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Press release from GlobeNewswire (a Nasdaq OMX company)

Fastenal Company Reports 2012 Second Quarter Earnings

Thursday, July 12, 2012

Fastenal Company Reports 2012 Second Quarter Earnings03:50 EDT Thursday, July 12, 2012WINONA, Minn., July 12, 2012 (GLOBE NEWSWIRE) -- The Fastenal Company of Winona, MN (Nasdaq:FAST) reported the results of the quarter ended June 30, 2012. Except for per share information, or as otherwise noted below, dollar amounts are stated in thousands. Share and per share information in this document has been adjusted to give effect to the two-for-one split of our common stock in May 2011. Net sales, pre-tax earnings, net earnings, and net earnings per share were as follows for the period ended June 30:   Six-month period   Three-month period   2012 2011 Change   2012 2011 Change                 Net sales $ 1,573,765 1,342,313 17.2%   $ 804,890 701,730 14.7%                 Pre-tax earnings $ 340,168 278,993 21.9%   $ 179,039 150,182 19.2%                  % of sales21.6%20.8%    22.2%21.4%                   Net earnings $ 212,500  173,659 22.4%   $ 112,306 94,112 19.3%                 Net earnings per share (basic) $ 0.72 0.59 22.0%   $ 0.38 0.32 18.8% On June 30, 2012, we had 2,635 stores. During the first six months of 2012, we opened 53 new stores, an increase of 2.1% since December 2011 (we opened 75 new stores in the same period of 2011). On June 30, 2012, we operated 13,036 FAST SolutionsSM (industrial vending) machines. During the first six months of 2012, we installed 5,583 new machines, an increase of 74.9% since December 2011 (we installed 1,942 machines in the same period of 2011). On June 30, 2012, we had 15,578 employees, an increase of 2.7% since December 2011. Similar to previous quarters, we have included comments regarding several aspects of our business:Monthly sales changes, sequential trends, and end market performance – a recap of our recent sales trends and some insight into the activities with different end markets.Growth drivers of our business – a recap of how we grow our business.Profit drivers of our business – a recap of how we increase our profits.Statement of earnings information – a recap of the components of our income statement.Operational working capital, balance sheet, and cash flow – a recap of the operational working capital utilized in our business, and the related cash flow. While reading these items, it is helpful to appreciate several aspects of our marketplace: (1) it's big, the North American marketplace for industrial supplies is estimated to be in excess of $160 billion per year (and we have expanded beyond North America), (2) no company has a significant portion of this market, (3) many of the products we sell are individually inexpensive, (4) when our customer needs something quickly or unexpectedly our local store is a quick source, and (5) the cost to manage and procure these products can be significant. Our motto is Growth through Customer Service. This is important given the points noted above. We believe in efficient markets – to us, this means we can grow our market share if we provide the greatest value to the customer. We believe our ability to grow is amplified if we can service our customer at the closest economic point of contact.  The concept of growth is simple, find more customers every day and increase your activity with them. However, execution is hard work. First, we recruit service minded individuals to support our customers and their business. Second, we operate in a decentralized fashion to help identify the greatest value for our customers. Third, we build a great machine behind the store to operate efficiently and to help identify new business solutions. Fourth, we do these things every day. Finally, we strive to generate strong profits; these profits produce the cash flow necessary to fund the growth and to support the needs of our customers.MONTHLY SALES CHANGES, SEQUENTIAL TRENDS, AND END MARKET PERFORMANCE Note – Daily sales are defined as the sales for the period divided by the number of business days (in the United States) in the period.  