M
EPS (Basic)$0.13
EPS (Diluted)$0.13
Shares Outstanding (Basic)1.15B
Shares Outstanding (Diluted)1.15B

Key Highlights

  • 1Net sales increased 11.8% to $1,132.8 million in Q3 2017 compared to Q3 2016, driven by higher unit sales and improved market demand.
  • 2Diluted EPS rose 13.6% to $0.50 in Q3 2017 from $0.44 in Q3 2016.
  • 3Operating income margin improved slightly to 20.2% in Q3 2017 from 20.0% in Q3 2016.
  • 4The company acquired Manufacturers Supply Company (Mansco) for $59.3 million, diversifying its market presence.
  • 5Investments in growth drivers are evident, with a 47.6% increase in active Onsite locations and a 14.3% increase in industrial vending machines year-over-year.
  • 6Net cash provided by operating activities increased to $455.9 million for the nine months ended September 30, 2017, up from $386.9 million in the prior year.
  • 7The company declared a quarterly dividend of $0.32 per share, reflecting a consistent commitment to shareholder returns.

Frequently Asked Questions

The primary driver of Fastenal's sales growth in Q3 2017 was an increase in unit sales, fueled by improved underlying market demand (indicated by a rising Purchasing Managers Index) and the success of the company's growth initiatives, such as increased national account contracts, Onsite locations, and industrial vending machines.

The acquisition of Mansco for $59.3 million in March 2017 contributed $40.4 million in net sales and $4.6 million in net earnings for the nine-month period ended September 30, 2017. It also added $18.4 million in goodwill and $20.1 million in identifiable intangible assets. The acquisition is expected to provide presence in new markets and synergies with existing operations, though it did have a slight dilutive effect on gross profit margins due to Mansco's product mix.

Fastenal views its Onsite locations and industrial vending machines as key growth drivers. The company reported significant growth in both areas, with active Onsite locations increasing by 47.6% and industrial vending machines by 14.3% year-over-year. Sales through vending machines continued to grow at a double-digit pace, indicating strong customer adoption and a positive outlook for these strategic investments.

Fastenal's operating and administrative expenses, as a percentage of net sales, improved in Q3 2017 compared to Q3 2016. This improvement was primarily due to relatively lower growth in occupancy-related and selling transportation expenses, despite an increase in employee-related expenses driven by headcount growth to support business expansion and the Mansco acquisition. The company is focused on achieving leverage through its operating expenses.