News Column

Small dip in Fastenal profit margin sends stock sharply lower

July 12, 2014

By Evan Ramstad, Star Tribune (Minneapolis)



July 12--Fastenal Co. said Friday that a slight dip in its second-quarter profit margin may persist as it presses for sales growth in the reviving economy.

But that message spooked investors, leading to a 4.2 percent decline in the company's stock. It was the sharpest drop in nearly six months for the stock and came on four times its normal trading volume.

"There are always competing priorities within any organization; for us, two of those priorities are sales growth and gross profit," Fastenal said in a statement. "Today the dial is closer to sales growth, and this is reflected in a lower gross profit percentage."

The performance of the Winona-based seller of construction and industrial supplies is widely seen as a bellwether for manufacturing and building sectors.

Fastenal's net profit grew 8 percent to $130.5 million, or 44 cents a share, in the April-to-June period, in line with analysts' forecasts. Sales grew 12 percent to $949.9 million.

But the company's gross profit margin came in at 50.8 percent, the first time since the end of 2009 that it fell below the typical 51-53 percent range. The company cited changes in its product mix and "a strong sales growth emphasis" for the dip.

As the company spends more money to facilitate sales growth in the coming quarters, Fastenal said, "The bottom half, and possibly just below the range, is a likely outcome for the short term."

The company said it continues to rely less on stores and more on its industrial vending operation, in which protective gear and products used by factory workers are sold in the plants themselves.

Fastenal said the vending machines, along with contracted delivery service to factories and construction sites, are retaining customers at a higher rate.

The company also continues to shuffle its store locations in response to performance measures and shifts in customer demand. It said it closed eight stores during the latest quarter, though it had opened others and overall store-derived revenue grew. At the end of the period, Fastenal had 2,684 stores, down from 2,687 at the start of the year.

Separately, the company said it was trying to shorten the time in which it is paid for goods, which it said has grown in recent years as large customers pressed Fastenal for terms that included a longer time to make payments.

"We have had similar short-term accounts receivable challenges in the past, and we have found ways to counteract the issue," the company said.

Evan Ramstad -- 612-673-4241

___

(c)2014 the Star Tribune (Minneapolis)

Visit the Star Tribune (Minneapolis) at www.startribune.com

Distributed by MCT Information Services


For more stories on investments and markets, please see HispanicBusiness' Finance Channel



Source: Star Tribune (Minneapolis, MN)


Story Tools






HispanicBusiness.com Facebook Linkedin Twitter RSS Feed Email Alerts & Newsletters