Fastenal Company (Nasdaq:FAST), a leader in the wholesale
distribution of industrial and construction supplies, today
announced its financial results for the quarter ended June 30,
2018. Except for share and per share information, or as otherwise
noted below, dollar amounts are stated in millions. Throughout this
document, percentage and dollar calculations, which are based on
non-rounded dollar values, may not be able to be recalculated using
the dollar values included in this document due to the rounding of
those dollar values.
PERFORMANCE SUMMARY
|
Six-month Period |
|
Three-month Period |
|
2018 |
|
2017 |
|
Change |
|
2018 |
|
2017 |
|
Change |
Net sales |
$ |
2,453.7 |
|
|
2,169.2 |
|
|
13.1 |
% |
|
$ |
1,267.9 |
|
|
1,121.5 |
|
|
13.1 |
% |
Business
days |
128 |
|
|
128 |
|
|
|
|
64 |
|
|
64 |
|
|
|
Daily
sales |
$ |
19.2 |
|
|
16.9 |
|
|
13.1 |
% |
|
$ |
19.8 |
|
|
17.5 |
|
|
13.1 |
% |
Gross profit |
$ |
1,195.3 |
|
|
1,076.5 |
|
|
11.0 |
% |
|
$ |
617.7 |
|
|
558.5 |
|
|
10.6 |
% |
%
of sales |
48.7 |
% |
|
49.6 |
% |
|
|
|
48.7 |
% |
|
49.8 |
% |
|
|
Operating income |
$ |
503.5 |
|
|
450.0 |
|
|
11.9 |
% |
|
$ |
269.0 |
|
|
237.5 |
|
|
13.3 |
% |
%
of sales |
20.5 |
% |
|
20.7 |
% |
|
|
|
21.2 |
% |
|
21.2 |
% |
|
|
Earnings before income
taxes |
$ |
497.8 |
|
|
446.3 |
|
|
11.6 |
% |
|
$ |
265.9 |
|
|
235.4 |
|
|
13.0 |
% |
%
of sales |
20.3 |
% |
|
20.6 |
% |
|
|
|
21.0 |
% |
|
21.0 |
% |
|
|
Net earnings |
$ |
385.5 |
|
|
283.1 |
|
|
36.2 |
% |
|
$ |
211.2 |
|
|
148.9 |
|
|
41.9 |
% |
Diluted net earnings
per share |
$ |
1.34 |
|
|
0.98 |
|
|
36.9 |
% |
|
$ |
0.74 |
|
|
0.52 |
|
|
42.6 |
% |
Quarterly Results of Operations
Net sales increased $146.4, or 13.1%, from the second quarter of
2017 to the second quarter of 2018. This increase was driven by
higher unit sales related primarily to continued strength in
underlying market demand and contribution from our growth drivers,
most notably industrial vending and Onsite locations. A lesser
contributor to our sales growth in the second quarter of 2018 was
higher pricing instituted at the end of the fourth quarter of 2017
to mitigate inflation in the marketplace. Fastener products
represented 35.4% of sales in the second quarter of 2018. Daily
sales of fastener products grew 11.1%. Our sales of non-fastener
products represented 64.6% of sales in the second quarter of 2018
and grew 14.8% on a daily basis.
Our gross profit, as a percentage of net sales, declined 110
basis points to 48.7% in the second quarter of 2018 from 49.8% in
the second quarter of 2017. We instituted a modest price increase
in the second quarter of 2017 ahead of inflationary pressures that
we were seeing in our supply chain, which produced an unseasonably
strong gross profit margin in the three-month period. As inflation
in the marketplace began to move through our income statement, it
began to reduce the gross profit margin benefit we saw in the
second quarter of 2017. Additional components that adversely
affected our gross profit percentage during the second quarter of
2018 included higher freight expenses and changes in product and
customer mix. Relative to the first quarter of 2018, our second
quarter of 2018 gross profit percentage was flat. Challenges
from product inflation and mix were offset by improvements in our
freight management and leverage related to growth.
