Fastenal Company (FAST, Financial) filed Quarterly Report for the period ended 2009-03-31.
Fastenal Company sells industrial and construction supplies grouped into eleven product lines. The traditional Fastenal? product line consists of threaded fasteners and other miscellaneous supplies. The Company also sells in its other ten product lines tools metal cutting tool blades and blade resharpening services fluid transfer components and accessories for hydraulic and pneumatic power material handling and storage products janitorial and paper products electrical supplies welding supplies safety supplies and raw materials. Fastenal Company has a market cap of $5.55 billion; its shares were traded at around $37.35 with a P/E ratio of 20.8 and P/S ratio of 2.4. The dividend yield of Fastenal Company stocks is 1.9%. Fastenal Company had an annual average earning growth of 17.7% over the past 10 years. GuruFocus rated Fastenal Company the business predictability rank of 4-star.
As we expected, our capital expenditures were down from 2008. This was primarily related to the Indianapolis, Indiana distribution expansion and to our new distribution center location near Dallas, Texas. Most of the expenditures for these two locations are behind us. As indicated in our 2008 Annual Report on Form 10-K, we expect our capital expenditures will drop from approximately $95,000 in 2008 to $65,000 in 2009. The strong free cash flow in the first quarter of 2009 (operating cash flow less net capital expenditures) allowed us to increase the dividend paid in that quarter by $14,706 (or 39.4%) over the dividend paid in the first quarter of 2008. Given the economic environment, we are satisfied with our cash flow statement for the first quarter of 2009; however, a greater reduction in our inventory would have been more satisfying.
Pathway To Profit During April 2007 we disclosed our intention to alter the growth drivers of our business. For most of the last decade, we used store openings as the primary growth driver of our business (our historical rate was approximately 14% new stores each year). As announced in April 2007, we began to add outside sales personnel into existing stores at a faster rate than historical patterns. We funded this sales force expansion with the occupancy savings generated by opening stores at the rate of 7% to 10% per year (we opened approximately 7.5% and 8.1% new stores in 2008 and 2007, respectively, see also the earlier disclosure regarding the rate of 2009 store openings). Our goal is four-fold: (1) to continue growing our business at a similar rate with the new outside sales investment model, (2) to grow the sales of our average store to $125 thousand per month in the five year period from 2007 to 2012, (3) to enhance the profitability of the overall business by capturing the natural expense leverage that has historically occurred in our existing stores as their sales grow, and (4) to improve the performance of our business due to the more efficient use of working capital (primarily inventory) as our average store size increases. The economic weakness that dramatically worsened in the fall of 2008 and continued into 2009 has caused us to alter the pathway to profit. These changes center on two aspects (1) temporarily slowing store openings to a range of 2% to 5% (see earlier comments), and (2) stopping adding headcount except for store openings and for stores that are growing (see earlier comments). The duration of the economic weakness and the prospects of future deterioration could impact the timing of when we achieve the $125 thousand per month average; however, the current economic weakness only serves to strengthen our belief in the pathway to profit.
Store Size and Profitability The store groups listed in the table below, when combined with our strategic account stores, represented approximately 89% and 90% of our sales in the first quarter of 2009 and 2008, respectively. Strategic account stores, which numbered 21 and 18 in the first quarter of 2009 and 2008, respectively, are stores that are focused on selling to a group of strategic account customers in a limited geographic market. Our remaining sales (approximately 10%) relate to either: (1) our in-plant locations, (2) our direct Fastenal Cold Heading business, or (3) our direct import business. Our average store, excluding the business not sold through a store, had sales of $61,900 per month in the first quarter of 2009. This average was $76,800 per month in the first quarter of 2008. The average age, number of stores, and pre-tax margin data by store size for the first quarter of 2009 and 2008, respectively, were as follows:
As we indicated earlier in this report, our goal is to increase the sales of our average store to approximately $125,000 per month. This will shift the store mix emphasis from the first three categories ($0 to $30,000, $30,001 to $60,000, and $60,001 to $100,000) to the last three categories ($60,001 to $100,000, $100,001 to $150,000, and over $150,000), and we believe will allow us to leverage our fixed cost and increase our overall productivity.
Impact of Fuel Prices During the Quarter Rising fuel prices negatively impacted 2007 and 2008; however, we did feel some relief in the final months of 2008 and the first three months of 2009. During the first quarter of 2009, our total vehicle fuel costs averaged approximately $1.7 million per month. During the first quarter of 2008, our total vehicle fuel costs averaged approximately $2.9 million per month. The changes resulted from variations in fuel costs, the freight initiative discussed below, and the increase in the number of vehicles necessary to support additional sales personnel and to support additional store locations. These fuel costs include the fuel utilized in our distribution vehicles (semi-tractors, straight trucks, and sprinter trucks) which is recorded in cost of goods and the fuel utilized in our store delivery vehicles which is included in operating and administrative expenses (the split in the last several years has been approximately 50:50 between distribution and store use).
Read the The complete ReportFAST is in the portfolios of Ruane Cunniff of Ruane & Cunniff & Goldfarb Inc, Ron Baron of Baron Funds.
