Fastenal Company Reports 2020 Third Quarter Earnings
Fastenal Company (NASDAQ: FAST) reported its Q3 2020 financial results, showing net sales of $1,413.3 million, a 2.5% increase compared to Q3 2019. Net earnings rose by 3.7% to $221.5 million, with a diluted EPS of $0.38. The company experienced a decline in gross profit margin to 45.3%, down from 47.2% year-over-year, primarily due to lower margins on COVID-related safety products. Operating income increased by 2.9% to $290.1 million. Despite challenges from a weak industrial marketplace, demand for safety products remained strong.
- Net sales increased by 2.5% YoY to $1,413.3 million in Q3 2020.
- Net earnings rose by 3.7% YoY to $221.5 million.
- Operating income improved by 2.9% to $290.1 million.
- Diluted EPS increased by 3.4% YoY to $0.38.
- Operating cash flow rose by 32.3% YoY to $780.8 million.
- Gross profit margin decreased by 190 basis points to 45.3% due to lower margins on COVID-related safety products.
- Daily sales of fastener products declined by 6.9% YoY, indicating weak demand in manufacturing and construction markets.
- Daily sales through vending devices declined at a low-to-mid single-digit pace YoY.
WINONA, Minn.--(BUSINESS WIRE)--Fastenal Company (Nasdaq:FAST), a leader in the wholesale distribution of industrial and construction supplies, today announced its financial results for the quarter ended September 30, 2020. Except for share and per share information, or as otherwise noted below, dollar amounts are stated in millions. Share and per share information in this release, and in the financial statements attached to this release, has been adjusted to reflect the two-for-one stock split effective at the close of business on May 22, 2019. 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
|
Nine-month Period |
|
Three-month Period |
|||||||||||||||||
|
2020 |
|
2019 |
|
Change |
|
2020 |
|
2019 |
|
Change |
|||||||||
Net sales |
$ |
4,289.3 |
|
|
4,056.8 |
|
|
5.7 |
% |
|
$ |
1,413.3 |
|
|
1,379.1 |
|
|
2.5 |
% |
|
Business days |
192 |
|
|
191 |
|
|
|
|
64 |
|
|
64 |
|
|
|
|||||
Daily sales |
$ |
22.3 |
|
|
21.2 |
|
|
5.2 |
% |
|
$ |
22.1 |
|
|
21.5 |
|
|
2.5 |
% |
|
Gross profit |
$ |
1,949.0 |
|
|
1,917.0 |
|
|
1.7 |
% |
|
$ |
640.6 |
|
|
651.1 |
|
|
-1.6 |
% |
|
% of sales |
45.4 |
% |
|
47.3 |
% |
|
|
|
45.3 |
% |
|
47.2 |
% |
|
|
|||||
Operating income |
$ |
877.4 |
|
|
818.3 |
|
|
7.2 |
% |
|
$ |
290.1 |
|
|
281.9 |
|
|
2.9 |
% |
|
% of sales |
20.5 |
% |
|
20.2 |
% |
|
|
|
20.5 |
% |
|
20.4 |
% |
|
|
|||||
Earnings before income taxes |
$ |
870.5 |
|
|
807.3 |
|
|
7.8 |
% |
|
$ |
287.6 |
|
|
278.4 |
|
|
3.3 |
% |
|
% of sales |
20.3 |
% |
|
19.9 |
% |
|
|
|
20.4 |
% |
|
20.2 |
% |
|
|
|||||
Net earnings |
$ |
663.0 |
|
|
612.2 |
|
|
8.3 |
% |
|
$ |
221.5 |
|
|
213.5 |
|
|
3.7 |
% |
|
Diluted net earnings per share |
$ |
1.15 |
|
|
1.07 |
|
|
8.0 |
% |
|
$ |
0.38 |
|
|
0.37 |
|
|
3.4 |
% |
Quarterly Results of Operations
Net sales increased