Our operating income, as a percentage of net sales, was 21.2% in
both the second quarter of 2018 and the second quarter of
2017. Our operating and administrative expenses (including a
gain on sales of property and equipment), as a percentage of net
sales, improved to 27.5% in the second quarter of 2018 compared to
28.6% in the second quarter of 2017. The primary reason for this
improvement was our ability to leverage employee-related,
occupancy-related, and general corporate expenses.
Employee-related expenses, which represent 65% to 70% of
operating and administrative expenses, increased 10.0% in the
second quarter of 2018 when compared to the second quarter of 2017.
The increase in employee-related expenses was mainly related to:
(1) an increase in our full-time equivalent ('FTE') headcount, (2)
inflation in base wages, and (3) higher bonuses and commissions due
to growth in net sales and net earnings. Occupancy-related
expenses, which represent 15% to 20% of operating and
administrative expenses, increased 3.0%. This was primarily due to
an increase in expenses related to industrial vending equipment
which was only partly offset by lower occupancy expenses related to
a reduction in our public branch count. Selling transportation
expenses, which represent approximately 5% of operating and
administrative expenses, increased 17.6% due to: (1) higher average
fuel prices and consumption during the period, and (2) timing
associated with vehicle sales.
The table below summarizes our FTE headcount at the end of the
periods presented and the percentage change compared to the end of
the prior periods:
|
|
|
|
|
Change Since: |
|
|
|
Change Since: |
|
Q2 |
|
Q4 |
|
Q4 |
|
Q2 |
|
Q2 |
|
2018 |
|
2017 |
|
2017 |
|
2017 |
|
2017 |
In-market
locations |
12,214 |
|
|
11,549 |
|
|
5.8 |
% |
|
11,760 |
|
|
3.9 |
% |
Total |
18,444 |
|
|
17,519 |
|
|
5.3 |
% |
|
17,612 |
|
|
4.7 |
% |
Note - Full-time
equivalent is based on 40 hours per week. |
|
|
|
|
|
|
|
|
|
Our net interest expense was $3.1 in the second quarter of 2018
compared to $2.1 in the second quarter of 2017. This increase was
mainly caused by higher average interest rates and a slightly
higher average debt balance during the period.
We recorded income tax expense of $54.7 in the second quarter of
2018, or 20.6% of earnings before income taxes. This amount
reflects primarily two items: (1) The estimated impacts of the tax
legislation commonly referred to as the Tax Cuts and Jobs Act (the
'Tax Act') resulted in a lower tax rate beginning in the first
quarter of 2018, and (2) the estimated impact of a one-time benefit
of approximately $9.7 related to accelerating depreciation for
certain physical assets. We will continue to monitor and evaluate
guidance and clarifications from the Internal Revenue Service as it
relates to the Tax Act, and will refine these estimates as
necessary. Income tax expense was $86.5 in the second quarter of
2017, or 36.7% of earnings before income taxes.
Our net earnings during the second quarter of 2018 were $211.2,
an increase of 41.9% when compared to the second quarter of 2017.
Our diluted net earnings per share were $0.74 during the second
quarter of 2018 compared to $0.52 during the second quarter of
2017. We believe the combined effects of discrete tax items and the
lower tax rate resulting from the impact of the Tax Act benefited
our basic and diluted earnings per share by approximately $0.15 in
the second quarter of 2018.
Growth Driver Performance
We signed 5,537 industrial vending devices during the second
quarter of 2018, an increase of 13.4% compared to the second
quarter of 2017. Our installed device count on June 30, 2018 was
76,069, an increase of 14.3% over June 30, 2017. Sales through our
vending devices continued to grow at a pace over 20% in the second
quarter of 2018, due to the increase in the installed base, and to
a lesser degree, an increase in revenue per device. These amounts
do not include the devices deployed as part of our lease locker
program.
We signed 81 new Onsite locations (defined as dedicated sales
and service provided from within, or in close proximity to, the
customer's facility) during the second quarter of 2018 compared to
68 signings in the second quarter of 2017, an increase of 19.1%. We
had 761 active sites on June 30, 2018, which represented an
increase of 56.6% from June 30, 2017. Our 2018 goal for Onsite
signings remains in the range of 360 to 385.
