Fastenal Company (FAST)

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Fastenal Company (FAST)

Q1 2010 Earnings Call

April 13, 2010 10:00 am ET


[Ellen Tressler – IR]

Will Oberton – President & CEO
Dan Florness – EVP & CFO


David Manthey - Robert W. Baird

Jeff Germanotta – William Blair

Brent Rakers - Morgan Keegan

Adam Uhlman - Cleveland Research

Tom Hayes – Piper Jaffray

Sam Darkatsh – Raymond James

Hamzah Mazari - Credit Suisse



Good day ladies and gentlemen and welcome to the Fastenal Company first quarter earnings results conference call. (Operator Instructions) I would now like to introduce your host for today, Ms. Ellen Tressler; please go ahead.

Ellen Tressler

Welcome to Fastenal Company’s 2010 first 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 and 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’s Investor Relations home page at A replay of this webcast will be available on this website until June 1, 2010, 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 maybe often are 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 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.

Will Oberton

Thank you Ellen, and if I speak as fast as you do, we’ll be out of here in three minutes, nice job. Just joking. Good morning everybody. I want to thank everyone for joining us on the call. I want to thank all the Fastenal people because we were able to produce good numbers this quarter due to a lot of hard work by all the people on the team.

As you can see our sales grew faster than we had thought or than were estimated coming in at 6.4% growth but very close to the pattern that Dan and I had talked about on the fourth quarter call, very similar to the pattern. What we’ve seen is geographically its spread wide.

We’ve seen improvement in every geographic area of the country and internationally we’ve seen nice improvement month to month, so its not coming back from just one area or one group of customers, its very widespread. It seems like somewhat of an economic rebound, not fast, coming back slow but it is more positive.

And I have been out with a lot of customers in different companies recently and I’m hearing more of that, that people are becoming slightly more optimistic about the future. From an end market standpoint our manufacturing customers grew at 16% year over year so very nice growth there but our construction, our non-residential construction customers actually dropped 15% year over year and so that’s very much a concern and right now we don’t foresee that coming back much in 2010 if at all.

And so we’re really looking beyond 2010 for some good growth, meaningful improvement in the non-residential construction customers. Fortunately they only make up less than 25% of our business, but still it’s a meaningful hit and I believe that’s why we’re not breaking out of the improvement pattern that we talked about.

I thought we would actually go above the pattern but the construction is holding us back somewhat. But all in all, I think we’re making nice improvement sequentially from a sales standpoint. And its also encouraging that its widespread geographically.

From a gross margin standpoint we talked about three different areas, inflation, rebates, and incentives and then our regular point of sale or sales margin over the counter. For this first quarter inflation was pretty much neutral. We’ve kind of reached the point where we’re kind of annualizing over last year where it was.

Going forward though steel prices are going up and we see that will be coming into our selling prices somewhat in the second quarter but more in the second half of this year. We’re watching steel very closely trying to determine how much we should be buying and how long we think this will, if it will continue to go up and right now it appears that it probably will for a while.

There’s a lot of Asian demand for steel. On the rebate side we picked up about 120 basis points, March came in 51.1, so 120 basis points improvement quarter to quarter, 35 basis points came from our rebates and that will continue to improve as we go into the year as that inventory makes up more of our, those purchases make up more of our overall inventory.

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