The tone of the third quarter of 2020 can best be described as one of normalization following the heavily pandemic-influenced second quarter of 2020. Activity levels throughout the period remained below those that existed prior to the onset of the pandemic and the related mitigation efforts. Based on trends in vending dispenses and hub picks during the period, however, we believe there was gradual sequential improvement in general business activity each month of the quarter. This was apparent not only in our sales trend, but also in improving signings and activity levels among our growth drivers. Our product trends are instructive. For instance, daily sales of fastener products declined
Our gross profit, as a percentage of net sales, declined 190 basis points to
Our operating income, as a percentage of net sales, increased to
Employee-related expenses, which represent
Our net interest expense was
We recorded income tax expense of
Our net earnings during the third quarter of 2020 were
Growth Driver Performance
During the first nine months of 2020, we signed 12,961 industrial vending devices, including 4,680 devices during the third quarter of 2020. On a business day basis, we signed 75 in the first quarter of 2020, 54 in the second quarter of 2020, and 73 in the third quarter of 2020. Our installed device count on September 30, 2020 was 94,395, an increase of
During the first nine months of 2020, we signed 187 new Onsite locations (defined as dedicated sales and service provided from within, or in close proximity to, the customer's facility). This included 85 signings in the first quarter of 2020, 40 signings in the second quarter of 2020, and 62 signings in the third quarter of 2020. We had 1,236 active sites on September 30, 2020, which represented an increase of
In April 2020, we retracted our 2020 signing goals for vending devices and Onsites based on a marketplace that had begun to weaken sharply and a customer environment that had begun to divert its energies to near-term challenges over strategic planning. In the case of both vending devices and Onsites, signings bottomed in April and have improved since, with signings higher for both vending devices and Onsites in the third quarter of 2020 than we achieved in the second quarter of 2020. Further, customers are beginning to re-engage in discussions involving our growth drivers. However, this improvement remains gradual and signings remain below our pre-pandemic level of expectations. We view the favorable long-term outlook for our growth drivers as unchanged relative to pre-pandemic levels. However, the timing of such normalization remains uncertain, and as a result we have not re-instituted guidance for vending and Onsite signings for 2020.
Daily sales to our national account customers (defined as customer accounts with a multi-site contract) grew
Balance Sheet and Cash Flow
We produced operating cash flow of
We returned
Total debt on our balance sheet was
Accounts receivable were
Additional Information
The table below summarizes our total and FTE (based on 40 hours per week) employee headcount, our investments in in-market locations (defined as the sum of the total number of public branch locations and the total number of active Onsite locations), and industrial vending devices at the end of the periods presented and the percentage change compared to the end of the prior periods.
|
|
|
|
|
Change |
|
|
|
Change |
|
|
|
Change |
||||
|
|
|
|
Since: |