We signed 43 new national account contracts (defined as new
customer accounts with a multi-site contract) in the second quarter
of 2018, and revenues attributable to national account customers
represented 50.7% of our total revenues in the period. Daily sales
to our national account customers grew 19.1% in the second quarter
of 2018 over the second quarter of 2017. Beyond signings (or growth
activities), our large customers can provide insights into the
trends of our overall marketplace. Demand began to improve in the
first quarter of 2017, and strengthened in the second quarter of
2017 when sales to 68 of our top 100 customers were growing. That
pattern has continued with sales to 72 of our top 100 customers
growing in the third and fourth quarters of 2017, and sales to 78
of our top 100 customers growing in the first quarter of 2018. In
the second quarter of 2018, sales to 80 of our top 100 customers
grew. Sales to our non-national account customers continued to grow
at a mid- to high-single digit rate in the second quarter of
2018.
Balance Sheet and Cash Flow
We produced operating cash flow of $311.6 in the first six
months of 2018, representing 80.8% of the period's net earnings
versus 103.6% in the first six months of 2017. The decline in our
operating cash flow as a percentage of net earnings largely
reflects working capital trends as further described below. We
invested $53.8 for property and equipment, net of proceeds from
sales, in the first six months of 2018 compared to $52.8 in the
first six months of 2017. Our strong vending demand has increased
our expected capital spending for 2018; we now expect our net
spending on property and equipment in 2018 to increase by $9.0 to
$158.0. Our new expected spend amount represents an increase of
$45.5, or 40.4% from 2017. We paid $212.7 in dividends during the
first six months of 2018, compared to $185.1 in the first six
months of 2017.
During the second quarter of 2018, we purchased 800,000 shares
of our common stock at an average price of approximately $50.51 per
share.
Total debt on our balance sheet was $425.0 at the end of the
second quarter of 2018, or 16.0% of total capital (the sum of
stockholders' equity and total debt). This compares to $445.0, or
18.3% of total capital, at the end of the second quarter of
2017.
Accounts receivable were $733.7 at the end of the second quarter
of 2018, an increase of $120.2, or 19.6%, over the second quarter
of 2017. This reflects accelerating growth in sales combined with
relatively stronger growth in the first half of 2018 of our
national accounts and our international business, each of which
tend to have longer payment terms than our business as a whole.
Growth in net accounts receivable in the period was also impacted
by the timing of these customers' payments. Inventories were
$1,163.4 at the end of the second quarter of 2018, an increase of
$119.1, or 11.4%, over the second quarter of 2017, primarily to
support healthy business activity and sales growth. Accounts
payable were $172.1 at the end of the second quarter of 2018, an
increase of $30.8, or 21.8%, from the second quarter of 2017,
driven by an increase in inventory demand due to sales growth.
Additional Information
The table below summarizes our in-market location employee count
and our total employee count at the end of the periods presented,
and changes in that count from the end of the prior periods to the
end of the most recent period. The final items below summarize our
cumulative investments in branch locations, Onsite locations, total
in-market locations, and industrial vending devices.
|
|
|
|
|
Change Since: |
|
|
|
Change Since: |
|
Q2 2018 |
|
Q4 2017 |
|
Q4 2017 |
|
Q2 2017 |
|
Q2 2017 |
End of period total
in-market locations (1) - employee count |
13,688 |
|
|
13,424 |
|
|
2.0 |
% |
|
13,335 |
|
|
2.6 |
% |
End of period total
employee count |
20,855 |
|
|
20,565 |
|
|
1.4 |
% |
|
20,174 |
|
|
3.4 |
% |
|
|
|
|
|
|
|
|
|
|
Number of public branch
locations |
2,290 |
|
|
2,383 |
|
|
-3.9 |
% |
|
2,451 |
|
|
-6.6 |
% |
Number of active Onsite
locations |
761 |
|
|
605 |
|
|
25.8 |
% |
|
486 |
|
|
56.6 |
% |
Number of in-market
locations (1) |
3,051 |
|
|
2,988 |
|
|
2.1 |
% |
|
2,937 |
|
|
3.9 |
% |
Industrial vending
devices (installed device count) (2) |
76,069 |
|
|
71,421 |
|
|
6.5 |
% |
|
66,577 |
|
|
14.3 |
% |
Ratio of
industrial vending devices to in-market locations |
25:1 |
|
|
24:1 |
|
|
|
|
|
23:1 |
|
|
|
(1) 'In-market locations' is defined as the sum of the total
number of public branch locations and the total number of active
Onsite locations.(2) This number represents devices which
principally dispense product and produce product revenues, and
excludes approximately 15,000 devices which are principally used
for the check-in/check-out of equipment.
