Jack Keough: Fastenal Weathering The Industrial Environment Recession

Jack Keough examines Fastenal's Q3 financial report and conference call, in which new CEO Dan Florness commented on the overall state of the industrial distribution market.

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Jack Keough, Contributing EditorNewly-named Fastenal CEO Dan Florness told financial analysts what many in the distribution business have been quietly thinking for the past few months: The "industrial environment" is in a recession.

"I don’t care what anybody says because nobody knows that market better than we do,” he said noting Fastenal reaches thousands of customers a month.

Florness, currently the company’s executive vice president and chief financial officer, mentioned that 44 of his top 100 customers, many of them larger manufacturing firms, were negative in the third quarter. Sales to 17 of those customers were down more than 25 percent while 32 were down more than 10 percent.

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"That’s a sign of a recessionary environment, but despite all that, we continue to add customers at a faster pace than we’ve done in recent years, which is about momentum into the future," he said. "We continue to grow our national account business, which is about momentum, but we have existing customers that are struggling through a pretty weak environment in their own business."

Florness said Fastenal, No. 12 on Industrial Distribution’s 2015 Big 50 list, is on pace to easily exceed its last three years of individual signings with new customers.

Florness"I feel very good about where we are even year-to-date and the fact that we’re almost at the 2014 number right now as far as signings and will easily exceed it through the end of the year," he said. "So I’m very excited about what’s going on in our national accounts business."

He made the comments as Fastenal released its third quarter earnings showing that sales were up only 1.5 percent. That flatness in sales is partially due to a downturn in the oil and gas business, the strength of the U.S. dollar and currency fluctuations.

The company reported quarterly sales of $995.3 million compared to Q2's $997.8 million. A Q3 profit of $136.5 million was a 2.4 percent increase from last year, and a 2.8 percent decrease from Q2.

But Florness, who will assume the CEO role Jan.1, says he is optimistic for future business and noted that Fastenal will return to its strategy to open more stores in 2016 allowing the company to get closer to customers.

He expects Fastenal to open 60 to 75 stores next year, a two to three percent increase over 2015. However, he said he wouldn’t be surprised if Fastenal also closed 20 stores in 2016, meaning a net gain of about 50. No firm number has been set.

The company closed 11 stores in September, ending Q3 with a store count of 2,609, down 28 from last year.

But there are many other reasons for optimism. Fastenal, he says, has established many on-site locations inside the plants of some customers.That business has been steadily increasing.

"It’s a great win-win relationship. We can get onsite, lean up some of our operations, and really take a much wider view of things we can do for the customer. I think that bodes well for us into the future," Florness said.

Fastenal’s vending machine business continues to grow strongly. It ended Q3 with 53,547 installed FAST Solutions industrial vending machines, a 14.3 percent increase from last year.

The company ended Q3 with a total headcount of 19,979, an 8.5 percent increase over last year. Fastenal has added 1,315 people over the last 12 months, with 94 percent of them added since Jan. 1. 

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