Stock Information

Nasdaq 100
Fastenal - Part of the 100 largest non-financial companies listed on NASDAQ

2005 Q1 Earnings Report

News Release

<< Back

2005 Q1 Earnings Report

Apr 13, 2005
2005 Q1 Earnings Report

The Fastenal Company of Winona, MN (NASDAQ Symbol FAST) reported the results of the quarter ended March 31, 2005. Dollar amounts are in thousands.

Net sales for the three-month period ended March 31, 2005 totaled $353,809, an increase of 24.5% over net sales of $284,206 in the first quarter of 2004. Net earnings increased from $28,147 in the first quarter of 2004 to $37,031 in the first quarter of 2005, an increase of 31.6%. Basic earnings per share increased from $.37 to $.49 for the comparable periods.

During the first quarter of 2005, Fastenal opened 74 new sites (Fastenal opened 49 new sites in the first quarter of 2004). These 74 new sites represent an additional 4.8% stores since December 31, 2004. There were 5,799 site employees as of March 31, 2005, an increase of 5.4% from December 31, 2004.

Note - Daily sales are defined as the sales for the month divided by the number of business days in the month.

The twelve months of 2001, 2002, 2003, 2004 and the first three months of 2005, excluding the DIY Business, had daily sales growth rates of (compared to the comparable month in the preceding year):

Jan. Feb. Mar. Apr. May June July Aug. Sept. Oct. Nov. Dec.
2001 20.0% 16.2% 11.4% 9.0% 9.4% 7.6% 7.4% 5.9% 4.8% 1.0% -0.5% 1.4%
2002 2.7% 4.8% 6.0% 9.3% 9.4% 11.0% 8.7% 10.4% 12.5% 13.3% 17.9% 11.6%
2003 13.3% 10.3% 14.5% 9.9% 9.5% 8.5% 11.0% 11.4% 10.8% 13.9% 14.5% 16.9%
2004 16.1% 20.1% 19.1% 22.1% 25.6% 25.7%  27.0%  24.9%  26.2% 27.6% 25.0% 27.4%
2005 26.2% 25.1% 22.5%                  

The twelve months of 2001, 2002, 2003, 2004, and the first three months of 2005, including the DIY Business, had daily sales growth rates of (compared to the comparable month in the preceding year):

Jan. Feb. Mar. Apr. May June July Aug. Sept. Oct. Nov. Dec.
2001 20.0% 16.2% 11.4% 9.0% 9.4% 7.6% 7.4% 5.9% 8.7% 4.1% 2.5% 5.1%
2002 5.6% 7.1% 8.9% 12.0% 12.3% 13.7% 11.6% 13.1% 11.0% 10.2% 14.3% 7.8%
2003 10.2% 7.9% 11.5% 7.2% 6.7% 6.0% 8.2% 8.8% 8.4% 13.7% 14.5% 16.9%
2004 16.1% 20.1% 19.1% 22.1% 25.6% 25.7%  27.0%  24.9%  26.2% 27.6% 25.0% 27.4%
2005 26.2% 25.1% 22.5%                  

The first table reflects growth rates of Fastenal excluding $16,974 and $8,526 of DIY Business net sales from January 1, 2002 to October 3, 2002 and from August 31, 2001 to December 31, 2001, respectively (the period of time the DIY Business was owned). Management has included the first table above because we believe it provides a consistent presentation of the growth rates of the organic store-based business and ongoing operations before, during, and after the period in which the DIY Business was owned and operated.

The daily sales growth rates in the first table above represent several trends. The first being a downward trend in the first eleven months of 2001, which reflected the overall weakening of the industrial economy we service in North America. This trend reversed itself from December 2001 to June 2002; this was partly due to changing comparisons in the prior year and partly due to stronger month-to-month (i.e. April to May and May to June) growth rates compared to 2001.