During the last twelve months, we increased our absolute
employee headcount by 353 people in our in-market locations and 681
people in total. The increase is mostly a function of additions we
have made to support customer growth in the field as well as
investments in our growth drivers.
We opened five branches in the second quarter of 2018 and closed
43 branches. Additionally, one branch was converted from a public
branch to a non-public location. Our branch network forms the
foundation of our business strategy, and we will continue to open
or close branches as is deemed necessary to sustain and improve our
network and support our growth drivers.
CONFERENCE CALL TO DISCUSS QUARTERLY
RESULTS
As we previously disclosed, we will host a conference call today
to review the quarterly results, as well as current
operations. This conference call will be broadcast live over
the Internet at 9:00 a.m., central time. To access the
webcast, please go to the Fastenal Company Investor Relations
Website at http://investor.fastenal.com/events.cfm.
ADDITIONAL MONTHLY AND QUARTERLY
INFORMATION
We publish on the 'Investor Relations' page of our website at
www.fastenal.com both our monthly consolidated net sales
information and the presentation for our quarterly conference call
(which includes information, supplemental to that contained in our
earnings announcement, regarding results for the quarter). We
expect to publish the consolidated net sales information for each
month, other than the third month of a quarter, at 6:00 a.m.,
central time, on the fourth business day of the following month. We
expect to publish the consolidated net sales information for the
third month of each quarter and the conference call presentation
for each quarter at 6:00 a.m., central time, on the date our
earnings announcement for such quarter is publicly released.
FORWARD LOOKING STATEMENTS
Certain statements contained in this document do not relate
strictly to historical or current facts. As such, they are
considered 'forward-looking statements' that provide current
expectations or forecasts of future events. These forward-looking
statements are made pursuant to the safe harbor provisions of the
Private Securities Litigation Reform Act of 1995. Such statements
can be identified by the use of terminology such as anticipate,
believe, should, estimate, expect, intend, may, will, plan, goal,
project, hope, trend, target, opportunity, and similar words or
expressions, or by references to typical outcomes. Any statement
that is not a historical fact, including estimates, projections,
future trends, and the outcome of events that have not yet
occurred, is a forward-looking statement. Our forward-looking
statements generally relate to our expectations regarding the
business environment in which we operate, our projections of future
performance, our perceived marketplace opportunities, our
strategies, goals, mission, and vision, and our expectations about
future capital expenditures. You should understand that
forward-looking statements involve a variety of risks and
uncertainties, known and unknown, and may be affected by inaccurate
assumptions. Consequently, no forward-looking statement can be
guaranteed and actual results may vary materially. Factors that
could cause our actual results to differ from those discussed in
the forward-looking statements include, but are not limited to,
those detailed in our most recent annual and quarterly reports.