Fastenal Company sells industrial and construction supplies grouped into eleven product lines. The traditional Fastenal? product line consists of threaded fasteners and other miscellaneous supplies. The Company also sells in its other ten product lines tools metal cutting tool blades and blade resharpening services fluid transfer components and accessories for hydraulic and pneumatic power material handling and storage products janitorial and paper products electrical supplies welding supplies safety supplies and raw materials. Fastenal Company has a market cap of $5.55 billion; its shares were traded at around $37.35 with a P/E ratio of 20.8 and P/S ratio of 2.4. The dividend yield of Fastenal Company stocks is 1.9%. Fastenal Company had an annual average earning growth of 17.7% over the past 10 years. GuruFocus rated Fastenal Company the business predictability rank of 4-star.
Highlight of Business Operations:
Finally cash flow. Our balance sheet is very strong and our operations have great cash generating characteristics. During 2009 we will strive to manage it well. In the first quarter of 2009 we generated $93,534 (or 192.1% of net earnings) of operating cash flow; this was $86,736 (or 127.4% of net earnings) in the first quarter of 2008. Our first quarter typically has stronger cash flow characteristics due to the timing of tax payments. The remaining amounts of cash flow from operating activities are largely linked to the pure dynamics of a distribution business and its strong correlation to working capital.As we expected, our capital expenditures were down from 2008. This was primarily related to the Indianapolis, Indiana distribution expansion and to our new distribution center location near Dallas, Texas. Most of the expenditures for these two locations are behind us. As indicated in our 2008 Annual Report on Form 10-K, we expect our capital expenditures will drop from approximately $95,000 in 2008 to $65,000 in 2009. The strong free cash flow in the first quarter of 2009 (operating cash flow less net capital expenditures) allowed us to increase the dividend paid in that quarter by $14,706 (or 39.4%) over the dividend paid in the first quarter of 2008. Given the economic environment, we are satisfied with our cash flow statement for the first quarter of 2009; however, a greater reduction in our inventory would have been more satisfying.
Pathway To Profit During April 2007 we disclosed our intention to alter the growth drivers of our business. For most of the last decade, we used store openings as the primary growth driver of our business (our historical rate was approximately 14% new stores each year). As announced in April 2007, we began to add outside sales personnel into existing stores at a faster rate than historical patterns. We funded this sales force expansion with the occupancy savings generated by opening stores at the rate of 7% to 10% per year (we opened approximately 7.5% and 8.1% new stores in 2008 and 2007, respectively, see also the earlier disclosure regarding the rate of 2009 store openings). Our goal is four-fold: (1) to continue growing our business at a similar rate with the new outside sales investment model, (2) to grow the sales of our average store to $125 thousand per month in the five year period from 2007 to 2012, (3) to enhance the profitability of the overall business by capturing the natural expense leverage that has historically occurred in our existing stores as their sales grow, and (4) to improve the performance of our business due to the more efficient use of working capital (primarily inventory) as our average store size increases. The economic weakness that dramatically worsened in the fall of 2008 and continued into 2009 has caused us to alter the pathway to profit. These changes center on two aspects (1) temporarily slowing store openings to a range of 2% to 5% (see earlier comments), and (2) stopping adding headcount except for store openings and for stores that are growing (see earlier comments). The duration of the economic weakness and the prospects of future deterioration could impact the timing of when we achieve the $125 thousand per month average; however, the current economic weakness only serves to strengthen our belief in the pathway to profit.
Store Size and Profitability The store groups listed in the table below, when combined with our strategic account stores, represented approximately 89% and 90% of our sales in the first quarter of 2009 and 2008, respectively. Strategic account stores, which numbered 21 and 18 in the first quarter of 2009 and 2008, respectively, are stores that are focused on selling to a group of strategic account customers in a limited geographic market. Our remaining sales (approximately 10%) relate to either: (1) our in-plant locations, (2) our direct Fastenal Cold Heading business, or (3) our direct import business. Our average store, excluding the business not sold through a store, had sales of $61,900 per month in the first quarter of 2009. This average was $76,800 per month in the first quarter of 2008. The average age, number of stores, and pre-tax margin data by store size for the first quarter of 2009 and 2008, respectively, were as follows:
As we indicated earlier in this report, our goal is to increase the sales of our average store to approximately $125,000 per month. This will shift the store mix emphasis from the first three categories ($0 to $30,000, $30,001 to $60,000, and $60,001 to $100,000) to the last three categories ($60,001 to $100,000, $100,001 to $150,000, and over $150,000), and we believe will allow us to leverage our fixed cost and increase our overall productivity.
Impact of Fuel Prices During the Quarter Rising fuel prices negatively impacted 2007 and 2008; however, we did feel some relief in the final months of 2008 and the first three months of 2009. During the first quarter of 2009, our total vehicle fuel costs averaged approximately $1.7 million per month. During the first quarter of 2008, our total vehicle fuel costs averaged approximately $2.9 million per month. The changes resulted from variations in fuel costs, the freight initiative discussed below, and the increase in the number of vehicles necessary to support additional sales personnel and to support additional store locations. These fuel costs include the fuel utilized in our distribution vehicles (semi-tractors, straight trucks, and sprinter trucks) which is recorded in cost of goods and the fuel utilized in our store delivery vehicles which is included in operating and administrative expenses (the split in the last several years has been approximately 50:50 between distribution and store use).
Read the The complete ReportFAST is in the portfolios of Ruane Cunniff of Ruane & Cunniff & Goldfarb Inc, Ron Baron of Baron Funds.