This section focuses on three distinct views of our business – monthly sales changes, sequential trends, and end market performance. The first discussion regarding monthly sales changes provides a good mechanical view of our business based on the age of our stores. The second discussion provides a framework for understanding the sequential trends (that is, comparing a period to the immediately preceding period) in our business. Finally, we believe the third discussion regarding end market performance provides insight into activities with our various types of customers.MONTHLY SALES CHANGES:All company sales – During the months in 2012, 2011, and 2010, all of our selling locations, when combined, had daily sales growth rates of (compared to the comparable month in the preceding year):   Jan. Feb. Mar. Apr. May June July Aug. Sept. Oct. Nov. Dec. 2012 21.3% 20.0% 19.3% 17.3% 13.1% 14.0%             2011 18.8% 21.5% 22.8% 23.2% 22.6% 22.5% 22.4% 20.0% 18.8% 21.4% 22.2% 21.2% 2010 2.4% 4.4% 12.1% 18.6% 21.1% 21.1% 24.4% 22.1% 23.5% 22.4% 17.9% 20.9% The growth in the first three months of 2012 generally continued the relative strength we saw in 2011 and in most of 2010. The April to June 2012 time frame experienced a reduction in our daily sales growth rate as the market we sell into slowed (see further discussion in sequential trends and end market performance). The change in currencies in foreign countries (primarily Canada) relative to the United States dollar lowered our daily sales growth rate by 0.4% during the first six months of 2012 (this lowered growth in the first and second quarters was 0.3% and 0.6% respectively, and was heavily weighted to May and June). This was a sharp contrast to 2011 and 2010, when changes in foreign currencies increased our growth in the first six months by 1.0% and 0.9%, respectively.Stores opened greater than two years – Our stores opened greater than two years (store sites opened as follows: 2012 group – opened 2010 and earlier, 2011 group – opened 2009 and earlier, and 2010 group – opened 2008 and earlier) represent a consistent 'same-store' view of our business. During the months in 2012, 2011, and 2010, the stores opened greater than two years had daily sales growth rates of (compared to the comparable month in the preceding year):   Jan. Feb. Mar. Apr. May June July Aug. Sept. Oct. Nov. Dec.   2012 18.8% 17.1% 16.8% 14.5% 10.1% 11.1%               2011 16.0% 18.4% 19.4% 19.6% 19.2% 19.1% 18.7% 16.5% 15.2% 18.0% 18.5% 17.5%   2010 0.6% 2.3% 9.6% 16.3% 18.5% 18.3% 21.3% 19.2% 19.8% 18.8% 14.1% 16.8%  Stores opened greater than five years – The impact of the economy, over time, is best reflected in the growth performance of our stores opened greater than five years (store sites opened as follows: 2012 group – opened 2007 and earlier, 2011 group – opened 2006 and earlier, and 2010 group – opened 2005 and earlier). This group is more cyclical due to the increased market share they enjoy in their local markets. During the months in 2012, 2011, and 2010, the stores opened greater than five years had daily sales growth rates of (compared to the comparable month in the preceding year):   Jan. Feb. Mar. Apr. May June July Aug. Sept. Oct. Nov. Dec. 2012 17.4% 15.8% 15.7% 13.7% 9.0% 10.2%             2011 15.3% 17.9% 19.2% 19.1% 17.9% 18.2% 17.3% 15.2% 14.5% 17.0% 17.4% 16.9% 2010 -2.1% -0.5% 7.4% 14.9% 17.3% 16.2% 19.8% 18.2% 18.9% 17.9% 13.2% 16.0%SEQUENTIAL TRENDS:We find it helpful to think about the monthly sequential changes in our business using the analogy of climbing a stairway – This stairway has several predictable landings where there is a pause in the sequential gain (i.e. April, July, and October to December), but generally speaking, climbs from January to October. The October landing then establishes the benchmark for the start of the next year. History has identified these landings in our business cycle. They generally relate to months with impaired business days (certain holidays). The first landing centers on Easter, which alternates between March and April (Easter occurred in April in 2012, 2011, and 2010), the second landing centers on July 4th, and the third landing centers on the approach of winter with its seasonal impact on primarily our construction business and with the Christmas / New Year holidays. The holidays we noted impact the trends because they either move from month-to-month or because they move around during the week. The table below shows the pattern to our sequential change in our daily sales. The line labeled 'Past' is an historical average of our sequential daily sales change for the period 1998 to 2003. We chose this time frame because it had similar characteristics, a weaker industrial economy in North America, and could serve as a benchmark for a possible trend line. The '2012', '2011', and '2010' lines represent our actual sequential daily sales changes. The '12Delta', '11Delta', and '10Delta' lines indicate the difference between the 'Past' and the actual results in the respective year.    