|
|
|
Since: |
|
|
|
Since: |
|||||
|
Q3 |
|
Q2 |
|
Q2 |
|
Q4 |
|
Q4 |
|
Q3 |
|
Q3 |
||||
2020 |
|
2020 |
|
2020 |
|
2019 |
|
2019 |
|
2019 |
|
2019 |
|||||
In-market locations - absolute employee headcount |
12,708 |
|
12,982 |
|
-2.1 |
% |
|
13,977 |
|
-9.1 |
% |
|
14,128 |
|
-10.1 |
% |
|
In-market locations - FTE employee headcount |
11,302 |
|
11,310 |
|
-0.1 |
% |
|
12,236 |
|
-7.6 |
% |
|
12,417 |
|
-9.0 |
% |
|
Total absolute employee headcount |
20,336 |
|
20,667 |
|
-1.6 |
% |
|
21,948 |
|
-7.3 |
% |
|
21,938 |
|
-7.3 |
% |
|
Total FTE employee headcount |
17,862 |
|
17,814 |
|
0.3 |
% |
|
18,968 |
|
-5.8 |
% |
|
19,060 |
|
-6.3 |
% |
|
|
|
|
|
|
|
|
|
|
|
||||||||
Number of public branch locations |
2,033 |
|
2,060 |
|
-1.3 |
% |
|
2,114 |
|
-3.8 |
% |
|
2,146 |
|
-5.3 |
% |
|
Number of active Onsite locations |
1,236 |
|
1,212 |
|
2.0 |
% |
|
1,114 |
|
11.0 |
% |
|
1,076 |
|
14.9 |
% |
|
Number of in-market locations |
3,269 |
|
3,272 |
|
-0.1 |
% |
|
3,228 |
|
1.3 |
% |
|
3,222 |
|
1.5 |
% |
|
Industrial vending devices (installed device count) (1) |
94,395 |
|
92,615 |
|
1.9 |
% |
|
89,937 |
|
5.0 |
% |
|
88,327 |
|
6.9 |
% |
|
Ratio of industrial vending devices to in-market locations |
29:1 |
28:1 |
|
|
28:1 |
|
|
27:1 |
|
||||||||
(1) This number primarily represents devices which principally dispense product and produce product revenues, and excludes slightly more than 15,000 devices that are part of our locker lease program where the devices are principally used for the check-in/check-out of equipment. |
During the last twelve months, we reduced our absolute employee headcount by 1,420 people in our in-market locations and 1,602 people in total. The reduction in our absolute employee headcount in our in-market and distribution center locations reflects efforts to control expenses in response to weaker demand. The decrease in our total absolute employee count is mostly from personnel reductions in our in-market locations, distribution centers, and manufacturing operations, and was only partly offset by additions in non-branch selling and support roles. The latter reflects the addition of certain employees from our acquisition of the mostly intangible assets of Apex Industrial Technologies LLC, our historical vending technology partner, as well as roles to support customer acquisition and implementation, particularly as it relates to our growth drivers and to support general corporate functions.
We opened three branches in the third quarter of 2020 and closed 30 branches, net of conversions. We activated 57 Onsite locations in the third quarter of 2020 and closed 33, net of conversions. The number of closings reflects both normal churn in our business, whether due to redefining or exiting customer relationships, the shutting or relocation of customer facilities, or a customer decision, as well as our ongoing review of underperforming locations. Our in-market network forms the foundation of our business strategy, and we will continue to open or close locations as is deemed necessary to sustain and improve our network, support our growth drivers, and manage our operating expenses.
