Investor Teleconference Presentation First Quarter Fastenal Company April 11, 2018

Transcription

1 Investor Teleconference Presentation First Quarter 2018 Fastenal Company April 11,

2 Safe Harbor Statement All statements made herein that are not historical facts (e.g., goals regarding Onsite and vending signings as well as expectations regarding FTE, leverage, cash flow, and capital expenditures) are forward-looking statements within the meaning of the Private Securities Litigation Reform Act of Such statements involve known and unknown risks, uncertainties and other factors that may cause actual results to differ materially. More information regarding such risks can be found in the Form 10-K for Fastenal Company for the year ended December 31, 2017 filed with the Securities & Exchange Commission and our earnings release issued on April 11, Any numerical or other representations in this presentation do not represent guidance by management and should not be construed as such. The appendix to the following presentation includes a discussion of certain non-gaap financial measures. Information required by Regulation G with respect to such non-gaap financial measures can be found in the appendix. 2

3 $0.70 $0.60 $0.50 $0.40 $0.30 $0.20 $0.10 $0.00 CEO Messages on 1Q18 EPS (Fully-Diluted) $0.46 $0.61 Notwithstanding the noise of weather and the timing of the Good Friday holiday, demand remains healthy, contributing to our sales growing 13% and our pre-tax profit growing 10%. 1Q18 EPS of $0.61 grew 31%, and included benefits from tax reform of approximately $0.10. Growth drivers performed well, with 1Q18 signings of vending devices and Onsite locations putting us on pace to achieve our annual targets. 18% 16% 14% 12% 10% 8% 6% 4% 2% 0% Daily Sales Rate (DSR) Growth 13.6% 14.8% 13.2% 10.6% 6.2% 1.9% 1.6% 1.8% 2.7% We leveraged operating expenses in the quarter, but gross profit margin was a challenge. This included a function of mix, Mansco and inflationary pressures that were only partly offset via pricing. Cash flow was weaker than usual for a first quarter, primarily related to a build in accounts receivable. 3

4 Q18 Growth Driver Update Onsite Signings and Active Locations Active Locations Signings Vending Device Signings and Installed Base 2 (in thousands) We signed 100 Onsites in 1Q18, up 56.3% from 1Q17 and finished 1Q18 with 678 active sites, up 55.1%. Our 2018 goal for Onsite signings remains Total in-market 1 locations were 3,007 at the end of 1Q18, up from 2,917 at the end of 1Q17, with growth in Onsite locations more than offsetting a decline in our public branch count. We signed 5,679 vending devices in 1Q18, up 4.5% from 1Q17 while the number of devices removed in the quarter were down 18.3%. Our installed base of devices is up 14.2% annually. Our 2018 goal for vending device signings remains 21,000-23,000. Product sales through our vending devices were up 20%+ due to growth in the installed base and growth in revenue per machine. National Accounts daily sales rose 17.3% in 1Q18 from 1Q17. Installed Base Signings 1 In-market locations include public branches (U.S. and ROW) plus Onsites 2 Vending data excludes units related to our leased locker program 4

5 1Q18 Business Cadence 20% 15% 10% 5% 0% -5% 20% 15% 10% 5% 0% -5% Heavy Equipment Total Mftring Construction Fasteners (35.0% of Sales) End Market DSRs 1 Product Category DSRs 15.2% 14.3% 9.6% 14.5% 11.8% Non-Fasteners (65.0% of Sales) The U.S. PMI averaged 59.7 in 1Q18, vs in 1Q17 and 58.9 in 4Q17. U.S. Industrial Production was up 3.5% in Jan./Feb vs. 1Q17 and up 0.7% vs. 4Q17. Growth was led by heavy machinery and general industrial manufacturing, as well as manufacturing into transportation and construction verticals. Construction sales growth of 9.6% reflected difficult weather in January and double-digit growth in February and March. Fastener daily sales rose 11.8% in 1Q18 vs. 1Q17; Mansco contributed 3.7pps. Non-fastener daily sales were up 14.5% in 1Q18 vs. 1Q17. Sales at 66% of our branches grew in 1Q18, vs. 65% in 4Q17. Of our Top 100 National Accounts, 78 grew in 1Q18 up from 72 in 4Q17. 1 In July 2017, we reclassified certain end market designations. Values shown in the chart at the top of this page will differ from prior presentations. 5