Jan.(1) Feb. Mar. Apr. May June July Aug. Sept. Oct.   Cumulative change from Jan. to June Past 0.9% 3.3% 2.9% -0.3% 3.4% 2.8% -2.3% 2.6% 2.6% -0.7%   12.6%                           2012 -0.3% 0.5% 6.4% -0.8% 0.5% 2.5%           9.3% 12Delta -1.2% -2.8% 3.5% -0.5% -2.9% -0.3%           -3.3%                           2011 -0.2% 1.6% 7.0% 0.9% 4.3% 1.7% -1.0% 1.4% 3.4% 0.7%   16.3% 11Delta -1.1% -1.7% 4.1% 1.2% 0.9% -1.1% 1.3% -1.2% 0.8% 1.4%   3.7%                           2010 2.9% -0.7% 5.9% 0.6% 4.8% 1.7% -1.0% 3.5% 4.5% -1.5%   12.7% 10Delta 2.0% -4.0% 3.0% 0.9% 1.4% -1.1% 1.3% 0.9% 1.9% -0.8%   0.1%   (1)     The January figures represent the percentage change from the previous October, whereas the remaining figures represent the percentage change from the previous month. A graph of the sequential daily sales change pattern discussed above, starting with a base of '100' in the previous October and ending with the next October, would be as follows: http://media.globenewswire.com/cache/11647/file/14529.pdf Several observations stand out while viewing the 2012 sequential pattern: (1) The historical sequential pattern (increased daily sales on a sequential basis in February, March, May, and June and decreased daily sales on a sequential basis in April) has played out each month; however, the cumulative growth in the daily sales from January to June has fallen short of the benchmark figure and of the actual results in 2011 and 2010. (2) The magnitude of the February and May '12Delta' of approximately -2.8% was similar. This fact, as well as the choppiness of the year in general, has caused us to approach the year with a conservative tone. (3) The recent weakness has been amplified by changes in foreign currencies (primarily Canada) relative to the U.S. dollar.END MARKET PERFORMANCE:Fluctuations in end market business – The sequential trends noted above were directly linked to fluctuations in our end markets. To place this in perspective – approximately 50% of our business has historically been with customers engaged in some type of manufacturing. The daily sales to these customers grew in the first, second, third, and fourth quarters (when compared to the same quarter in the previous year), and for the year, as follows:   Q1 Q2 Q3 Q4 Annual 2012 20.3% 15.8%       2011 15.5% 18.5% 18.3% 21.0% 20.0% 2010 15.7% 29.8% 30.6% 17.7% 22.4% Our manufacturing business consists of two subsets: the industrial production business (this is business where we supply products that become part of the finished goods produced by our customers) and the maintenance portion (this is business where we supply products that maintain the facility or the equipment of our customers engaged in manufacturing). The industrial business is more fastener centered, while the maintenance portion is represented by all product categories.  In the second quarter of 2012, the decrease in the rate of growth was more pronounced in our industrial production business. This is in sharp contrast to the first quarter of 2012 where the growth was more pronounced in the industrial production business, a trend that had also existed in 2011 and 2010. The first quarter and prior quarters were a direct counter to the 2009 contraction, which was more severe in our industrial production business and less severe in the maintenance portion of our manufacturing business.   The best way to understand the change in our industrial production business is to examine the results in our fastener product line. In the first three months of 2012, the daily sales growth in our fastener product line was approximately 15.4%. This dropped to 10.5%, 6.1%, and 8.6% in April, May, and June, respectively. By contrast, the best way to understand the change in the maintenance portion of the manufacturing business is to examine the results in our non-fastener product lines. In the first three months of 2012, the daily sales growth in our non-fastener business was approximately 25.1%. This dropped to 24.4%, 19.0%, and 19.6% in April, May, and June, respectively. The patterns related to the industrial production business, as noted above, are influenced by the movements noted in the Purchasing Manufacturers Index ('PMI') published by the Institute for Supply Management (http://www.ism.ws/), which is a composite index of economic activity in the manufacturing sector. The PMI in 2012, 2011, and 2010 was as follows:   Jan. Feb. Mar. Apr. May June July Aug. Sept. Oct. Nov. Dec. 2012 54.1 52.4 53.4 54.8 53.5 49.7             