Fastenal Company reports Q3 earnings

The Fastenal Company, Winona, MN, reported net sales for the three-month period ended Sept. 30 totaled $207.1 million, an increase of 7.3% over the $192.9 million in the third quarter of 2000. Net earnings decreased from $20.8 million in the third quarter of 2000 to $17.0 million in the third quarter of 2001, a decrease of 18.3%. Net sales for the nine-month period ended Sept. 30 totaled $613.0 million, an increase of 9.9% over the $557.8 million in the same period of 2000. Net earnings decreased from $61.8 million in the first nine months of 2000 to $56.8 million in the same period of 2001, a decrease of 8.2%.

During the third quarter of 2001, Fastenal opened 25 new sites, bringing the total number of sites to 1,016. There were 4,418 site employees as of September 30, 2001, an increase of 1.4% over December 31, 2000.

Fastenal completed the acquisition of certain assets and liabilities of the retail fastener and related hardware business of two subsidiaries of Textron, Inc. at the end of August. The 2001 sales disclosed above include $2.3 million of sales from the acquired entity. The acquired operation lowered the company's gross margin from 51.3% to 51.0% for the quarter. The remaining discussion excludes the impact from the acquisition discussed above.

The first nine months of 2001 had daily sales growth rates of 20.3%, 16.4%, 11.7%, 9.1%, 9.5%, 7.7%, 7.5%, 6.1%, and 4.9%. The January 2001 growth of 20.3% represented a noticeable recovery from the 17.8% growth in daily sales experienced in December 2000. However, the general decline in the daily sales growth rates continues a trend, which began in November 2000, reflecting the overall weakening of the industrial economy in North America. The company said it believes the September sales were impacted approximately $1.5 million due to the events of September 11th; and absent this growth would have been just over 7%. This would have indicated a possible bottom to the trend.

The company experienced negative earnings leverage (growth in earnings versus growth in sales) during the nine-month and three-month periods ended Sept. 30. This was due to (1) the decrease in gross margin, caused primarily by changes in product mix, (2) the additional expenses of store site openings (see comments below), (3) the added impact of increases in utility, motor fuel, and health care costs when compared to the same period in 2000, and (4) the increase in depreciation expense associated with additions of property and equipment, most notably software and hardware for the company's management information system.

The company opened 36, 50, 44, and 25 new store sites during the fourth quarter of 2000 and the first three quarters of 2001, respectively, for a total of 155 (or 18.0%). While the new stores continue to build the infrastructure for future growth, the added expenses related to payroll, occupancy, and transportation costs impact the company's ability to leverage earnings in a slowing industrial economy. As disclosed in the past, it has been the company's experience that new stores take approximately ten to twelve months to achieve profitability.

At the end of 2000 Fastenal indicated its plan was to open approximately 10% to 15% new stores (90 to 135) in 2001. Its current plans anticipate opening approximately eleven additional stores, which would bring total openings for the year to approximately 130.