10-QPeriod: Q1 FY2020

FASTENAL CO Quarterly Report for Q1 Ended Mar 31, 2020

Filed April 17, 2020For Securities:FAST

Summary

Fastenal Company (FAST) reported a 4.4% increase in net sales for the first quarter of 2020, reaching $1,367.0 million compared to $1,309.3 million in the prior year. This growth was primarily driven by market share gains from its "growth drivers," specifically industrial vending and Onsite locations, along with increased sales of safety products late in the quarter attributed to the COVID-19 pandemic. Despite the sales increase, gross profit margin declined by 110 basis points to 46.6% due to a shift in product mix towards lower-margin safety supplies and faster growth in larger, national accounts with better pricing terms. The company acknowledged the significant disruption caused by the COVID-19 pandemic, impacting operations late in the quarter and leading to a slowdown in daily sales growth in March. Management is implementing cost-reduction measures and closely monitoring the situation, though the full extent of the pandemic's impact remains uncertain. Net earnings rose by 4.4% to $202.6 million, and diluted EPS increased by 4.0% to $0.35, demonstrating resilience in a challenging economic environment.

Financial Highlights

51 data points
Beta

Revenue

$1.37B

46.6% Gross Margin

Net Income

$202.60M

14.8% Net Margin

EPS (Diluted)

$0.17

Total Assets

$3.93B

Cash & Equivalents

$160.70M

Free Cash Flow

$192.30M

Financial Statements
Beta
Revenue$1.37B
Cost of Revenue$730.20M
Gross Profit$636.80M
SG&A Expenses$365.50M
Operating Income$271.30M
Interest Expense$2.20M
Net Income$202.60M
EPS (Basic)$0.17
EPS (Diluted)$0.17
Shares Outstanding (Basic)1.15B
Shares Outstanding (Diluted)1.15B

Key Highlights

  • 1Net sales increased by 4.4% to $1,367.0 million for Q1 2020, driven by growth initiatives and increased demand for safety products.
  • 2Gross profit margin decreased by 110 basis points to 46.6%, attributed to unfavorable product and customer mix shifts.
  • 3Net earnings increased by 4.4% to $202.6 million, with diluted EPS rising to $0.35 from $0.34 in the prior year.
  • 4The company experienced a significant impact from the COVID-19 pandemic late in the quarter, leading to a slowdown in sales growth in March.
  • 5Industrial vending devices installed increased by 10.4% year-over-year, and active Onsite locations grew by 24.8%.
  • 6Net cash provided by operating activities increased to $241.1 million, up from $204.9 million in Q1 2019, aided by better working capital management.
  • 7The company made a strategic acquisition of assets from Apex Industrial Technologies LLC for $125.0 million to enhance its industrial vending platform.

Frequently Asked Questions

The COVID-19 pandemic began impacting Fastenal's operations late in the first quarter of 2020. While the company's facilities continued to operate, public access to branches was restricted, and many Onsite locations operated at a diminished capacity, negatively impacting sales at the end of the quarter. The pandemic also caused a shift in product mix towards lower-margin safety products, affecting gross margins. Management is taking actions to reduce costs and preserve liquidity in response to the ongoing uncertainty.

Net sales increased by 4.4% driven by gains in market share through Fastenal's "growth drivers," specifically its industrial vending and Onsite locations. Increased demand for safety products towards the end of the quarter also contributed. Additionally, some incremental product pricing actions to mitigate inflation and tariffs helped offset weaker end-market demand.

The gross profit margin declined by 110 basis points to 46.6% primarily due to two factors: a shift in product mix away from higher-margin fasteners towards lower-margin safety supplies, and faster sales growth from larger national accounts which typically have better pricing terms. The success of vending and Onsite initiatives, which can lead to product mix shifts, also contributed.

On March 30, 2020, Fastenal acquired certain assets from Apex Industrial Technologies LLC for $125.0 million. This acquisition primarily involved intangible assets related to the development, design, and scalability of the company's industrial vending delivery platform, aimed at enhancing its vending business by securing key patents, designs, software, and direct access to the vending equipment supply chain.