Fastenal posts lower earnings but higher sales
By Rich Vurva, Editor/Publisher, Industrial Supply magazine
Fastenal reported sales in the first quarter 2016 increased by 3.5 percent to $986.7 million, compared to sales of $953.3 million in the same period last year. Net earnings, however, declined by 1.1 percent for the period, to $126.2 million from $127.6 million in the first quarter of 2015.
What is the reason behind the lower earnings despite an increase in sales?
Fastenal president and CEO Daniel Florness shed some light on that topic in a conference call with analysts following the release of the company’s earnings report yesterday. While sales of national accounts, onsite business and industrial vending solutions are on the rise, sales to traditional customers have been soft as those traditional accounts have struggled in a weak environment.
During the first quarter, the Winona, Minn.-based distributor signed 50 new national account customers. That compares to 35 new contracts signed in the first quarter of 2015.
“With the growth drivers we have in place, particularly with large account customers, the larger our customers get, typically the lower the gross margins. So, as we’ve seen great success in that business, we’ve seen some trade off in gross margin,” Florness said.
He added that the pace of growth in industrial vending also picked up in the quarter compared to historical averages. During the first quarter of 2015 and the fourth quarter of 2015, Fastenal signed roughly 4,000 vending devices. In the first quarter of 2016, vending customer signings improved to 4,700.
The company also continues to expand its Onsite business, which it defines as accounts with dedicated sales and service provided from within the customer's facility. Fastenal’s goal is to sign 200 Onsite customer locations in 2016 compared to 82 locations in 2015. Forty-eight Onsite customer accounts have been launched so far in 2016.
“We’re doing a wonderful job of signing new national accounts, we’re doing a wonderful job of signing new onsites, we’re doing a wonderful job of signing new vending customers and growing those pieces of the business. So we’re taking market share. What’s causing us to struggle is our existing customers are struggling in a weak environment. So, the more mature component of our business is going backwards. And that mature piece has a better gross margin profile,” Florness explained.
He added that gross profit decreased from 50.8% in the first quarter of 2015 and 49.9% in the fourth quarter of 2015 to 49.8% in the first quarter of 2016. He said the company expects gross profit margins to perform at historical levels moving forward.