Fastenal (FAST) 3Q 2016 Earnings Call

Fastenal (FAST) CEO Daniel Florness said they have been shrinking the amount of employees in the company after hiring a substantial amount in 2015

“During the last twelve months, we have reduced our headcount by 430 people in our stores and 115 people in total. We continue to add headcount where necessary to support our growth initiatives, notably our Onsite business (defined as dedicated sales and service provided from within the customer’s facility). However, the continued softness of the North American industrial economy has caused us to more intensively scrutinize our full- and part-time staffing levels outside of these initiatives. Indeed, after increasing our total headcount every quarter during 2015, it has declined during every quarter of 2016.”

They saw business conditions in the 3rd quarter of 2016 that were very similar to conditions in the first 2 quarters

“Business conditions in the third quarter of 2016 looked very similar to those in the first half of 2016. Daily sales growth remained slow at 1.8% in the third quarter of 2016, versus growth of 1.9% and 1.6%, respectively, in the first and second quarters of 2016. Our OEM and construction fastener sales remain relatively weak, reflecting the sustained relative weakness of our heavy equipment and construction end markets.”

Operating in a tough business environment

“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, a great group of people out there managing our business. And we are going to continue to focus on our growth drivers and we are going to continue to let our regional vice presidents, our district managers, our hub managers, our support leads run their perspective groups. But we will need to be mindful of the environment we are in.”

Fastenal (FAST) CFO Holden Lewis said large customers are slowing their oders

“Qualitatively, it’s not clear to us that the tone changed much in the third quarter. We saw that the sales of fasteners into heavy manufacturing construction end markets were relatively weak as we have seen before. The same could be said of our largest customers. Our top 100 was flat to maybe down slightly during the period. But again, these are the same dynamics that have persisted throughout 2016.”

Fastenal (FAST) Q2 2016 Earnings

Fastenal (FAST) cited a weak economic climate in their earnings press release 

“As we indicated last fall, our customers are struggling with a weak economy. During the first quarter of 2016, the impact of seasonal plant shutdowns subsided and the economy showed signs of improvement.  The decline in daily sales growth in May and June of 2016 was driven by continued weakness with our manufacturing and construction customers. This is evidenced by the trends with our top 100 customers and by additional plant shutdowns/slowdowns before and after Memorial Day. We expect the plant shutdowns/slowdowns to continue into the third quarter.”

Fastenal (FAST) CEO Daniel Florness said business has decelerated as we got closer to the summer season

“In the month of April that group of customers grew 6.5%. In the month of May that group of customers contracted about 2%, in the month of June that group of customers contracted about 2.5%. For the quarter that group of customers which grew almost 5%, 4.5% in the first quarter grew 0.7% percent in the second quarter.  When I look at that group of customers, I see that sudden fall of as an example not of the momentum we are building but of slowdowns with the momentum we have built in the past with customers we have had in the past where we have a large market presence and that business fell off later in the quarter.  The perspective part that we failed on is we didn’t react fast enough locally and companywide to that falling revenue in the month of May and June.”

Fastenal (FAST) CEO Daniel Florness highlighted the construction sector for energy as notably weak

“In a construction front we saw slowdown in our energy customers in both May and June. And a piece of that is we’re seeing projects that were still going on from year ago that just are not being replaced. I would not look at that as a temporary one.”