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 https://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 and beliefs 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, future tax rates, future inventory levels, and future operating results and business activity in light of the COVID-19 pandemic. 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) |
|
|
|||
|
|
September 30, |
|
December 31, |
|||
Assets |
2020 |
2019 |
|||||
Current assets: |
|
|
|
|
|||
Cash and cash equivalents |
|
$ |
331.8 |
|
|
174.9 |
|
Trade accounts receivable, net of allowance for credit losses of |
|
834.5 |
|
|
741.8 |
|
|
Inventories |
|
1,342.6 |
|
|
1,366.4 |
|
|
Prepaid income taxes |
|
14.6 |
|
|
16.7 |
|
|
Other current assets |
|
123.2 |
|
|
157.4 |
|
|
Total current assets |
|
2,646.7 |
|
|
2,457.2 |
|
|
|
|
|
|
|
|||
Property and equipment, net |
|
1,023.7 |
|
|
1,023.2 |
|
|
Operating lease right-of-use assets |
|
244.4 |
|
|
243.2 |
|
|
Other assets |
|
193.8 |
|
|
76.3 |
|
|
|
|
|
|
|
|||
Total assets |
|
$ |
4,108.6 |
|
|
3,799.9 |
|
|
|
|
|
|
|||
Liabilities and Stockholders' Equity |
|
|
|
|
|||
Current liabilities: |
|
|
|
|
|||
Current portion of debt |
|
$ |
40.0 |
|
|
3.0 |
|
Accounts payable |
|
210.4 |
|
|
192.8 |
|
|
Accrued expenses |
|
258.2 |
|
|
251.5 |
|
|
Current portion of operating lease liabilities |
|
94.4 |
|
|
97.4 |
|
|
Total current liabilities |
|
603.0 |
|
|
544.7 |
|
|
|
|
|
|
|
|||
Long-term debt |
|
365.0 |
|
|
342.0 |
|
|
Operating lease liabilities |
|
152.1 |
|
|
148.2 |
|
|
Deferred income taxes |
|
102.9 |
|
|
99.4 |
|
|
|
|
|
|
|
|||
Stockholders' equity: |
|
|
|
|
|||
Preferred stock: |
|
— |
|
|
— |
|
|
Common stock: |
|
2.9 |
|
|
2.9 |
|
|
Additional paid-in capital |
|
57.8 |
|
|
67.2 |
|
|
Retained earnings |
|
2,866.7 |
|
|
2,633.9 |
|
|
Accumulated other comprehensive loss |
|
(41.8) |
|
|
(38.4) |
|
|
Total stockholders' equity |
|
2,885.6 |
|
|
2,665.6 |
|
|
|
|
|
|
|
|||
Total liabilities and stockholders' equity |
|
$ |
4,108.6 |
|
|
3,799.9 |
|
FASTENAL COMPANY AND SUBSIDIARIES |
||||||||||||||
Condensed Consolidated Statements of Earnings |
||||||||||||||
(Amounts in millions except earnings per share) |
||||||||||||||
|
|
|
|
|
|
|
|
|||||||
|
(Unaudited) |
|
(Unaudited) |
|||||||||||
|
|
|
||||||||||||
|
Nine Months Ended |
|
Three Months Ended |
|||||||||||
September 30, |
|
September 30, |
||||||||||||
|
2020 |
|
2019 |
|
2020 |
|
2019 |
|||||||
Net sales |
$ |
4,289.3 |
|
|
4,056.8 |
|
|
$ |
1,413.3 |
|
|
1,379.1 |
|
|
|
|
|
|
|
|
|
|
|||||||
Cost of sales |
2,340.3 |
|
|
2,139.8 |
|
|
772.7 |
|
|
728.0 |
|
|||
Gross profit |
1,949.0 |
|
|
1,917.0 |
|
|
640.6 |
|
|
651.1 |
|
|||
|
|
|
|
|
|
|
|
|||||||
Operating and administrative expenses |
1,072.7 |
|
|
1,099.5 |
|
|
351.5 |
|
|
369.2 |
|
|||
Gain on sale of property and equipment |
(1.1 |
) |
|
(0.8 |
) |
|
(1.0 |
) |
|
— |
|
|||
Operating income |
877.4 |
|
|
818.3 |
|
|
290.1 |
|
|
281.9 |
|
|||
|
|
|
|
|
|
|
|
|||||||
Interest income |
0.3 |
|
|
0.3 |
|
|
0.1 |
|
|
0.1 |
|
|||
Interest expense |
(7.2 |
) |
|
(11.3 |
) |
|
(2.6 |
) |
|
(3.6 |
) |
|||
|
|
|
|
|
|
|
|
|||||||
Earnings before income taxes |
870.5 |
|
|
807.3 |
|
|
287.6 |
|
|
278.4 |
|
|||
|
|
|
|
|
|
|
|
|||||||
Income tax expense |
207.5 |
|
|
195.1 |
