This report has been truncated. To view the full report, please visit www.fastenal.com.
Winona, MN - The Fastenal Company reported the results of the quarter ended June 30, 2012. Except for per share information, or as otherwise noted below, dollar amounts are stated in thousands. Share and per share information in this document has been adjusted to give effect to the two-for-one split of our common stock in May 2011.
Net sales, pre-tax earnings, net earnings, and net earnings per share were as follows for the period ended June 30:
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| 2012 | 2011 | Change |
| 2012 | 2011 | Change |
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Net sales | $ 1,573,765 | 1,342,313 | 17.2% |
| $ 804,890 | 701,730 | 14.7% |
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Pre-tax earnings | $ 340,168 | 278,993 | 21.9% |
| $ 179,039 | 150,182 | 19.2% |
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% of sales | 21.6% | 20.8% |
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| 22.2% | 21.4% |
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Net earnings | $ 212,500 | 173,659 | 22.4% |
| $ 112,306 | 94,112 | 19.3% |
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Net earnings per share (basic) | $ 0.72 | 0.59 | 22.0% |
| $ 0.38 | 0.32 | 18.8% |
On June 30, 2012, we had 2,635 stores. During the first six months of 2012, we opened 53 new stores, an increase of 2.1% since December 2011 (we opened 75 new stores in the same period of 2011). On June 30, 2012, we operated 13,036 FAST SolutionsSM (industrial vending) machines. During the first six months of 2012, we installed 5,583 new machines, an increase of 74.9% since December 2011 (we installed 1,942 machines in the same period of 2011). On June 30, 2012, we had 15,578 employees, an increase of 2.7% since December 2011.
Similar to previous quarters, we have included comments regarding several aspects of our business:
Monthly sales changes, sequential trends, and end market performance — a recap of our recent sales trends and some insight into the activities with different end markets.
Growth drivers of our business — a recap of how we grow our business.
Profit drivers of our business — a recap of how we increase our profits.
Statement of earnings information — a recap of the components of our income statement.
Operational working capital, balance sheet, and cash flow — a recap of the operational working capital utilized in our business, and the related cash flow.
While reading these items, it is helpful to appreciate several aspects of our marketplace: (1) it's big, the North American marketplace for industrial supplies is estimated to be in excess of $160 billion per year (and we have expanded beyond North America), (2) no company has a significant portion of this market, (3) many of the products we sell are individually inexpensive, (4) when our customer needs something quickly or unexpectedly our local store is a quick source, and (5) the cost to manage and procure these products can be significant.
Our motto is Growth through Customer Service. This is important given the points noted above. We believe in efficient markets — to us, this means we can grow our market share if we provide the greatest value to the customer. We believe our ability to grow is amplified if we can service our customer at the closest economic point of contact.
The concept of growth is simple, find more customers every day and increase your activity with them. However, execution is hard work. First, we recruit service minded individuals to support our customers and their business. Second, we operate in a decentralized fashion to help identify the greatest value for our customers. Third, we build a great machine behind the store to operate efficiently and to help identify new business solutions. Fourth, we do these things every day. Finally, we strive to generate strong profits; these profits produce the cash flow necessary to fund the growth and to support the needs of our customers.
MONTHLY SALES CHANGES, SEQUENTIAL TRENDS, AND END MARKET PERFORMANCE
Note — Daily sales are defined as the sales for the period divided by the number of business days (in the United States) in the period.
This section focuses on three distinct views of our business — monthly sales changes, sequential trends, and end market performance. The first discussion regarding monthly sales changes provides a good mechanical view of our business based on the age of our stores. The second discussion provides a framework for understanding the sequential trends (that is, comparing a period to the immediately preceding period) in our business. Finally, we believe the third discussion regarding end market performance provides insight into activities with our various types of customers.
MONTHLY SALES CHANGES:
All company sales — During the months in 2012, 2011, and 2010, all of our selling locations, when combined, 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. |
2012 | 21.3% | 20.0% | 19.3% | 17.3% | 13.1% | 14.0% |
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2011 | 18.8% | 21.5% | 22.8% | 23.2% | 22.6% | 22.5% | 22.4% | 20.0% | 18.8% | 21.4% | 22.2% | 21.2% |
2010 | 2.4% | 4.4% | 12.1% | 18.6% | 21.1% | 21.1% | 24.4% | 22.1% | 23.5% | 22.4% | 17.9% | 20.9% |
The growth in the first three months of 2012 generally continued the relative strength we saw in 2011 and in most of 2010. The April to June 2012 time frame experienced a reduction in our daily sales growth rate as the market we sell into slowed (see further discussion in sequential trends and end market performance). The change in currencies in foreign countries (primarily Canada) relative to the United States dollar lowered our daily sales growth rate by 0.4% during the first six months of 2012 (this lowered growth in the first and second quarters was 0.3% and 0.6% respectively, and was heavily weighted to May and June). This was a sharp contrast to 2011 and 2010, when changes in foreign currencies increased our growth in the first six months by 1.0% and 0.9%, respectively.
