After reporting its 2020 first quarter financial results Tuesday morning, Fastenal discussed the impacts of COVID-19 on its business operations, including staffing, in a conference call with analysts.
The very first question an analyst — David Manthey of Baird — asked was about the company’s full-time-equivalent (FTE) headcount and how any reduction in its figure will compare with that of the 2008-2009 Great Recession. Manthey noted that back then, Fastenal cut its FTE of approximately 12,000 by about 15 percent, or 1,800. Thus, Manthey asked if a 15 percent FTE reduction via attrition and reduction due to cost-savings measures amid the COVID-19 pandemic is a reasonable ballpark expectation.
Fastenal didn’t shy away from the question, having touched on it in CEO Dan Florness’ state-of-the-company opening to Tuesday’s call, and provided thorough color on the subject.
“I wouldn’t see the drop-off being as acute as you saw back in 2009,” Florness said. “We do have a hiring freeze in place. We have pulled back part-time hours. We are letting attrition happen.”
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Fastenal CFO Holden Lewis followed with explaining that the current crisis includes opportunities in the market relative to 2009 that should make headcount attrition not as severe as in 2009. Those opportunities include involvement in product areas of safety, personal protective equipment and janitorial/sanitation — which are all in high-demand since the virus pandemic took off in earnest in the US in mid-March.
The company does not have a formal headcount reduction initiative in place, but does expect natural attrition as the number of branches that are growing fall below 50 percent, as occurred in March.
“Having spoken to a few of the EVPs about what they expect from a headcount standpoint, their expectation is that full time headcount will decline as the field manages their (profits and losses),” Lewis said. “So, I think that you'll see in all of our regions some decline of full-time head count. You'll certainly see a decline of part-time headcount and hours will go down. But right now, with the opportunities that are present and with the uncertainty that are out there, it's not on an order of magnitude that you're referring to.”
Lewis added that the company also expects a natural decline in incentive compensation based on Fastenal’s variable pay programs, and that the company has taken additional steps to reduce employee-related costs by eliminating bonuses for all employees above a certain base earnings threshold.
“Certain discretionary costs such as sales and travel-related selling, as well as branch openings and closings will continue to be managed tightly by field leadership,” Lewis said.
Fastenal ended Q1 (March 31) with a total employee headcount of 22,131, which was down 0.3 percent YoY and up 0.8 percent since the end of 2019. The company ended March with 14,001 headcount (full- and part-time) for in-market locations, and 19,235 total FTE employees.
Florness said during the week of March 15, it expanded its employee benefits program to specifically address COVID-19 issues and it expanded its paid days off.
“Front Door Locked”
Florness said it made the decision March 6 to cancel its annual customer event that was scheduled for April 14-16 in Aurora, CO and was expected to host about 6,000 people. During the following week, Fastenal notified its approximately 300,000 customers that “the front door was locked” at all company locations, though the company would still be open for business. The company also advised its customers to order ahead, and that if they planned to pick up an order at the branch, to call ahead or place an order online so that the product would be ready to be safety handed-off at the front door.
Q1 Fiscals, Branch Count
Fastenal’s Q1 total sales of $1.37 billion increased 4.4 percent year-over-year and increased 7.0 percent from Q4's $1.28 billion, as increased sales of safety products and demand from the government end market more than offset lower sales from the company's Onsite offerings during the second half of March. Fastenal's Q1 gross profit of $637 improved 1.9 percent YoY, operating profit of $271 million improved 3.8 percent and total profit of $203 million improved 4.4 percent.
Fastenal opened three branches during Q1 and closed 26 while activating 87 Onsite locations and closing 22 Onsite locations.
Fastenal said it has reduced its expectations for 2020 capital spending to a range of $155 million to $180 million, down from a previous range of $180 million to $205 million and a decrease from $240 million in 2019.