|
|
66.1 |
|
|
64.9 |
|
|||
|
|
|
|
|
|
|
|
|||||||
Net earnings |
$ |
663.0 |
|
|
612.2 |
|
|
$ |
221.5 |
|
|
213.5 |
|
|
|
|
|
|
|
|
|
|
|||||||
Basic net earnings per share |
$ |
1.16 |
|
|
1.07 |
|
|
$ |
0.39 |
|
|
0.37 |
|
|
|
|
|
|
|
|
|
|
|||||||
Diluted net earnings per share |
$ |
1.15 |
|
|
1.07 |
|
|
$ |
0.38 |
|
|
0.37 |
|
|
|
|
|
|
|
|
|
|
|||||||
Basic weighted average shares outstanding |
573.7 |
|
|
572.9 |
|
|
573.9 |
|
|
573.5 |
|
|||
|
|
|
|
|
|
|
|
|||||||
Diluted weighted average shares outstanding |
575.5 |
|
|
574.0 |
|
|
576.1 |
|
|
574.4 |
|
FASTENAL COMPANY AND SUBSIDIARIES |
|||||||
Condensed Consolidated Statements of Cash Flows |
|||||||
(Amounts in millions) |
|||||||
|
|
(Unaudited) |
|||||
|
|
Nine Months Ended |
|||||
September 30, |
|||||||
|
|
2020 |
|
2019 |
|||
|
|
|
|
|
|||
Cash flows from operating activities: |
|
|
|
|
|||
Net earnings |
|
$ |
663.0 |
|
|
612.2 |
|
Adjustments to reconcile net earnings to net cash provided by operating activities, net of acquisition: |
|
|
|
|
|||
Depreciation of property and equipment |
|
114.0 |
|
|
107.8 |
|
|
Gain on sale of property and equipment |
|
(1.1 |
) |
|
(0.8 |
) |
|
Bad debt expense |
|
5.8 |
|
|
4.9 |
|
|
Deferred income taxes |
|
3.5 |
|
|
2.2 |
|
|
Stock-based compensation |
|
4.3 |
|
|
4.3 |
|
|
Amortization of intangible assets |
|
6.4 |
|
|
3.0 |
|
|
Changes in operating assets and liabilities, net of acquisition: |
|
|
|
|
|||
Trade accounts receivable |
|
(98.8 |
) |
|
(108.0 |
) |
|
Inventories |
|
22.8 |
|
|
(76.9 |
) |
|
Other current assets |
|
34.2 |
|
|
9.8 |
|
|
Accounts payable |
|
17.6 |
|
|
21.6 |
|
|
Accrued expenses |
|
6.7 |
|
|
0.5 |
|
|
Income taxes |
|
2.1 |
|
|
8.6 |
|
|
Other |
|
0.3 |
|
|
1.1 |
|
|
Net cash provided by operating activities |
|
780.8 |
|
|
590.3 |
|
|
|
|
|
|
|
|||
Cash flows from investing activities: |
|
|
|
|
|||
Purchases of property and equipment |
|
(123.5 |
) |
|
(184.3 |
) |
|
Proceeds from sale of property and equipment |
|
8.6 |
|
|
5.0 |
|
|
Cash paid for acquisition |
|
(125.0 |
) |
|
— |
|
|
Other |
|
1.1 |
|
|
0.2 |
|
|
Net cash used in investing activities |
|
(238.8 |
) |
|
(179.1 |
) |
|
|
|
|
|
|
|||
Cash flows from financing activities: |
|
|
|
|
|||
Proceeds from debt obligations |
|
910.0 |
|
|
745.0 |
|
|
Payments against debt obligations |
|
(850.0) |
|
|
(800.0) |
|
|
Proceeds from exercise of stock options |
|
38.3 |
|
|
43.0 |
|
|
Purchases of common stock |
|
(52.0 |
) |
|
— |
|
|
Payments of dividends |
|
(430.2 |
) |
|
(372.3 |
) |
|
Net cash used in financing activities |
|
(383.9 |
) |
|
(384.3 |
) |
|
|
|
|
|
|
|||
Effect of exchange rate changes on cash and cash equivalents |
|
(1.2 |
) |
|
(2.9 |
) |
|
|
|
|
|
|
|||
Net increase in cash and cash equivalents |
|
156.9 |
|
|
24.0 |
|
|
|
|
|
|
|
|||
Cash and cash equivalents at beginning of period |
|
174.9 |
|
|
167.2 |
|
|
Cash and cash equivalents at end of period |
|
$ |
331.8 |
|
|
191.2 |
|
|
|
|
|
|
|||
Supplemental information: |
|
|
|
|
|||
Cash paid for interest |
|
$ |
5.9 |
|
|
11.3 |
|
Net cash paid for income taxes |
|
$ |
201.4 |
|
|
182.6 |
|
Leased assets obtained in exchange for new operating lease liabilities |
|
$ |
76.1 |
|
|
87.6 |
|