10-QPeriod: Q2 FY2020

FASTENAL CO Quarterly Report for Q2 Ended Jun 30, 2020

Filed July 17, 2020For Securities:FAST

Summary

Fastenal Company (FAST) reported a solid performance in its second quarter ending June 30, 2020, navigating the unprecedented challenges of the COVID-19 pandemic. Despite significant disruptions to traditional manufacturing and construction customers, the company experienced an overall net sales increase of 10.3% year-over-year to $1.51 billion for the quarter, driven by a surge in demand for personal protective equipment (PPE) and sanitation products. This surge helped offset declines in core business segments and contributed to a 16.7% increase in net earnings to $238.9 million, with diluted EPS rising to $0.42 from $0.36 in the prior year. While the company saw positive top-line and bottom-line growth, it also experienced a decline in gross profit margin to 44.5% from 46.9%, attributed to the shift in product mix towards lower-margin safety products and purchasing from non-traditional, less optimized supply chains for pandemic-related items. However, operating income as a percentage of net sales improved due to effective management of operating and administrative expenses. The company also demonstrated strong operating cash flow, bolstered by tax deferrals under the CARES Act, and maintained a healthy liquidity position with substantial availability under its revolving credit facility.

Financial Highlights

52 data points
Beta

Revenue

$1.51B

44.5% Gross Margin

Net Income

$238.90M

15.8% Net Margin

EPS (Diluted)

$0.21

Total Assets

$4.09B

Cash & Equivalents

$201.50M

Free Cash Flow

$209.50M

Financial Statements
Beta
Revenue$1.51B
Cost of Revenue$837.40M
Gross Profit$671.60M
SG&A Expenses$355.60M
Operating Income$316.00M
Interest Expense$2.40M
Net Income$238.90M
EPS (Basic)$0.21
EPS (Diluted)$0.21
Shares Outstanding (Basic)1.15B
Shares Outstanding (Diluted)1.15B

Key Highlights

  • 1Net sales increased by 10.3% to $1,509.0 million in Q2 2020 compared to Q2 2019, largely driven by high demand for PPE and sanitation products.
  • 2Net earnings grew by 16.7% to $238.9 million in Q2 2020, resulting in diluted EPS of $0.42, up from $0.36 in Q2 2019.
  • 3Gross profit margin declined to 44.5% in Q2 2020 from 46.9% in Q2 2019, impacted by a shift towards lower-margin safety products and elevated costs for pandemic-related supplies.
  • 4Operating income margin improved to 20.9% in Q2 2020 from 20.1% in Q2 2019, reflecting strong control over operating and administrative expenses.
  • 5Net cash provided by operating activities significantly increased to $491.8 million for the six months ended June 30, 2020, partly due to $111.5 million in deferred tax payments under the CARES Act.
  • 6The company acquired Apex Industrial Technologies LLC's assets for $125.0 million in March 2020 to enhance its industrial vending platform.
  • 7The company continues to manage its employee headcount, with a reduction in total headcount by 7.0% year-over-year, as it adapts to changing business conditions.

Frequently Asked Questions

The COVID-19 pandemic had a dual impact. It significantly boosted sales of PPE and sanitation products due to "surge" orders from governments and businesses, which more than offset a decline in demand from traditional manufacturing and construction customers. This surge drove overall net sales up 10.3% in Q2 2020. However, the shift in product mix towards lower-margin safety items and the reliance on less optimized supply chains for these products led to a decrease in gross profit margin to 44.5% from 46.9%.

Fastenal acknowledges significant uncertainty regarding the duration and scope of the pandemic's impact. While certain segments experienced favorable impacts (like PPE sales), these may not recur. The company is focused on managing costs, maintaining liquidity, and adapting its operations. It previously withdrew its guidance for 2020 signings of vending devices and Onsite locations due to this uncertainty and has not reestablished guidance, expecting recovery but with an uncertain timeline.

The company has actively managed its operational footprint, including a reduction in total employee headcount by 7.0% year-over-year. They also implemented a net reduction in public branch locations while increasing active Onsite locations. Operating and administrative expenses as a percentage of net sales improved, demonstrating effective cost control and operational leverage despite sales fluctuations. They are also limiting discretionary spending and capital investments.

In March 2020, Fastenal acquired certain assets of Apex Industrial Technologies LLC for $125.0 million. This acquisition was accounted for as an asset acquisition and is intended to enhance the development, design, and scalability of its industrial vending platform by providing perpetual use of key patents, designs, software, licenses, and direct access to the vending equipment supply chain.