Each forward-looking statement speaks only as of the date on which
such statement is made, and we undertake no obligation to update
any such statement to reflect events or circumstances arising after
such date. FAST-E
FASTENAL COMPANY AND
SUBSIDIARIES |
Condensed Consolidated Balance Sheets |
(Amounts in millions except share information) |
|
|
|
|
|
|
|
(Unaudited) |
|
|
Assets |
|
June 30, 2018 |
|
December 31, 2017 |
Current
assets: |
|
|
|
|
Cash and cash equivalents |
|
$ |
135.5 |
|
|
116.9 |
|
Trade accounts receivable, net of allowance for doubtful
accounts of $11.4 and $11.9, respectively |
|
733.7 |
|
|
607.8 |
|
Inventories |
|
1,163.4 |
|
|
1,092.9 |
|
Other current assets |
|
108.1 |
|
|
118.1 |
|
Total current assets |
|
2,140.7 |
|
|
1,935.7 |
|
|
|
|
|
|
Property
and equipment, net |
|
880.1 |
|
|
893.6 |
|
Other assets |
|
79.3 |
|
|
81.2 |
|
|
|
|
|
|
Total assets |
|
$ |
3,100.1 |
|
|
2,910.5 |
|
|
|
|
|
|
Liabilities and Stockholders' Equity |
|
|
|
|
Current
liabilities: |
|
|
|
|
Current portion of debt |
|
$ |
2.5 |
|
|
3.0 |
|
Accounts payable |
|
172.1 |
|
|
147.5 |
|
Accrued expenses |
|
204.4 |
|
|
194.0 |
|
Income taxes payable |
|
2.0 |
|
|
6.5 |
|
Total current liabilities |
|
381.0 |
|
|
351.0 |
|
|
|
|
|
|
Long-term
debt |
|
422.5 |
|
|
412.0 |
|
Deferred income taxes |
|
70.0 |
|
|
50.6 |
|
|
|
|
|
|
Stockholders' equity: |
|
|
|
|
Preferred stock: $0.01 par value, 5,000,000 shares authorized,
no shares issued or outstanding |
|
— |
|
|
— |
|
Common stock: $0.01 par value, 400,000,000 shares authorized,
286,948,535 and 287,591,536 shares issued and outstanding,
respectively |
|
2.9 |
|
|
2.9 |
|
Additional paid-in capital |
|
0.4 |
|
|
8.5 |
|
Retained earnings |
|
2,259.2 |
|
|
2,110.6 |
|
Accumulated other comprehensive loss |
|
(35.9 |
) |
|
(25.1 |
) |
Total stockholders' equity |
|
2,226.6 |
|
|
2,096.9 |
|
|
|
|
|
|
Total liabilities and stockholders' equity |
|
$ |
3,100.1 |
|
|
2,910.5 |
|
FASTENAL COMPANY AND
SUBSIDIARIES |
Condensed Consolidated Statements of Earnings |
(Amounts in millions except earnings per share) |
|
|
|
|
|
|
|
|
|
(Unaudited) |
|
(Unaudited) |
|
Six Months Ended, |
|
Three Months Ended |
June 30 |
June 30, |
|
2018 |
|
2017 |
|
2018 |
|
2017 |
Net sales |
$ |
2,453.7 |
|
|
2,169.2 |
|
|
$ |
1,267.9 |
|
|
1,121.5 |
|
|
|
|
|
|
|
|
|
Cost of
sales |
1,258.4 |
|
|
1,092.7 |
|
|
650.2 |
|
|
563.0 |
|
Gross
profit |
1,195.3 |
|
|
1,076.5 |
|
|
617.7 |
|
|
558.5 |
|
|
|
|
|
|
|
|
|
Operating and
administrative expenses |
692.0 |
|
|
627.5 |
|
|
349.3 |
|
|
321.6 |
|
Gain on
sale of property and equipment |
(0.2 |
) |
|
(1.0 |
) |
|
(0.6 |
) |
|
(0.6 |
) |
Operating
income |
503.5 |
|
|
450.0 |
|
|
269.0 |
|
|
237.5 |
|
|
|
|
|
|
|
|
|
Interest income |
0.2 |
|
|
0.2 |
|
|
0.1 |
|
|
0.1 |
|
Interest
expense |
(5.9 |
) |
|
(3.9 |
) |
|
(3.2 |
) |
|
(2.2 |
) |
|
|
|
|
|
|
|
|
Earnings
before income taxes |
497.8 |
|
|
446.3 |
|
|
265.9 |
|
|
235.4 |
|
|
|
|
|
|
|
|
|
Income
tax expense |
112.3 |
|
|
163.2 |
|
|
54.7 |
|
|
86.5 |
|
|
|
|
|
|
|
|
|
