10-QPeriod: Q1 FY2019

FASTENAL CO Quarterly Report for Q1 Ended Mar 31, 2019

Filed April 16, 2019For Securities:FAST

Summary

Fastenal Company (FAST) reported its first quarter 2019 results, showing a 10.4% increase in net sales to $1,309.3 million compared to the prior year quarter. This growth was driven by higher unit sales, supported by healthy industrial activity and the company's strategic growth initiatives, including the expansion of industrial vending devices and Onsite locations. Despite increased sales, gross profit margin slightly decreased to 47.7% from 48.7% due to a shift in product and customer mix, lagging price increases behind rising product and transportation costs, and impacts from inventory management. Net earnings rose by 11.4% to $194.1 million, resulting in diluted earnings per share (EPS) of $0.68, up from $0.61 in the first quarter of 2018. The company also saw an improvement in operating income as a percentage of net sales, reaching 20.0% compared to 19.8% in the prior year. Cash flow from operations remained strong, increasing to $204.9 million, reflecting improved earnings and more efficient working capital management. The company reiterated its commitment to growth initiatives and managed its capital expenditures, anticipating between $195.0 to $225.0 for the full year 2019.

Financial Highlights

51 data points
Beta

Revenue

$1.31B

47.7% Gross Margin

Net Income

$194.10M

14.8% Net Margin

EPS (Diluted)

$0.17

Total Assets

$3.65B

Cash & Equivalents

$185.40M

Free Cash Flow

$150.50M

Financial Statements
Beta
Revenue$1.31B
Cost of Revenue$684.60M
Gross Profit$624.70M
SG&A Expenses$363.60M
Operating Income$261.40M
Interest Expense$4.00M
Net Income$194.10M
EPS (Basic)$0.17
EPS (Diluted)$0.17
Shares Outstanding (Basic)1.14B
Shares Outstanding (Diluted)1.15B

Key Highlights

  • 1Net sales increased by 10.4% to $1,309.3 million for Q1 2019.
  • 2Diluted EPS grew to $0.68 from $0.61 in Q1 2018, a 11.5% increase.
  • 3Gross profit margin declined slightly to 47.7% from 48.7% due to product/customer mix and cost pressures.
  • 4Operating income margin improved to 20.0% from 19.8%.
  • 5Net cash provided by operating activities increased significantly to $204.9 million from $159.7 million.
  • 6The company is investing in growth drivers, adding 945 active Onsite locations and installing 83,410 industrial vending devices.
  • 7Adopted new lease accounting standard (ASC 842) effective January 1, 2019, recognizing ROU assets and lease liabilities without material impact on earnings.
  • 8Full-year 2019 capital expenditure guidance is projected between $195.0 million to $225.0 million.

Frequently Asked Questions

Net sales increased by 10.4% to $1,309.3 million, primarily driven by higher unit sales resulting from continued strength in underlying market demand (as indicated by the Purchasing Managers Index) and successful execution of Fastenal's growth initiatives, such as the expansion of industrial vending devices and Onsite locations. Pricing actions to mitigate inflation and tariffs also contributed.

The gross profit margin declined to 47.7% from 48.7%. This was attributed to several factors: a shift towards selling more non-fastener products which generally have lower margins, faster growth in sales to larger customers who receive better pricing, price increases lagging behind rising product and transportation costs, and a reduction in net rebates as the company worked through inventory previously accelerated due to tariffs.

Fastenal adopted ASC 842, Leases, on January 1, 2019. This resulted in the recognition of operating lease right-of-use (ROU) assets ($220.9 million) and lease liabilities ($222.2 million on the balance sheet as of March 31, 2019). The company elected to not restate comparative periods. The adoption had an immaterial impact on the Condensed Consolidated Statement of Earnings and Condensed Consolidated Statement of Cash Flows for the first quarter of 2019.

Fastenal anticipates net capital expenditures for the full year 2019 to be in the range of $195.0 million to $225.0 million. This represents an increase from 2018, primarily driven by higher spending on property and equipment to expand hub capacity, vending devices, and hub vehicles. Investments in hub capacity are expected to be the main determinant of the final expenditure within this range.