Hobbled by the economy, Fastenal Co. eked out modest second-quarter sales and profits, led by an uptick in sales from its industrial vending machines and older stores.
"We believe our sales growth was held back partially due to the global economic uncertainty combined with economic policy uncertainty in the United States," said Willard Oberton, CEO of the Winona-based supplier of factory and construction supplies.
Edward Jones analyst Logan Purk noted that Fastenal enjoyed growth rates of 20 to 25 percent as recently as two years ago. That's far from the 5.3 percent seen today.
Factories and nonresidential construction firms have pulled back and are not ordering as many nuts, bolts and other supplies, Purk said. "Overall slowing of industrial spending, and manufacturing was particularly weak for them and that tends to be their biggest client ... comprising about 50 percent of their sales."
On the plus side, Purk noted that Fastenal has improved its margins by controlling costs. Fastenal opened 33 new stores in the past six months. But it really benefited from its push to install cost-effective industrial vending machines inside customer facilities. It installed 8,454 machines so far this year in an effort to offer faster customer service at a reduced cost. Fastenal now operates a total of 29,549 vending machines on customer sites.
The company has also automated its vending machine distribution warehouses in Indiana, Texas and Winona and is in the process of expanding the computerized system in Akron, Ohio, Atlanta and Scranton, Pa. The automated systems let factory customers quickly order and restock their Fastenal vending machines with nuts, bolts and other production supplies without the need for salespeople.
Analysts generally praised the model and said that the vending machines and computerized warehouses save the company money and customers a lot of time.
At one point Fastenal set a goal to install 30,000 vending machines this year. But Wednesday officials told analysts during a conference call that the goal was "very aggressive" and that they had "slowed the pace" in an effort to promote more "quality" installations.
"We [still] believe industrial vending is the next logical chapter in the Fastenal story," Oberton said. We also believe it has the potential to be transformative to industrial distribution."
Second-quarter sales climbed 5.3 percent to $847.6 million while earnings rose 7.7 percent to $121 million or 41 cents a share. Earnings met Wall Street expectations, but revenues did not. On average, analysts expected sales to reach $857 million during the quarter. The company said it benefited from a drop in fuel and heating costs, spending cuts and a dip in income taxes.
Fastenal's stock slid $1.33 a share to close at $45.77 Wednesday.