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Fastenal Company (FAST)

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Fastenal (FAST)

Q4 2012 Earnings Call

January 17, 2013 10:00 am ET

Executives

Ellen Trester

Willard D. Oberton - Chief Executive Officer and Executive Director

Daniel L. Florness - Chief Financial Officer, Principal Accounting Officer, Executive Vice President and Treasurer

Analysts

Holden Lewis - BB&T Capital Markets, Research Division

Adam William Uhlman - Cleveland Research Company

Robert Barry - UBS Investment Bank, Research Division

Luke L. Junk - Robert W. Baird & Co. Incorporated, Research Division

John Anthony Baliotti - Janney Montgomery Scott LLC, Research Division

Presentation

Operator

Good day, ladies and gentlemen, and welcome to the Fastenal Company Q4 and Full Year 2012 Earnings Results. [Operator Instructions] As a reminder, today's conference may be recorded. I would now like to turn the call over to your host, Ellen Trester, Investor Relations. Please begin.

Ellen Trester

Welcome to the Fastenal Company 2012 Annual and Fourth Quarter Earnings Conference Call. This call will be hosted by Will Oberton, our Chief Executive Officer; and Dan Florness, our Chief Financial Officer. The call will last for up to 45 minutes. The call will start with a general overview of our quarterly results in operations by Will and Dan, with the remainder of the time being open for questions and answers. Today's conference call is a proprietary Fastenal presentation and is being recorded by Fastenal. No recording, reproduction, transmission or distribution of today's call is permitted without Fastenal's consent. This call is being audio simulcast on the Internet via the Fastenal Investor Relations homepage, investor.fastenal.com. A replay of the webcast will be available on the website until March 1, 2013, at midnight, Central Time.

As a reminder, today's conference call includes statements regarding the company's anticipated financial and operating results, as well as other forward-looking statements based on current expectations as defined by the Private Securities Litigation Reform Act of 1995. Forward-looking statements may often be identified with words such as we expect, we anticipate, upcoming or similar indications of future expectations. It is important to note that the company's actual results may differ material from those anticipated. Information on factors that could cause actual results to differ material from these forward-looking statements are contained in the company's periodic filings with the Securities and Exchange Commission, and we encourage you to review those carefully. Investors are cautioned not to place undue reliance on such forward-looking statements as there is no assurance that the matter contained in such statements will occur. Forward-looking statements are made as of today's date only, and we undertake no duty to update the information provided on this call.

I would now like to turn the call over to Will Oberton. Go ahead, Mr. Oberton.

Willard D. Oberton

Thank you, Ellen, and thank you, everybody, for joining us today. Most of the comments that I am going to make this morning are going to be based on the quarter, not the annual numbers. Starting out with the quarter, as you can see, sales were slow for the quarter. There's -- I don't believe there's any surprise in that because we announced the monthly numbers. We did see a little bit of an uptick in December, which was positive.

A little color on the numbers. The sales growth was consistent throughout our business. Geographies, end markets, everything has been a step-down from where we were earlier in the year. We're not seeing any areas that are far slower or more positive, so it's interesting watching it, but it just looks to be a general slowdown across the markets that we served.

One exemption from a customer grouping, and you'll note that -- or you'll see that on Page 7. If you look at our vending customers, they grew about 34% in the first quarter and dropped to about 28% in the fourth quarter, a drop of about 5% to 6%. And at the same time period, our company's growth dropped by almost 12%. It's too early for us to really understand what happened there, but it's a positive because it's a growing part of our business. We take that as a real positive.

Switching to the margin. Year-over-year, for the entire year, our margin was down 30 basis points, which is disappointing because we work very hard on that. On a quarterly basis, this is the first or the only quarter of the year that we actually showed an improvement year-over-year, picking up 40 basis points over the fourth quarter of 2011. So directionally, we're very upbeat about margin. We have a lot of projects that we're working on, and our goal is to be in the top half of our range of 52% to -- or excuse me, 51% to 53% for 2013. And we're going to work very hard to try and make that happen. But as the year goes on -- or as the year went on, it seemed to improve.

From an expense control standpoint, all I can say is to the Fastenal, the blue team, is I think they did -- we've done a nice job. We've -- our expenses grew on the fourth quarter by about 7.5%, and there were a few things that made that a little harder. Our vending bonuses that we announced at the beginning of the year were very tail-loaded because it was a 12-month incentive, and they billed [ph] as the year but there were a lot of people pushing hard. And you saw that in our vending numbers to achieve that goal at the end of the year, so that was a much larger number than we've seen in previous quarters. It's a great way to spend money, I believe, or is a good initiative.

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