2011 59.9 59.8 59.7 59.7 54.2 55.8 51.4 52.5 52.5 51.8 52.2 53.1 2010 56.7 55.8 59.3 59.0 58.8 56.0 55.7 57.4 56.4 57.0 58.0 57.3 Our non-residential construction customers have historically represented 20% to 25% of our business. The daily sales to these customers grew or contracted in the first, second, third, and fourth quarters (when compared to the same quarter in the previous year), and for the year, as follows:   Q1 Q2 Q3 Q4 Annual             2012 17.1% 12.7%       2011 17.7% 15.8% 15.8% 17.4% 17.1% 2010 -14.7% 0.5% 6.3% 10.3% -0.3% A graph of the sequential daily sales trends to these two end markets in 2012, 2011, and 2010, starting with a base of '100' in the previous October and ending with the next October, would be as follows:  http://media.globenewswire.com/cache/11647/file/14530.pdfGROWTH DRIVERS OF OUR BUSINESS We grow by continuously adding customers and by increasing the activity with each customer. We believe this growth is enhanced by our close proximity to our customers, which allows us to provide a range of services and product availability that our competitors can't easily match. Historically, we expanded our reach by opening stores at a very fast pace. These openings were initially in the United States, but expanded beyond the United States beginning in the mid 1990's.  In our first ten years of being public (1987 to 1997), we opened stores at a rate approaching 30% per year.  In the next ten years, we opened stores at an annual rate of approximately 10% to 15% and, over the last five years, at a rate of approximately 3% to 8% (we currently expect approximately 4% for 2012). As we gained proximity to more customers, we continued to diversify our growth drivers – this was done to provide existing store personnel with more tools to grow their business organically – the results of this are reflected in our earlier discussion on sales growth at stores opened greater than five years. In the early 1990's, we began to expand our product lines, and we added new product knowledge to our bench. This was our first big effort to diversify our growth drivers. The next step began in the mid to late 1990's when we began to add sales personnel with certain specialties or focus. This began with our National Accounts group in 1995, and, over time, has expanded to include individuals dedicated to: (1) sales related to our internal manufacturing division, (2) government sales, (3) internet sales, (4) specific products (most recently metal working), and (5) FAST SolutionsSM (industrial vending). The other step occurred at our sales locations (this includes Fastenal stores as well as strategic account stores and in-plant locations) and at our distribution centers, and began with a targeted merchandising and inventory placement strategy that included our 'Customer Service Project' approximately ten years ago and our 'Master Stocking Hub' initiative approximately five years ago. This strategy allowed us to target where to stock certain products (local store, regional distribution center, master stocking hub, or supplier) and allowed us to improve our fulfillment and our ability to serve a broader range of customers. The FAST SolutionsSM (industrial vending) noted above is a rapidly expanding component of our business.  We believe industrial vending is the next logical chapter in the Fastenal story, we also believe it has the potential to be transformative to industrial distribution, and that we have a 'first mover' advantage. We are investing aggressively to maximize this advantage. At our investor day in May 2011, we discussed our progress with industrial vending. In addition to our discussion regarding progress, we discussed our goals with the rollout of the vending machines. One of the goals we identified related to our rate of 'machine signings' (the first category below) – our goal was simple, sign 2,500+ machines per quarter (or an annualized run rate of 10,000 machines).  