Fastenal 2Q15 Earnings Call Notes

posted in: Notes | 0

Tough economy tough environment but solid execution

“when I say that it’s a tough economy in a tough environment, I’m really centering it around five areas for us: It’s non-res; it’s oil and gas; ag; manufacturing; and of course the currency. And so tough environment but when I look at it given this quarter, I think it’s a solid quarter of execution given the revenue number.”

We’ve been hit hard by oil and currencies this year

“we’ve been hit hard this year by a number of factors. In here, I talk about oil and gas. I don’t think there is any surprise by that. Our customers have been hit hard by the strength of the U.S. dollar. Most of our business is in the U.S. and anything that impairs the manufacturing output of this country, impacts us and the strong dollar has done some of that.”

Trends are starting to move closer to normal

“our year-over-year numbers are pretty weak right now but sequentially the trends are starting to move closer to normal and that makes me feel better about what it means for third quarter and fourth quarter and going into next year as far as the health of that underlying business.”

Fasteners and MRO are really two different businesses

“we’re really two distributors in one. We’re this fastener distributor that has built up a book of business over the last 50 years; and we’re an MRO distributor, really built up that business in the last 20 years. We really started to expand our product lines beyond fasteners in the early, the mid 1990s and have grown that non-fastener business now to [ph] 60% of our sales and that’s 40% fasteners and 60% non-fasteners are really different businesses, different end markets going through a common channel.”

Fasteners are sticky, but directly tied to production

I look at that fastener business, a lot of production business in there. The beauty of that business is incredibly sticky. It’s really invasive and complicated and painful to switch a fastener supplier. Because that’s a very tight relationship because I’m supplying you the stuff you need in what your producing and the quality, the source supply, all those things we bring to the table are critical and it’s very, very disrupted to change your supplier. That’s the good news of that business. The bad news of that business is linked directly to production.”

11 of 25 top fastener customers were down in June

“If I look at our top 25 customers, and I took a good hard look at that group of business, 11 of those 25 customers were negative in June; 7 of those 11 were negative double-digit; and 5 of those 11 were negative in excess of 25%. That’s a negative of being directly linked to their business.”

June was disappointing, no question

“June was disappointing, there is no question and even at the 1% on the extra day it was not where we wanted it. And when you look at and you talk about outside of the oil and gas, some bright spots for us I look at some things that are happening taking place within the business in Florida and California in some of our Midwest regions, we’re starting to see Canada when you really factor in the native currency is actually performing well. And so this oil and gas thing as we’ve talked before Ryan, it’s just got such a ripple effect through the economy and through the business that it’s just waiting astound. But if you look at non-res, that’s we think and when we look at our information, we believe that’s heavily tied to oil and gas. So that’s a factor. We look at ag and heavy manufacturing, all headwinds right now for us.”