Stores opened greater than two years — Our stores opened greater than two years (store sites opened as follows: 2012 group — opened 2010 and earlier, 2011 group — opened 2009 and earlier, and 2010 group — opened 2008 and earlier) represent a consistent 'same-store' view of our business. During the months in 2012, 2011, and 2010, the stores opened greater than two years 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. |
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2012 | 18.8% | 17.1% | 16.8% | 14.5% | 10.1% | 11.1% |
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2011 | 16.0% | 18.4% | 19.4% | 19.6% | 19.2% | 19.1% | 18.7% | 16.5% | 15.2% | 18.0% | 18.5% | 17.5% |
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2010 | 0.6% | 2.3% | 9.6% | 16.3% | 18.5% | 18.3% | 21.3% | 19.2% | 19.8% | 18.8% | 14.1% | 16.8% |
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Stores opened greater than five years — The impact of the economy, over time, is best reflected in the growth performance of our stores opened greater than five years (store sites opened as follows: 2012 group — opened 2007 and earlier, 2011 group — opened 2006 and earlier, and 2010 group — opened 2005 and earlier). This group is more cyclical due to the increased market share they enjoy in their local markets. During the months in 2012, 2011, and 2010, the stores opened greater than five years 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. |
2012 | 17.4% | 15.8% | 15.7% | 13.7% | 9.0% | 10.2% |
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2011 | 15.3% | 17.9% | 19.2% | 19.1% | 17.9% | 18.2% | 17.3% | 15.2% | 14.5% | 17.0% | 17.4% | 16.9% |
2010 | -2.1% | -0.5% | 7.4% | 14.9% | 17.3% | 16.2% | 19.8% | 18.2% | 18.9% | 17.9% | 13.2% | 16.0% |
SEQUENTIAL TRENDS:
We find it helpful to think about the monthly sequential changes in our business using the analogy of climbing a stairway — This stairway has several predictable landings where there is a pause in the sequential gain (i.e. April, July, and October to December), but generally speaking, climbs from January to October. The October landing then establishes the benchmark for the start of the next year.
History has identified these landings in our business cycle. They generally relate to months with impaired business days (certain holidays). The first landing centers on Easter, which alternates between March and April (Easter occurred in April in 2012, 2011, and 2010), the second landing centers on July 4th, and the third landing centers on the approach of winter with its seasonal impact on primarily our construction business and with the Christmas / New Year holidays. The holidays we noted impact the trends because they either move from month-to-month or because they move around during the week.
The table below shows the pattern to our sequential change in our daily sales. The line labeled 'Past' is an historical average of our sequential daily sales change for the period 1998 to 2003. We chose this time frame because it had similar characteristics, a weaker industrial economy in North America, and could serve as a benchmark for a possible trend line. The '2012', '2011', and '2010' lines represent our actual sequential daily sales changes. The '12Delta', '11Delta', and '10Delta' lines indicate the difference between the 'Past' and the actual results in the respective year.
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| Cumulative change |
Past | 0.9% | 3.3% | 2.9% | -0.3% | 3.4% | 2.8% | -2.3% | 2.6% | 2.6% | -0.7% |
| 12.6% |
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2012 | -0.3% | 0.5% | 6.4% | -0.8% | 0.5% | 2.5% |
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| 9.3% |
12Delta | -1.2% | -2.8% | 3.5% | -0.5% | -2.9% | -0.3% |
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| -3.3% |
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2011 | -0.2% | 1.6% | 7.0% | 0.9% | 4.3% | 1.7% | -1.0% | 1.4% | 3.4% | 0.7% |
| 16.3% |
11Delta | -1.1% | -1.7% | 4.1% | 1.2% | 0.9% | -1.1% | 1.3% | -1.2% | 0.8% | 1.4% |
| 3.7% |
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2010 | 2.9% | -0.7% | 5.9% | 0.6% | 4.8% | 1.7% | -1.0% | 3.5% | 4.5% | -1.5% |
| 12.7% |
10Delta | 2.0% | -4.0% | 3.0% | 0.9% | 1.4% | -1.1% | 1.3% | 0.9% | 1.9% | -0.8% |
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(1) The January figures represent the percentage change from the previous October, whereas the remaining figures represent the percentage change from the previous month. |
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A graph of the sequential daily sales change pattern discussed above, starting with a base of '100' in the previous October and ending with the next October, would be as follows: http://media.globenewswire.com/cache/11647/file/14529.pdf
Several observations stand out while viewing the 2012 sequential pattern: (1) The historical sequential pattern (increased daily sales on a sequential basis in February, March, May, and June and decreased daily sales on a sequential basis in April) has played out each month; however, the cumulative growth in the daily sales from January to June has fallen short of the benchmark figure and of the actual results in 2011 and 2010. (2) The magnitude of the February and May '12Delta' of approximately -2.8% was similar. This fact, as well as the choppiness of the year in general, has caused us to approach the year with a conservative tone. (3) The recent weakness has been amplified by changes in foreign currencies (primarily Canada) relative to the U.S. dollar.
This report has been truncated. To view the full report, please visit www.fastenal.com.
