Fastenal 3Q16 Earnings Call Notes

Fastenal’s (FAST) CEO Dan Florness on Q3 2016 Results

DOL rules on exempt employees caused us to close stores

“in May of 2016, the Department of Labor published some new rules regarding exempt employees. This rule, while it doesn’t impact our company in totality, because it essentially raised the threshold of what qualifies as an exempt employee from – there is rules for duties that qualify you and there is also a rule for pay, and those rules were increased dramatically in 2016. Because of that change, it does impact our smaller stores, because in our smaller stores, we don’t always compensate above that $48,000 level, because we have folks that are building a business and we are a sales minded organization, but the opportunity is huge. But as you all know from the years of us publishing our pathway to profit data, stores under $75,000 a month are not profitable – are marginally profitable and this damages that. And we decided to close some stores.”

I’m not sharing a secret that it’s not a great environment

“, you all watch the news, I am not sharing a secret here. It’s not a great environment to do business in. But that’s the world we live in and that’s the world we need to contend with. And there is a lot of uncertainty. But the certainty I do know is that we have a great organization”

Coming into this year we took some growth for granted, but I don’t think we’re expecting that anymore

“I think it’s also fair, Ryan, to suggest that coming into this year, we sort of took it for granted that we grow mid single-digits and plan to invest around that. I am not sure that we are making such – that we are making any such assumption about the go forward market given that we haven’t seen any meaningful improvement in the markets. And so we are not necessarily going to assume that we are going to make those same investments for that same level of growth.”

We’re boring midwesterners

” One of the – personally, one of the advantages of bringing in somebody like Holden into the organization is the perspective of Fastenal has historically been we are boringly conservative Midwesterners and we tend to look at the business probably not as financially as still as we should and that’s probably a reflection of the old CFO. I like the fact that we have a voice at the table that is going to challenge us to think about our business differently.”

Holden Lewis

Not a lot of changes in September. US may have been a little bit weaker than international

“when we look at sort of our customers by category or end market grouping, we didn’t see a lot of changes in September. We might be lapping some of the issues around the energy side, but that would be one month in hand with that. We will see how that plays out through fourth quarter. But there may have been some indication on that in some of those customers. We probably saw a little bit of incremental weakness in the heavy-duty truck customers that we might have. But beyond those two items, there is not a lot more to add in terms of end markets. Regionally, we indicated the U.S. was a little bit weaker than the international. Some of that might simply reflect changes in currencies more than anything else”