Investor Teleconference Presentation Second Quarter 2018 Fastenal Company July 11, 2018 1
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 1995. 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 July 11, 2018. 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
CEO Messages on 2Q18 Non-residential construction sales accelerated while EPS ◦ (Fully-Diluted) manufacturing demand was stable at healthy levels. This contributed to 2Q18 sales growth of 13.1%, a fifth $0.90 straight quarter of double-digit growth. $0.80 $0.74 $0.70 $0.60 $0.52 2Q18 operating income grew 13.3%. Reported EPS ◦ $0.50 were $0.74; however, a discrete tax item added $0.04 $0.40 $0.30 in 2Q18. Beyond the discrete items, we estimate Tax $0.20 Reform added $0.11 to EPS in 2Q18. $0.10 $0.00 1Q16 2Q16 3Q16 4Q16 1Q17 2Q17 3Q17 4Q17 1Q18 2Q18 3Q18 4Q18 Onsite and vending signings are on pace to achieve ◦ our 2018 targets. Daily Sales Rate (DSR) Growth We achieved significant operating cost leverage in the ◦ 18% 14.8% period, including employee-related expenses. Lower 16% 13.6% 13.2% 13.1% 14% gross margin partly reflects a difficult comparison, but 10.6% 12% also a continued challenging price/cost landscape. 10% 8% 6.2% In the context of normal seasonality, operating cash ◦ 6% 1.9% 1.6% 1.8% 2.7% 4% flow improved in 2Q18. We repurchased stock and 2% raised the 3Q18 dividend. 0% 1Q16 2Q16 3Q16 4Q16 1Q17 2Q17 3Q17 4Q17 1Q18 2Q18 3Q18 4Q18 3
2Q18 Growth Driver Update We signed 81 Onsites in 2Q18, +19.1% from 2Q17 and ◦ Onsite Signings and Active Locations 150 780 finished 2Q18 with 761 active sites, +56.6%. Our 2018 761 650 goal for Onsite signings remains 360-385. 120 81 520 90 Total in-market 1 locations were 3,051 at the end of ◦ 390 60 2Q18, up from 2,937 at the end of 2Q17, with growth 260 in Onsites outpacing a decline in public branches. 30 130 0 0 We signed 5,537 vending devices in 2Q18, +13.4% ◦ 1Q16 2Q16 3Q16 4Q16 1Q17 2Q17 3Q17 4Q17 1Q18 2Q18 3Q18 4Q18 from 2Q17. Our installed base of devices is +14.3% annually. Product sales through our vending devices Active Locations Signings were +20%-plus. Our 2018 goal for vending device Vending Device Signings and Installed Base 2 signings remains 21,000-23,000. (in thousands) 8 80 76.069 7 70 National Accounts daily sales rose 19.1% in 2Q18 from ◦ 6 60 2Q17 (and 20.4% in June). 5.537 5 50 4 40 Non-U.S. daily sales, which approximates 15% of total ◦ 3 30 2 20 sales, rose 20%-plus in 2Q18 from 2Q17. 1 10 0 0 1Q16 2Q16 3Q16 4Q16 1Q17 2Q17 3Q17 4Q17 1Q18 2Q18 3Q18 4Q18 1 In-market locations include public branches (U.S. and ROW) plus Onsites Installed Base Signings 2 Vending data excludes units related to our leased locker program 4
2Q18 Business Cadence End Market Daily Sales Rate (DSR) Growth 1 The U.S. PMI averaged 58.7 in 2Q18, vs. 55.8 in 2Q17 ◦ 20% and 59.7 in 1Q18. U.S. Industrial Production was 15.5% +3.5% in Apr./May 2018 vs. 2Q17 and +1.4% vs. 15.3% 15% 13.3% 1Q18. 10% 5% Non-Residential Construction daily sales were +15.5% ◦ in 2Q18, accelerating to a new cycle high. 0% -5% Manufacturing was +13.3% in 2Q18 and is exhibiting ◦ 1Q16 2Q16 3Q16 4Q16 1Q17 2Q17 3Q17 4Q17 1Q18 2Q18 3Q18 4Q18 stable trends at high levels. Most sub-verticals are growing at healthy levels. Heavy Equipment Total Mftring Construction Fastener daily sales were +11.1% in 2Q18, with June's ◦ Product Category Daily Sales Rate (DSR) Growth +13.5% representing a new cycle high in organic 20% 14.8% terms. Non-fastener daily sales were +14.8% in 2Q18. 15% 11.1% Non-National Account customer growth remains in 10% ◦ the mid-to-high single digit range, with 66% of our 5% branches growing in 2Q18. Of our Top 100 National 0% Accounts, 80 grew in 2Q18, up from 78 in 1Q18. -5% 1Q16 2Q16 3Q16 4Q16 1Q17 2Q17 3Q17 4Q17 1Q18 2Q18 3Q18 4Q18 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. Fasteners (35.4% of Sales) Non-Fasteners (64.6% of Sales) 5