6 1Q18 Results Summary Annual Rates of Change 1Q18 1Q17 % Chg. Dollar amounts in millions, except per share amounts Net Sales $1,185.8 $1, % DSR Yr./Yr. % Chg % Gross Profit $577.6 $ % Gross Profit Margin 48.7% 49.4% (73) bps Employee-Related Exp. 14.4% Occupancy-Related Exp. 7.7% Selling Transportation Exp. 12.3% Operating Income $234.5 $ % Operating Income Margin 19.8% 20.3% (50) bps EPS (Fully-Diluted) $0.61 $ % Onsite Signings % Vending Device Signings 5,679 5, % Branch Count 2,329 2,480 (6.1%) In-market location FTE 11,878 11, % Total FTE 18,004 16, % Operating Cash Flow $159.7 $210.4 (24.1%) % of Net Earnings 91.6% 156.8% Capital Expenditures (Net) $28.8 $ % Dividends $106.4 $ % Dividends Per Share $0.37 $ % Share Repurchase Total Debt $405.0 $ % Tot. Debt/Capital 15.7% 15.6% 0.6% Percentage calculations may not be able to be reproduced due to rounding of dollar values. Gross profit margin was 48.7% in 1Q18, down 73 bps from 49.4% in 1Q17. Mix, inclusion of Mansco, and higher freight costs contributed to the margin decline. We believe steps taken in 4Q17 to mitigate the impact of inflation on our business contributed bps of growth in 1Q18. We expect further progress with these initiatives in 2Q18. Our 1Q18 operating margin fell 50 bps from 1Q17 to 19.8% with the lower gross profit margin more than offsetting 22 bps of operating expense leverage. This leverage was from general corporate and occupancy costs growing below sales in the period, the latter due mostly to a lower public branch count. Employee-related expenses grew slightly faster than sales due to higher absolute and FTE headcount of 6.0% and 7.4%, respectively, and higher incentive compensation. Certain items that weigh on leverage, notably higher incentive pay and the blending of Mansco, may have less of an impact in 2Q18 since Mansco was acquired prior to 2Q17. 6

7 1Q18 Cash Flow Profile Operating Cash Flow (in millions) 156.8% * Percentages above the bar represent OCF as a % of Net Earnings Net Capital Expenditures and Depreciation (in millions) 2018 Net CapEx Target: ~$149.0M $ % $28.8 Generated operating cash flow of $159.7M in 1Q18, a conversion rate of 91.6%. Better operating results offset by growth in working capital. Accounts receivable were up 19.8% due to healthy business activity and the relative growth of National Accounts and international business. Inventory was up 12.7%, consistent with our growth in sales. Net capital spending in 1Q18 was $28.8, up 50.8% from 1Q17. This increase relates primarily to higher spending on automation and upgrades in existing hubs to support growth. We continue to anticipate capital spending in 2018 of $149.0M. Total debt was 15.7% of total capital in 1Q18, slightly below 4Q17 (16.5%) but consistent with 1Q17 (15.6%). Depreciation Net Capital Expenditures 7

