Fastenal Co. (FAST) of Winona, Minnesota has revealed earnings of $45 million or 30 cents per share in the fourth quarter ended December 31, 2009. This was a tad lower than the Zacks Consensus Estimate of 31 cents per share.
However, net income declined 29% from $63 million or 42 cents per share in the fourth quarter of the prior year. Net sales in the quarter fell 12.5% to $476,750.
For the year ended December 31, 2009, earnings were $184 million or $1.24 per share. This also came close to the Zacks Consensus Estimate of $1.25 per share. Compared to the year-ago level, earnings dipped 34% from $280 million or $1.88 per share in 2008. Sales decreased 17.5% to $1.93 billion in the year.
The decline in sales and earnings was attributable to weakened economy, primarily affecting the company’s industrial production and non-residential construction businesses. Sales to manufacturing customers (accounting for 50% of sales historically) contracted 10% in the fourth quarter and 18.8% in the year. The non-residential construction business (accounting for 20%–25% of sales historically) contracted 25% in the fourth quarter and 19% for the year.
During 2009, Fastenal opened 69 stores compared to 161 stores in 2008. The company has closed 10 stores and converted one location to a customer only type. Thus, the company had 2,369 stores on December 31, 2009.
In the fourth quarter, Fastenal repurchased 1.1 million shares of its outstanding stock at an average price of about $37.37 per share for the first time of the year. This was part of repurchase authorization of up to 2 million shares of common stock announced on July 10, 2009. The authorization replaced any unused authorization previously granted by the Board of Directors.
Fastenal had cash and cash equivalents of $165 million as on December 31, 2009, compared to $86 million as on December 31, 2008. In 2009, the company had cash flow of $306 million from operating activities, an improvement from $260 million in the prior-year period. The strong cash flow has helped the company to increase its fourth quarter dividend by 14% to 40 cents per share, payable in February 2010, compared to dividend in the first quarter of 2009.
Meanwhile, capital expenditures reduced to $53 million from $95 million in the year-ago period. This was attributable to absence of any expansion-related expenditure in the second half of 2009 (such as for expansion of distribution centers in Indianapolis and Dallas in 2008 and in the first half of 2009) as well as lower capital expenditures for computer software and equipment, real estate, and vehicles. In 2010, the company expects capital expenditures to decline further to $40 million.
The market appears to be discounting the company’s better cash flow and focusing instead on its vulnerability to persistent economic weakness and unemployment. We recommend the shares of the company as Neutral.
Fastenal Company operates as a wholesaler and retailer of industrial and construction supplies. The company primarily serves manufacturing markets, which include both original equipment manufacturers and maintenance and repair operations, as well as the construction market. It operates stores in the U.S., Puerto Rico, Canada, Mexico, Singapore, China and the Netherlands.
Read the full analyst report on “FAST”
Zacks Investment Research
