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Fastenal Company Reports Operating Results (10-Q)

April 27, 2010 | About:

Fastenal Company (NASDAQ:FAST) filed Quarterly Report for the period ended 2010-03-31.

Fastenal Company has a market cap of $8.27 billion; its shares were traded at around $56.1 with a P/E ratio of 43.5 and P/S ratio of 4.3. The dividend yield of Fastenal Company stocks is 1.4%. Fastenal Company had an annual average earning growth of 17.4% over the past 10 years. GuruFocus rated Fastenal Company the business predictability rank of 5-star.FAST is in the portfolios of Ruane Cunniff of Ruane & Cunniff & Goldfarb Inc, Ron Baron of Baron Funds, Steven Cohen of SAC Capital Advisors, Bill Frels of MAIRS & POWER INC, Jim Simons of Renaissance Technologies LLC, Jeremy Grantham of GMO LLC, George Soros of Soros Fund Management LLC.

Highlight of Business Operations:

Fluctuations in end market business As we saw in 2009, the fluctuations caused by the weakened economy continue to have a substantial impact on our business. To place this in perspective approximately 50% of our business has historically been with manufacturing customers. The daily sales to our manufacturing customers grew approximately 15.7% in the first quarter of 2010. In the first, second, third, and fourth quarters of 2009, this business contracted 16.0%, 25.2%, 22.8%, and 10.1%, respectively. For the year, our total sales to our manufacturing customers in 2009 contracted 18.8% from 2008. The 2009 contraction was more severe in our industrial production business (this is business where we supply products that become part of the finished goods produced by our customers) and less severe in the maintenance portion of our manufacturing business (this is business where we supply products that maintain the facility or the equipment of our customers engaged in manufacturing).

Our non-residential construction customers have historically represented 20% to 25% of our business. This business contracted approximately 14.7% in the first quarter of 2010. In the first, second, third, and fourth quarters of 2009, the contraction was 6.4%, 19.6%, 25.3%, and 24.8%, respectively. The total sales contraction for 2009 was 19.4%.

One final thought regarding our store performance. Historically, our goal has been to have over 75% of our stores grow their daily sales in a given month. During the first three months of 2010, the daily sales of approximately 45% to 54% of our stores grew in a given month. During 2009 and 2008 this range was approximately 22% to 34% and 41% to 58%, respectively.

The 18.3% drop from October 2008 to January 2009 represents the immediate impact of the economy on our business. During this time frame, our daily sales change, on a year-over-year basis, dropped from 11.9% growth in October to a contraction of 8.5% in January. After January, the trend continued downward as the Delta (or spread between the benchmark and the 2009 actual) in February, March, and April 2009 averaged a negative 4.9%. The daily sales contraction, on a year-over-year basis, was 21.0% in April. The Delta from May 2009 to July 2009 was not as significant, averaging a negative 1.0%. While this period was still painful, it began to show what we believe was the bottom of the drop. Finally, in the period from August 2009 to December 2009, the Delta improved, and averaged a positive 0.7%. The first quarter of 2010 began strong, our business exceeded the trend line in January, February took a step back due to inclement weather, and March reestablished the positive trend.

During April 2007 we disclosed our intention to alter the growth drivers of our business For most of the preceding ten years, 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 (see our disclosure below regarding the temporary slowing of our store growth in 2009 and the first half of 2010). Our goal was 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 sales volume per store increases. The economic weakness that dramatically worsened in the fall of 2008 and continued into 2009 and 2010 caused us to alter the pathway to profit beginning in 2009. These changes centered on two aspects (1) temporarily slowing store openings to a range of 2% to 5%, and (2) stopping headcount additions except for store openings and for stores that are growing.

Store Count and Full-Time Equivalent (FTE) Headcount In response to the pathway to profit, we increased both our store count (opening 7.5% and 8.1% new stores in calendar 2008 and 2007, respectively) and our store FTE headcount. However, the rate of increase in store locations has slowed (we opened 3.0% new stores in calendar 2009) and our FTE headcount for all types of personnel has been reduced since the economy weakened late in 2008. The number of stores at quarter end, the average FTE headcount per quarter, and the percentage change were as follows for each of the last five quarters and for first quarter of 2007, the last completed quarter before we began the pathway to profit:

Read the The complete Report

About the author:

Charlie Tian, Ph.D. - Founder of GuruFocus. You can now order his book Invest Like a Guru on Amazon.

Rating: 3.3/5 (3 votes)


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