Fastenal Company of Winona, MN (Nasdaq:FAST) reported on July 14, 2015 the results of the quarter ended June 30, 2015. Net sales increased 5% for the three-month period, and 6.8% for the six-month period. Net earnings were up 7.5% for the quarter and 10.5% for the first six months of 2015.

The company noted several items regarding the second quarter results:

(1)  During the last twelve months, Fastenal added 1,129 people into its stores with over 80% (or 910 people) of the additions in the first six months of 2015.

(2)  The first six months of 2015 were hit hard by a slowdown in the company’s business with customers connected to the oil and gas industry. This connection includes direct industry participants as well as those with a geographic connection. Stated the company in a press statement: “That’s the bad news, the good news is that we believe there are signs of stabilization in the last few months.”

(3) Gross profit, during the quarter, was impacted by the added pressure of a continuing change in the mix of customers and products. The company stated that this was expected and it continues to manage operating and administrative expenses during this change.  “Simply put, in the last twelve months we funded all of our headcount expansion by spending less everywhere else. A simple concept, but it takes a focused effort to pull it off,” stated the company.

Explaining business activity

In a press statement, Fastenal said:

“First and foremost, we are a fastener distributor. Our fastener business represents about 40% of our net sales base. This business is split about 50% production/construction needs and about 50% maintenance needs. The former is a great business, but it can be cyclical because about 75% of our manufacturing customer base is engaged in some type of heavy manufacturing.

“Secondly, we also have a non-fastener maintenance and supply business. We have actively pursued this business in the last 20 to 25 years, and this non-fastener business currently represents approximately 60% of our net sales base.  The non-fastener business remains more resilient, (but) similar to our fastener business, our non-fastener business has weakened in the last six months. During this time frame, our non-fastener product line has seen its daily sales growth decrease from about 18% in the last six months of 2014 to about 9% in the second quarter of 2015. The weak environment has hurt our business, but the 9% growth compared to our end markets continues to demonstrate strong market share gains.”

Industrial vending

During the second quarter of 2015, Fastenal signed 5,144 devices (Fastenal signed 3,962 devices in the first quarter of 2015), the company’s installed device count on June 30, 2015 was 50,620 (an increase of 15.7% over June 30, 2014), the percent of total net sales to customers with industrial vending was 40.9%, and daily sales to customers with industrial vending grew 8.6% over the second quarter of 2014.

Sales and sales trends

Fastenal noted these aspects of its marketplace: (1) it’s big, the North American marketplace for industrial supplies is estimated to be in excess of $160 billion per year; (2) no company has a significant portion of this market; (3) many of the products sold are individually inexpensive; (4) when customers need something quickly or unexpectedly the local store is a quick source; (5) the cost and time to manage and procure these products is meaningful; (6) the cost to move these products, many of which are bulky, can be significant; (7) many customers would prefer to reduce their number of suppliers to simplify their business; and (8) many customers would prefer to utilize various technologies to improve availability and reduce waste.