The company returned to double-digit sales and pre-tax earnings growth in 2017 and also noted that customers' demand improved, lifting the demand for Fastenal products.
Despite the beat top and bottom line estimates and this other positive news, the stock is still trading lower this morning.
The company notes that its March 31, 2017 acquisition of Manufacturers Supply Company ('Mansco') increased its sales growth by 1.4 percentage points.
The remaining portion of the increase was driven primarily by higher unit sales.
The higher unit sales resulted primarily from improvement in underlying market demand and contribution from our growth drivers, most notably industrial vending and Onsite locations. Fastener products represented 35.0% of sales in the fourth quarter of 2017.
Daily sales of fastener products grew 13.4% in total, of which 3.9 percentage points were attributable to the recently acquired Mansco business. The company's sales of non-fastener products represented 65.0% of sales in the fourth quarter of 2017 and grew 16.1% on a daily basis.
Gross profit, as a percentage of net sales, declined 97 basis points to 48.8% in the fourth quarter of 2017 from 49.8% in the fourth quarter of 2016.
Gross profit in the fourth quarter of 2016 was unusually strong, creating a difficult comparison to the current period. Specific components that adversely affected its gross profit percentage included changes in product and customer mix, the inclusion of Mansco (which has a lower gross profit product mix than the company), higher freight expenses from higher payments to third party shippers and investments in hub assets, and, to a lesser degree, commodity inflation.
Moving further down the income statement, the company's operating income, as a percentage of net sales, declined 57 basis points to 18.7% in the fourth quarter of 2017 from 19.3% in the fourth quarter of 2016.
This was the result of a 40 basis point improvement in its operating and administrative expenses (including a gain on the sale of property and equipment), which was offset by the 97 basis point decline in gross profit. Operating and administrative expenses, as a percentage of net sales, were 30.1% in the fourth quarter of 2017 compared to 30.6% in the fourth quarter of 2016. The primary reason for this improvement was its ability to leverage occupancy expenses.
Separately, after the close yesterday, the company increased its first quarter dividend to $0.37 per share from $0.32 per share.
Fastenal is a North American leader in the wholesale distribution of industrial and construction supplies. The company distributes these supplies through a network of approximately 2,500 company owned stores. Most of its customers are in the manufacturing and non-residential construction markets. The manufacturing market includes both original equipment manufacturers (OEM) and maintenance, repair, and operations (MRO). The non-residential construction market includes general, electrical, plumbing, sheet metal, and road contractors. Other users of its product include farmers, truckers, railroads, oil exploration, production and refinement companies, mining companies, federal, state, and local governmental entities, schools, and certain retail trades. Geographically, its stores and customers are primarily located in North America.