During July 2002, the daily sales growth rate decreased, began to improve again in August 2002 through November 2002, and slipped in December 2002, the final month of the year. The first six months of 2003 continued the choppy trend in net sales growth experienced in the second half of 2002, while the July 2003 to March 2005 time frame generally represents improvement followed by stabilization in the growth rates. The choppy trend, which the Company experienced from July 2002 until June 2003, reflects the alternating strengthening and weakening in the industrial economy during that period, while the July 2003 to March 2005 general improvement and stabilization reflects continued strengthening in the economy as it relates to the customers we sell to in North America and the impact of the Fastenal store initiative (see reference below regarding CSP). The 2004 period was also impacted by inflation in the steel based products we sell.

STATEMENT OF EARNINGS INFORMATION (percentage of net sales):

  Three Month Ended
March 31,

  2005     2004

Net Sales     100.0%     100.0%
Gross profit margin     50.1%     50.3%
Operating and administrative expenses     33.3%     34.3%
Loss on sale of property and equipment     0.1%     0.1%

Operating income     16.8%     15.9%
Interest income     0.1%     0.1%

Earnings before income taxes     16.9%     16.0%

Gross profit margins for the first quarter of 2005 and the first quarter of 2004 were similar. The slight contraction in 2005 was caused by the greater inflation cost in the steel based products flowing through cost of sales. The impact was expected, and reflects product costs in the last three to six month 'turn period' of inventory in a 'first-in, first-out' inventory costing model.

Operating and administrative expenses grew at a slower rate than net sales growth during the quarter. This was primarily due to the tight management of employee numbers throughout the organization in all of 2004 and the first quarter of 2005. As discussed in our 2004 annual report, payroll and related expenses have historically represented approximately 70% of operating and administrative expenses. Effective management of this expense allows us to leverage the sales growth more effectively. This tight management was significant, given the store expansion (discussed later). We will continue to manage headcount in a similar fashion and expect to maintain most of the labor efficiency.

Income taxes, as a percentage of earnings before income taxes, were approximately 38.0% in the first three months of 2005 and 2004, respectively. This rate fluctuates over time based on the income tax rates in the various jurisdictions in which we operate.

Two components of working capital, accounts receivable and inventories, improved during the first quarter of 2005. The March 2004-to-March 2005 percentage growth (i.e. year over year) and the year-to-date dollar growth were as follows:

March 2004-to-March 2005 percentage growth

Accounts receivable         21.3%
Inventories         28.8%

  Three Month Ended
March 31,

Dollar growth   2005     2004

Accounts receivable         $ 22,618     24,039
Inventories         $ 3,071     8,045

The improvements stem from our initiatives to improve working capital. These initiatives include (1) the establishment of a centralized call center to facilitate accounts receivable management (this facility became operational early in 2005) and (2) the tight management of all inventory amounts not identified as either expected store inventory (see reference below regarding CSP), new expanded inventory, or inventory necessary for upcoming store openings.

As discussed in previous public statements, the Company's goal is to continue opening approximately 13% to 18% new stores each year (calculated on the ending number of stores in the previous year). On December 31, 2004, the Company operated 1,533 stores; therefore, as previously announced, we expect to open approximately 200 to 275 new stores in 2005. The Company opened 219 new stores in 2004 (or an increase over December 31, 2003 of 16.7%) and 151 new store sites in 2003 (or an increase over December 31, 2002 of 12.9%). While the new stores continue to build the infrastructure for future growth, the first year sales are low, and the added expenses related to payroll, occupancy, and transportation costs do impact the Company's ability to leverage earnings. As disclosed in the past, it has been the Company's experience that new stores take approximately ten to twelve months to achieve profitability. The planned openings can be altered in a short time span, usually less than 60 to 90 days.

In addition to the planned store expansion, we continued our 'customer service project' (or CSP) in 2005. As of March 31, 2005, approximately 93% of our stores were operating in a CSP fashion. Since the CSP format represents the stocking model in substantially all of our locations, we now refer to these converted locations simply as stores with our expected inventory stocking model, versus the CSP designation. Consistent with our operating philosophy, we intend to continue identifying products and store display themes to position our stores to the Fastenal goal of being 'the best industrial and construction supplier in each local market in which we operate'.

