Fastenal Company (



Q3 2010 Earnings Call

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October 12, 2010 10:00 am ET


Ellen Trester - Internal Audit Manager

Will Oberton - President and CEO

Dan Florness - EVP and CFO


David Manthey - Robert W. Baird

Jeff Germanotta - William Blair

Sam Darkatsh - Raymond James

Brent Rakers - Morgan Keegan

Dan Garofalo - Piper Jaffray

Holden Lewis - BB&T

Adam Uhlman - Cleveland Research

Steven Gregory [ph] – Mandalay Research [ph]



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Good day ladies and gentlemen and welcome to the Fastenal quarterly earnings call. At this time, all participants are in a listen-only mode. Later, we will conduct the question-and-answer session and instructions will follow at that time. (Operator Instructions). As a reminder, this conference call is being recorded. I would now like to introduce your host for today's conference Ellen Trester.

Ellen Trester

Welcome to the Fastenal company 2010 third quarter and earnings conference call. This call will be hosted by Will Oberton, our Chief Executive Officer, and Dan Florness, our Chief Financial Officer. The call will last for up to 45 minutes.

The call will start with a general overview of our quarterly results and operations by Will and Dan with the remainder of the time being open for questions and answers. Today's conference call is a proprietary Fastenal presentation and is being recorded by Fastenal.

No recording, reproduction, transmission, or distribution of today's call is permitted without Fastenal's consent. This call is being audio simulcast on the internet via the Fastenal Investor Relations home page, A replay of the webcast will be available on the website until December 1, 2010 at midnight Central Time.

As a reminder, today's conference call includes statements regarding the company's anticipated financial and operating results as well as other forward-looking statements based on current expectations as defined by the Private Securities Litigation Reform Act of 1995. Forward-looking statements may often be identified with words such as we expect, we anticipate, upcoming or similar indications of future expectations.

It is important to note that the company's actual results may differ material from those anticipated. Information on factors that could cause actual results to differ material from these forward-looking statements are contained in the company's periodic filings with the Securities and Exchange Commission, and we encourage you to review those carefully.

The investors are cautioned not to place undue reliance on such forward-looking statements as there is no assurance that the matter contained in such statements will occur. Forward-looking statements are made as of today's date only and we undertake no duty to update the information provided on this call.

I would now like to turn the call over to Will Oberton. Go ahead, Mr. Oberton.

Will Oberton

Thank you, Ellen. I would also like to thank everyone for joining us this morning. I am very proud of the results that we produced in the third quarter of 2010. Overall, I think we did a very good job. We continue to see strength in our top line revenue in all areas of our business. Geographically in the United States, we really don't see any weak spots at this time, we only have stores in small areas that maybe be not be doing as well. But overall we are seeing strength in all parts of the country which is very encouraging.

It's been a long time since we've seen that. Even back in 2008 when we were doing well, there were certain areas that were very slow. We had a particularly strong September and when you look at September year-over-year the number was good at 23.5%. But the good numbers from September show a sequential growth, because September is really the most difficult comp that we had from last year, because we had a very good September, August-September last year and we improved upon that in 2010. So we are very happy with those results.

Both our Canadian and Mexican businesses are growing above the company average and they are both becoming larger and actually meaningful part of our growth number at this point. The other international businesses mainly Asia and Europe are both doing very well and are also growing above the company average. So outside of the United States our business is very strong, and the profitability of those businesses continues to improve as we become better at running the businesses and have greater sales revenue.

At this time, the real strength in our business is being driven by our manufacturing customers. And if you broke down the manufacturing customers, it's mainly the large ones. We are doing well with all sections and sizes and types of manufacturing businesses. But the large customers are driving our business; we're seeing the best growth out of that group of customers. But because of this we're also seeing pressure on our margin.

Traditionally the large manufacturing customers are also our lowest margin customers. So although our margin did go backwards in the second quarter we're pretty comfortable with where we are, and we're still very comfortable with that 52% margin range that we stated over the last year or two. We're going to have to work hard for it, but we also believe that over time our smaller customers and our construction business will pick back up, and the mix will change more positively for our growth going forward.

The entire Fastenal team did a really nice job in expense control, not only in the third quarter but throughout the entire year. The only area of expenses that really outgrew or was disproportionate to our sales growth was the commission and bonuses which is, as we say, a very good problem.

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