8 Appendix Non-GAAP Financial Measures The appendix includes information on our Return on Invested Capital ( ROIC ), which is a non-gaap financial measure. We define ROIC as net operating profit less income tax expense divided by average invested capital over the trailing 12 months. We believe ROIC is a useful financial measure for investors in evaluating the efficiency and effectiveness of our use of capital and believe ROIC is an important driver of shareholder return over the long-term. Our method of determining ROIC may differ from the methods of other companies, and therefore may not be comparable to those used by other companies. Management does not use ROIC for any purpose other than the reasons stated above. The tables that follow on page 9 include a reconciliation of the calculation of our return on total assets ( ROA ) (which is the most closely comparable GAAP financial measure) to the calculation of our ROIC for the periods presented. On December 22, 2017, new tax legislation commonly referred to as the Tax Cuts and Jobs Act (the 'Tax Act') was signed into law. Our first quarter of 2017 ROIC including the impact of the Tax Act noted on page 9, is a non-gaap financial measure. Management believes reporting this measure will help investors understand the effect of tax reform on comparable reported results. 8

9 Return on Invested Capital* Calculation of Return on Invested Capital TTM 1Q18 (Amounts in millions) TTM 1Q17 Operating Income $ (Income Tax Expense) (275.4) (293.4) Tax Act Adjustment NOPAT $ Total Current Assets $ 1, ,789.0 Cash and Cash Equivalents (135.7) (142.4) Accounts Payable (138.9) (144.1) Accrued Expenses (181.6) (171.4) Property & Equipment, Net Other Assets Invested Capital $ 2, ,256.7 ROIC 27.9% 27.1% 1 Reflects application of our expected post-tax Act tax rate to prior periods for purposes of comparison. * Amounts may not foot due to rounding differences. Reconciliation of ROIC to Return on Assets (ROA) (Amounts in millions) TTM 1Q18 TTM 1Q17 Net Earnings $ Total Assets $ 2, ,714.6 ROA 21.3% 18.7% NOPAT $ Add: Income Tax Expense Subtract: Tax Act Adj. 1 (55.6) (97.2) Operating Income Add: Interest Income Subtract: Interest Expense (10.1) (6.8) Subtract: Income Tax Expense (275.4) (293.4) Net Earnings $ Invested Capital $ 2, ,256.7 Add: Cash and Cash Add: Accounts Payable Add: Accrued Expenses Total Assets $ 2, ,

10 Sequential Trends* DSR BENCHMARKS Cum. Chg., Cum. Chg., Cum. Chg., Cum. Chg., Jan.** Feb. Mar. Jan. to Mar. Apr. May June Jan. to Jun. July Aug. Sep. Jan. to Sep. Oct. Jan. to Oct. Nov. Dec. BENCHMARK (1.0%) 1.1% 3.9% 5.1% (0.6%) 2.1% 1.9% 8.7% (3.7%) 4.0% 1.7% 10.7% (1.9%) 8.6% (3.8%) (7.1%) 2018 DSR (1.3%) 4.0% 2.1% 6.2% Delta v.. Benchmark (0.4%) 2.9% (1.9%) 1.0% 2017 DSR 0.2% 1.5% 3.6% 5.1% 2.2% 1.4% 2.8% 12.0% (2.4%) 2.2% 3.8% 16.0% (2.1%) 13.5% (4.2%) (7.1%) Delta v. Benchmark 1.2% 0.4% (0.4%) 0.0% 2.8% (0.7%) 1.0% 3.3% 1.3% (1.8%) 2.1% 5.3% (0.3%) 4.9% (0.4%) 0.0% 2016 DSR 0.4% (0.8%) 1.5% 0.7% 1.7% 0.6% (0.2%) 2.9% (2.3%) 2.4% 1.5% 4.5% (0.9%) 3.6% (5.5%) (6.6%) Delta v. Benchmark 1.3% (1.9%) (2.5%) (4.4%) 2.3% (1.5%) (2.0%) (5.8%) 1.4% (1.7%) (0.1%) (6.2%) 1.0% (5.1%) (1.7%) 0.5% 2015 DSR (3.6%) (0.1%) 4.2% 4.0% (2.1%) 3.4% 0.9% 6.3% (4.3%) 4.1% (0.9%) 5.0% (2.0%) 2.9% (3.0%) (8.4%) Delta v. Benchmark (2.7%) (1.2%) 0.2% (1.1%) (1.5%) 1.3% (0.9%) (2.4%) (0.6%) 0.1% (2.6%) (5.7%) (0.1%) (5.7%) 0.8% (1.3%) Days Count Total * Acquisition of Mansco lifted the 2017 DSRs for April along with the Jan. to June, Jan. to Sep., and Jan. to Oct. Cumulative Changes by 1.3pps each. ** The January average is based on the historical change in January vs. October. All other months are sequential. Notes: Good Friday was during March in 2018 vs. April in Amounts may not foot due to rounding differences. 10

