Industrial supply firm Fastenal Co. reported a double-digit bump in third-quarter sales and profits despite slowness in its key nuts, bolts, and fastener business.
Instead, the Winona-based company made big gains from its industrial vending machines, which dispense various tools and supplies to its customers on-site. The machines are frequently updated by Fastenal staff and are helping to shore up Fastenal's sales.
Total sales from retail stores, industrial vending machines, government and other sources rose 10.4 percent to $802.5 million during the third quarter. That's down from 14.9 percent growth reported over nine months.
Third-quarter earnings rose 12.9 percent to $109.3 million or 37 cents a share during the quarter, compared with 19 percent growth over nine months. Earnings matched analysts' consensus estimates for the quarter, but sales missed analysts' estimates by $2.3 million.
The results were well-received by investors: shares closed Thursday at $45.89, up $3.57, or 8.4 percent.
During a conference call, CEO Willard Oberton told analysts that the company performed well despite economic headwinds.
"Sales were slow, but we did see an uptick in September. ... We've seen very slow growth in both Asia and Europe. That's also been holding us back."
Oberton noted that construction sales were slow during most of the quarter, but bounced back last month. The company had hoped to see improvements in its margin, but steel prices in Asia have dropped 10 to 20 percent due to flagging demand.
"It's more difficult to make gains in a deflationary market," Oberton said. "And with [steel] fasteners making up close to 50 percent of our business, that makes a big difference in our margin opportunities."
During the conference call, CFO Daniel Florness said the vending machine business was growing 30 percent a year, however profits differed greatly depending on which products the vending machines carried. Profits were higher on products traditionally carried in its retail stores. Profits were sometimes less for products ordered just for specific vending machines.
Fastenal's vending machines are one of several changes since the company pushed a plan to diversify profits, starting in 2007. Fastenal has installed 17,013 vending machines in customer plants. About 9,560 were installed during the last nine months.
For years, the company was mainly known for retail stores that catered to industrial and construction businesses. While it will open 85 new stores this year, that represents an annual growth rate of 3.3 percent, down from its usual 10 percent a year.
Fastenal also has added a small metalworking business and has a separate division that supplies fasteners and hardware to cities, counties and other small municipalities.
"The government side [is] another one of our new initiatives. Our goal is ... to grow the business at least 10 percent faster than Fastenal. We're exceeding those goals," Oberton told analysts.
Dee DePass • 612-673-7725