Net earnings |
$ |
385.5 |
|
|
283.1 |
|
|
$ |
211.2 |
|
|
148.9 |
|
|
|
|
|
|
|
|
|
Basic net
earnings per share |
$ |
1.34 |
|
|
0.98 |
|
|
$ |
0.74 |
|
|
0.52 |
|
|
|
|
|
|
|
|
|
Diluted
net earnings per share |
$ |
1.34 |
|
|
0.98 |
|
|
$ |
0.74 |
|
|
0.52 |
|
|
|
|
|
|
|
|
|
Basic
weighted average shares outstanding |
287.4 |
|
|
288.9 |
|
|
287.1 |
|
|
288.7 |
|
|
|
|
|
|
|
|
|
Diluted
weighted average shares outstanding |
287.6 |
|
|
289.1 |
|
|
287.3 |
|
|
288.8 |
|
|
|
FASTENAL COMPANY AND SUBSIDIARIES |
Condensed Consolidated Statements of Cash Flows |
(Amounts in millions) |
|
|
(Unaudited) |
|
|
Six Months Ended |
June 30, |
|
|
2018 |
|
2017 |
|
|
|
|
|
Cash flows from
operating activities: |
|
|
|
|
Net
earnings |
|
$ |
385.5 |
|
|
283.1 |
|
Adjustments to reconcile net earnings to net cash provided by
operating activities, net of acquisition: |
|
|
|
|
Depreciation of property and equipment |
|
65.5 |
|
|
60.8 |
|
Gain on
sale of property and equipment |
|
(0.2 |
) |
|
(1.0 |
) |
Bad debt
expense |
|
2.7 |
|
|
4.0 |
|
Deferred
income taxes |
|
19.4 |
|
|
0.8 |
|
Stock-based compensation |
|
2.5 |
|
|
2.8 |
|
Amortization of intangible assets |
|
2.0 |
|
|
1.8 |
|
Changes
in operating assets and liabilities, net of acquisition: |
|
|
|
|
Trade
accounts receivable |
|
(132.0 |
) |
|
(108.0 |
) |
Inventories |
|
(75.0 |
) |
|
(32.1 |
) |
Other
current assets |
|
10.0 |
|
|
2.5 |
|
Accounts
payable |
|
24.6 |
|
|
30.0 |
|
Accrued
expenses |
|
10.4 |
|
|
24.0 |
|
Income
taxes |
|
(4.5 |
) |
|
24.8 |
|
Other |
|
0.7 |
|
|
(0.2 |
) |
Net cash provided by operating activities |
|
311.6 |
|
|
293.3 |
|
|
|
|
|
|
Cash flows from
investing activities: |
|
|
|
|
Purchases
of property and equipment |
|
(60.6 |
) |
|
(57.4 |
) |
Proceeds
from sale of property and equipment |
|
6.8 |
|
|
4.6 |
|
Cash paid
for acquisition |
|
— |
|
|
(58.7 |
) |
Other |
|
(0.1 |
) |
|
1.8 |
|
Net cash used in investing activities |
|
(53.9 |
) |
|
(109.7 |
) |
|
|
|
|
|
Cash flows from
financing activities: |
|
|
|
|
Proceeds
from debt obligations |
|
415.0 |
|
|
550.0 |
|
Payments
against debt obligations |
|
(405.0 |
) |
|
(495.0 |
) |
Proceeds
from exercise of stock options |
|
5.6 |
|
|
3.3 |
|
Purchases
of common stock |
|
(40.4 |
) |
|
(56.7 |
) |
Payments
of dividends |
|
(212.7 |
) |
|
(185.1 |
) |
Net cash used in financing activities |
|
(237.5 |
) |
|
(183.5 |
) |
|
|
|
|
|
Effect of exchange rate changes on cash and cash equivalents |
|
(1.6 |
) |
|
2.3 |
|
|
|
|
|
|
Net
increase in cash and cash equivalents |
|
18.6 |
|
|
2.4 |
|
|
|
|
|
|
Cash and
cash equivalents at beginning of period |
|
116.9 |
|
|
112.7 |
|
Cash and
cash equivalents at end of period |
|
$ |
135.5 |
|
|
115.1 |
|
|
|
|
|
|
Supplemental disclosure
of cash flow information: |
|
|
|
|
Cash paid
for interest |
|
$ |
5.9 |
|
|
3.5 |
|
Net cash paid for income taxes |
|
$ |
96.8 |
|
|
137.1 |
|
CONTACT: |
Ellen Stolts |
|
Financial Reporting
& Regulatory Compliance Manager |
|
507-313-7282 |
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