2Q18 Results Summary Steps taken in 4Q17 to mitigate inflation impact added ◦ Annual Rates of Change 2Q18 2Q17 % Chg. 50-100 bps of sales growth in 2Q18. Conditions remain Dollar amounts in millions, except per share amounts Net Sales $1,267.9 $1,121.5 13.1% a challenge, though we expect further progress in DSR Yr./Yr. % Chg. — — 13.1% 3Q18. Gross Profit $617.7 $558.5 10.6% Gross Profit Margin 48.7% 49.8% (110) bps Gross margin was 48.7% in 2Q18, down 110 bps from ◦ Employee-Related Exp. — — 10.0% 49.8% in 2Q17 due mostly to a tough comparison and Occupancy-Related Exp. — — 3.0% product and freight inflation. Sequentially, a modest Selling Transportation Exp. — — 17.6% Operating Income $269.0 $237.5 13.3% price-cost headwind was mostly offset by modest Operating Income Margin 21.2% 21.2% — freight leverage. EPS (Fully-Diluted) $0.74 $0.52 42.6% Our 2Q18 operating margin was flat at 21.2%. Lower ◦ Onsite Signings 81 68 19.1% Vending Device Signings 5,537 4,881 13.4% gross margin was offset by leveraging operating costs. Branch Count 2,290 2,451 (6.6%) Year-to-date SG&A is a record low of 28.2% of sales In-market location FTE 12,214 11,760 3.9% even as we invest in growth for the business. Total FTE 18,444 17,612 4.7% Operating Cash Flow $151.9 $82.9 83.2% Employee-related costs were leveraged as growth in ◦ % of Net Earnings 71.9% 55.7% — FTE and incentive comp moderated. Occupancy costs Capital Expenditures (Net) $25.0 $33.7 (25.8%) were leveraged, with growth in vending charges Dividends $106.3 $92.5 14.9% Dividends Per Share $0.37 $0.32 15.6% mitigated by lower branch-related costs. Share Repurchases $40.4 $56.7 (28.7%) Total Debt $425.0 $445.0 (4.5%) Tot. Debt/Capital 16.0% 18.3% (12.6%) Percentage calculations may not be able to be reproduced due to rounding of dollar values. 6
2Q18 Cash Flow Profile Operating Cash Flow Generated operating cash flow of $151.9M in 2Q18, a ◦ (in millions) conversion rate of 71.9%. Second quarters are usually 250 lower cash conversion periods; the preceding five 225 200 years averaged 57.1%. 175 71.9% 150 Accounts receivable were +19.6% reflecting activity ◦ 125 55.7% 100 levels, our mix of growth, and customers pushing 75 payments out at quarter end. Inventory was +11.4%, 50 25 and our days on hand continues to decline. 0 1Q16 2Q16 3Q16 4Q16 1Q17 2Q17 3Q17 4Q17 1Q18 2Q18 3Q18 4Q18 Net capital spending in 2Q18 was $25.0, -25.8% from ◦ * Percentages above the bar represent OCF as a % of Net Earnings 2Q17. We expect higher spending in the second half Net Capital Expenditures and Depreciation based on timing of projects and on accelerated need (in millions) for additional vending machines. Based on the latter, 2018 Net CapEx 80 we are lifting our 2018 net capital spending goal to Target: ~$158.0M 70 $158.0 (was $149.0). 60 50 $33.7 40 Total debt was 16.0% of total capital in 2Q18, steady ◦ 30 $25.0 with 1Q18 (15.7%) but below 2Q17 (18.3%). 20 10 We have increased our dividend payable in 3Q18 to 0 ◦ 1Q16 2Q16 3Q16 4Q16 1Q17 2Q17 3Q17 4Q17 1Q18 2Q18 3Q18 4Q18 $0.40 (was $0.37), an increase of 8%. Depreciation Net Capital Expenditures 7
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. The information presented on the appendix 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
Recommend
More recommend
