Fastenal had a challenging year. Sales growth decelerated to 6% from 13% the prior year, reflecting slowing sales to end markets such as mining, military, and non-residential construction. The modest sales growth result produced minimal operating leverage and the operating profit margin stayed flat at 21.4%. Earnings per share increased 7% to $1.51. Fastenal’s owners are not accustomed to such modest results.
Fortunately, Fastenal’s creative and aggressive management is not standing still and is taking action to improve both top line growth and profitability. Starting in the third quarter of 2013, Fastenal began aggressively adding salespeople at its store locations. Management believes that there is a strong long-term correlation between the increase in sales personnel and revenue growth. The cost of investing in new sales people has had a short-term negative impact on profitability but should enable Fastenal to return to mid-teens sales and earnings growth in the near future. There is risk in adding sales people when demand appears weak for all industrial distributors. Still, we believe Fastenal’s long-term prospects are healthy.
Source: Sequoia Fund's 2013 Annual Report - Management's Discussion of Fund Performance
