Fastenal Company (FAST, Financial) filed Quarterly Report for the period ended 2009-09-30.
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 $5.28 billion; its shares were traded at around $38.2 with a P/E ratio of 22.8 and P/S ratio of 2.3. The dividend yield of Fastenal Company stocks is 2%. 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.
We remain practical optimists and we always attempt to balance long-term opportunities for growth with the necessary short-term reactions to our current reality. In this regard, we previously slowed our store openings to a range of 2% to 5% new stores for 2009 and we stopped adding any headcount except for store openings and for stores that are growing. Over the last several years, our pathway to profit initiative has slowly altered our cost structure in that a greater portion is now variable versus fixed. This continues to help us today as we navigate through the current economic environment. It is our intent to stabilize our store total headcount at its current level as we make plans to resume our normal annual store openings range of 7% to 10%, assuming the economy remains somewhat stable, beginning in January 2010.
Our balance sheet continues to be very strong and our operations have good cash generating characteristics. During 2009, we have tried to manage it well. In the first nine months of 2009 we generated $253,184 (or 181.1% of net earnings) of operating cash flow; the comparable figure was $173,730 (or 80.0% of net earnings) in the first nine months of 2008. Our first quarter typically has stronger cash flow characteristics due to the timing of tax payments; this benefit reverses itself in the second and third quarters as income tax payments go out in April, June, and September. 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.
The strong free cash flow in the first nine months of 2009 (operating cash flow less net capital expenditures) allowed us to increase our first dividend payment (declared January 2009 and paid in March 2009) by 40% (from $.25 per share in 2008 to $.35 per share in 2009). This strong free cash flow also allowed us to increase our second dividend payment (declared July 2009 and paid in August 2009) by 37% (from $.27 per share in 2008 to $.37 per share in 2009). Given the economic environment, we are satisfied with our cash flow for the first nine months of 2009.
The decrease in net sales in the first nine months of 2009 came primarily from lower unit sales, and to a lesser extent, deflation in our steel based products. The lower unit sales resulted primarily from decreases in sales at older store locations (discussed earlier) due to the general economic weakness in the global marketplace. The decrease in net sales also resulted from the weakening of the Canadian currency relative to the United States dollar. This weakening lowered our sales by 0.6% and 0.3% in the nine month period and third quarter of 2009, respectively.
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 our disclosure above regarding the expected rate of 2009 and 2010 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 headcount additions 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.
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 $5.28 billion; its shares were traded at around $38.2 with a P/E ratio of 22.8 and P/S ratio of 2.3. The dividend yield of Fastenal Company stocks is 2%. 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:
As we saw in the previous three quarters, the weakened economy continues to have a substantial impact on our business. These impacts continue to negatively affect our sales, particularly related to our industrial production business (business where we supply products that become part of the finished goods produced by others) and, more recently, our non-residential construction business. To place this in perspective sales to our manufacturing customers (historically approximately 50% of sales) contracted approximately 23% in the third quarter versus the same quarter in the prior year. This contraction is less severe in the maintenance portion of our manufacturing sales (business where we supply products that maintain the facility or the equipment of our customers engaged in manufacturing), but more severe in the production business. Sales in our non-residential construction business (historically 20% to 25% of sales) contracted approximately 25% versus the prior year. The remaining business (sales to other resellers, government business, other industries, and in-store retail sales) is producing better results, but unfortunately, doesnt have enough impact to offset the manufacturing and construction impact. On a sequential basis, our daily average sales to our manufacturing customers has improved each month since May 2009 (with the exception of July 2009 due to the holiday impact) versus the previous month. This trend was the first sequential improvement since September 2008. However, this improvement was partially offset by continued weakening in our non-residential construction business.We remain practical optimists and we always attempt to balance long-term opportunities for growth with the necessary short-term reactions to our current reality. In this regard, we previously slowed our store openings to a range of 2% to 5% new stores for 2009 and we stopped adding any headcount except for store openings and for stores that are growing. Over the last several years, our pathway to profit initiative has slowly altered our cost structure in that a greater portion is now variable versus fixed. This continues to help us today as we navigate through the current economic environment. It is our intent to stabilize our store total headcount at its current level as we make plans to resume our normal annual store openings range of 7% to 10%, assuming the economy remains somewhat stable, beginning in January 2010.
Our balance sheet continues to be very strong and our operations have good cash generating characteristics. During 2009, we have tried to manage it well. In the first nine months of 2009 we generated $253,184 (or 181.1% of net earnings) of operating cash flow; the comparable figure was $173,730 (or 80.0% of net earnings) in the first nine months of 2008. Our first quarter typically has stronger cash flow characteristics due to the timing of tax payments; this benefit reverses itself in the second and third quarters as income tax payments go out in April, June, and September. 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.
The strong free cash flow in the first nine months of 2009 (operating cash flow less net capital expenditures) allowed us to increase our first dividend payment (declared January 2009 and paid in March 2009) by 40% (from $.25 per share in 2008 to $.35 per share in 2009). This strong free cash flow also allowed us to increase our second dividend payment (declared July 2009 and paid in August 2009) by 37% (from $.27 per share in 2008 to $.37 per share in 2009). Given the economic environment, we are satisfied with our cash flow for the first nine months of 2009.
The decrease in net sales in the first nine months of 2009 came primarily from lower unit sales, and to a lesser extent, deflation in our steel based products. The lower unit sales resulted primarily from decreases in sales at older store locations (discussed earlier) due to the general economic weakness in the global marketplace. The decrease in net sales also resulted from the weakening of the Canadian currency relative to the United States dollar. This weakening lowered our sales by 0.6% and 0.3% in the nine month period and third quarter of 2009, respectively.
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 our disclosure above regarding the expected rate of 2009 and 2010 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 headcount additions 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.
Read the The complete ReportFAST is in the portfolios of Ruane Cunniff of Ruane & Cunniff & Goldfarb Inc, Ron Baron of Baron Funds.