11 Employee Statistics Absolute Count HEADCOUNT STATISTICS 1Q18 1Q17 Change 4Q17 Change Branches/Onsites 13,745 13, % 13, % Non-Branch Selling 1,762 1, % 1, % Selling Personnel 15,507 14, % 15, % Distribution 3,572 3, % 3,575 (0.1)% Manufacturing % % Administrative 1,251 1, % 1, % Non-Selling Personnel 5,495 5, % 5, % Total Personnel 21,002 19, % 20, % FTE Count 1Q18 1Q17 Change 4Q17 Change 11,878 11, % 11, % 1,717 1, % 1, % 13,595 12, % 13, % 2,598 2, % 2, % % % 1,174 1, % 1, % 4,409 4, % 4, % 18,004 16, % 17, % NOTES: FTE Full-Time Equivalent. FTE is based on 40 hours per week. Mansco had 123 employees (111 FTE) at the end of March 2018 that were not in the 1Q17 Employee Statistics. Its inclusion in the figures above increased the year-over-year (1Q18 versus 1Q17) percentage change in total absolute and FTE headcount by 0.6 pps and 0.7 pps, respectively. 11

12 In-Market Location Statistics BRANCH STATISTICS New Branch openings 1Q Q Q Q Cumulative Closed/Converted Branches Closed Branches Closed (Curr. Quarter) 0 (1) 0 (11) (6) (2) (41) (9) (65) (37) (49) Closed (Annual) (8) (10) (7) (28) (16) (16) (73) (50) (144) (130) (49) Converted Branches (Annual) Branch-to-Customer Only (2) (1) (1) 0 0 (2) (2) (6) (16) (8) (5) Customer Only-to-Branch Cumulative (10) (11) (6) (27) (13) (18) (74) (56) (159) (138) (54) Branch Count 2,311 2,369 2,490 2,585 2,652 2,687 2,637 2,622 2,503 2,383 2,329 Active Onsites TOTAL IN-MARKET LOCATIONS 2,311 2,369 2,490 2,585 2,652 2,687 2,851 2,886 2,904 2,988 3,007 NOTES: As of March 31, 2018, includes 2,034 branches in the U.S., 191 in Canada, and 104 in the rest of the world. Branch Count includes all locations that sell to multiple customer accounts (traditional branches, overseas branches, and strategic accounts branches). It excludes locations that sell to single customer accounts (strategic accounts sites and Onsite locations). Onsite location information prior to 2014 is intentionally omitted. While such locations have existed since 1992, we did not specifically track their number until we identified our Onsite program as a growth driver in

13 End Market Profile End Market Mix Other, 5.3% Transportation, 2.3% Gov't/Education, 3.7% Reseller, 9.1% Manufacturing, 41.1% Construction, 13.0% Mfg - Heavy Equip., 25.4% MAJOR SEGMENT GROWTH Full (Daily Sales rates) Jan. Feb. Mar. Apr. May June July Aug. Sep. Oct. Nov. Dec. Year Manufacturing % 15.9% 14.0% 14.3% (incl. Heavy Equip.) % 6.4% 8.4% 9.2% 10.3% 14.9% 14.4% 14.6% 16.9% 15.7% 17.2% 16.2% 12.3% Construction % 10.5% 10.9% 9.6% % 4.8% 6.6% 5.8% 6.0% 5.7% 5.7% 5.0% 4.9% 6.0% 10.8% 11.9% 6.1% 13