Additional information regarding certain Fastenal Company statistics for the current quarter is available on the Fastenal Company World Wide Web site at The Company discloses sales and store information on a monthly basis (except the sales for the third month of a quarter). This information is posted at on the third business day following the end of the first two months of a quarter. This press release contains statements that are not historical in nature and that are intended to be, and are hereby identified as, "forward looking statements" as defined in the Private Securities Litigation Reform Act of 1995, including statements regarding management of headcount and labor efficiency, increases in selling locations, the time it typically takes a new store to achieve profitability, and the timeline for altering planned store openings. A change in the economy, from that currently being experienced, could cause the store openings to change from that expected. A change in the number of markets able to support future store sites could change the management of headcount, which in turn, together with changes in sales growth and store openings, could impact labor efficiency. A discussion of other risks and uncertainties is included in the Company's 2004 annual report under the section captioned "Management's Discussion and Analysis of Financial Condition and Results of Operations".


2005 Q1 Earnings Report, Page 2


Consolidated Balance Sheets
(Amounts in thousands except share information)

March 31, December 31,




Current assets:

Cash and cash equivalents




Marketable securities



Trade accounts receivable, net of allowance for doubtful accounts of $5,486 and $5,181, respectively






Deferred income tax asset



Other current assets



Total current assets



Marketable securities



Property and equipment, less accumulated depreciation



Other assets, less accumulated amortization



Total assets




Liabilities and Stockholders' Equity

Current liabilities:

Accounts payable




Accrued expenses



Income taxes payable



Total current liabilities



Deferred income tax liability



Stockholders' equity:

Preferred stock



Common stock 100,000,000 shares authorized; 75,877,376 shares issued and outstanding



Additional paid-in capital



Retained earnings



Accumulated other comprehensive income



Total stockholders' equity



Total liabilities and stockholders' equity





2005 Q1 Earnings Report, Page 3

Consolidated Statements of Earnings
(Amounts in thousands except earnings per share)

Three months ended
March 31,



Net Sales



Cost of Sales



Gross profit



Operating and administrative expenses



Loss on sale of property and equipment



Operating income



Interest income



Earnings before income taxes



Income tax expense



Net earnings




Basic and diluted earnings per share




Weighted average shares outstanding



Diluted weighted average shares outstanding




2004 Q1 Earnings Report, Page 4

Consolidated Statements of Cash Flows
(Amounts in thousands)

Three months ended
March 31,

                  2005   2004

Cash flows from operating activities:
  Net earnings $ 37,031 28,147
  Adjustments to reconcile net earnings to net cash
    provided by operating activities:
      Depreciation of property and equipment 6,646 5,533
      Loss on sale of property and equipment 248 396
      Bad debt expense 1,687 1,603
      Amortization of non-compete agreement 17 17
      Changes in operating assets and liabilities:
        Trade accounts receivable (22,618) (24,039)
        Inventories (3,071) (8,045)
        Other current assets 2,454 2,732
        Accounts payable 3,835 2,754
        Accrued expenses 3,349 3,684
        Income taxes, net 18,927 16,043
        Other (1,410) (476)

            Net cash provided by operating activities   47,095   28,349

Cash flows from investing activities:
  Purchases of property and equipment (12,266) (10,147)
Proceeds from sale of property and equipment 1,489 1,918
  Net decrease (increase) in marketable securities 19,747 (5,315)
  Increase in other assets (23) (63)

            Net cash provided (used) in investing activities   8,947   (13,607)

Cash flows from financing activities:
  Payment of dividends (23,522) (11,382)

            Net cash used in financing activities   (23,522)   (11,382)


Effect of exchange rate changes on cash   (28)   (22)

            Net increase in cash and cash equivalents 32,492 3,338
Cash and cash equivalents at beginning of period   33,503   49,750

Cash and cash equivalents at end of period $ 65,995   53,088

Supplemental disclosure of cash flow information:
  Cash paid during each period for:
    Income taxes   $ 3,769   1,188