The following table includes some statistics regarding this business:                 Q1 Q2 Q3 Q4             Number of vending machines in  2012 4,568 4,669      contracts signed during the period1 2011 1,405 2,107 2,246 2,084   2010 257 420 440 792             Cumulative machines installed2 2012 9,798 13,036       2011 2,659 3,867 5,642 7,453   2010 892 1,184 1,515 1,925             Percent of total net sales to  2012 17.8% 20.8%      customers with vending machines3 2011 8.9% 10.5% 13.1% 15.7%   2010 3.4% 4.6% 6.1% 7.5%             Daily sales growth to customers 2012 33.9% 34.3%      with vending machines4 2011 50.6% 43.9% 42.5% 40.7%   2010 37.4% 54.0% 56.4% 60.2%1 This represents the gross number of machines signed during the quarter, not the number of contracts.2 This represents the number of machines installed and producing revenue on the last day of the quarter.3 The percentage of total sales (vended and traditional) to customers currently using a vending solution.4 The growth in total sales (vended and traditional) to customers currently using a vending solution compared to the comparable period in the preceding year. We are pleased with the increases in the number of vending machine contracts signed, and with our ability to install machines. We increased our installed machine base by 3,238 machines (13,036 versus 9,798) in the second quarter of 2012, by 1,208 machines (3,867 versus 2,659) in the second quarter of 2011, and by 292 machines (1,184 versus 892) in the second quarter of 2010.PROFIT DRIVERS OF OUR BUSINESS We grow our profits by continuously working to grow sales and to improve our relative profitability. We also grow our profits by allowing our inherent profitability to shine through – we refer to this as the 'pathway to profit'. The distinction is important.  We achieve improvements in our relative profitability by increasing our gross margin, by structurally lowering our operating expenses, or both. We advance on the 'pathway to profit' by increasing the average store size (measured in terms of monthly sales), and allowing the store mix to improve our profits. This is best explained by comparing the varying profitability of our 'traditional' stores in the table below. The average store size for the group, and the average age, number of stores, and pre-tax earnings data by store size for the second quarter of 2012, 2011, and 2010, respectively, were as follows:  Sales per MonthAverage Age (Years) Number of Stores Percentage of StoresPre-Tax Earnings PercentageThree months ended June 30, 2012   Average store sales = $89,169           $0 to $30,000 4.2 266 10.1% -11.8% $30,001 to $60,000 7.3 769 29.2% 12.6% $60,001 to $100,000 10.0 757 28.7% 22.3% $100,001 to $150,000 12.1 419 15.9% 26.1% Over $150,000 15.2 316 12.0% 29.3% Strategic Account/Overseas Store   108 4.1%   Company Total   2,635 100.0% 22.2%            Three months ended June 30, 2011   Average store sales = $80,191           $0 to $30,000 3.6 338 13.2% -12.8% $30,001 to $60,000 7.1 842 32.9% 13.5% $60,001 to $100,000 9.7 700 27.4% 22.6% $100,001 to $150,000 11.9 352 13.8% 26.7% Over $150,000 15.2 243 9.5% 28.3% Strategic Account/Overseas Store   83 3.2%   Company Total   2,558 100.0% 21.4%            Three months ended June 30, 2010   Average store sales = $68,980           $0 to $30,000 4.3 421 17.5% -10.2% $30,001 to $60,000 6.9 880 36.6% 13.4% $60,001 to $100,000 9.7 602 25.0% 23.1% $100,001 to $150,000 11.8 293 12.2% 26.5% Over $150,000 16.2 143 5.9% 28.3% Strategic Account/Overseas Store   68 2.8%   Company Total   2,407 100.0% 19.6% Note – Amounts may not foot due to rounding difference. There are two aspects of our business that can be noted. First, by improving our relative profitability of the various store categories, we amplify the 'pathway to profit'. Second, as our stores grow their sales, the level of profitability improves due to the natural leverage of the business. This creates what we call the 'pathway to profit'. When we originally announced the 'pathway to profit' strategy in 2007, our goal was to increase our pre-tax earnings, as a percentage of sales, from 18% to 23%. This goal was to be accomplished by slowly moving the mix from the first three categories ($0 to $30,000, $30,001 to $60,000, and $60,001 to $100,000, these groups represented 76.5% of our store base in the first three months of 2007, the last quarter before we announced the 'pathway to profit') to the last three categories ($60,001 to $100,000, $100,001 to $150,000, and over $150,000, these groups represented 56.6% of our store base in the second quarter of 2012) and by increasing the average store sales to approximately $125,000 per month. The weak economic environment in 2009 caused our average store size to decrease, and consequently lowered our level of profitability; however, subsequent to this period we improved our gross margin and lowered our operating expenses. This improvement allowed us to amplify the 'pathway to profit' and effectively lowered the average store size required to hit our 23% goal. Today we believe we can accomplish our 'pathway to profit' goal with an average store size of approximately $100,000 to $110,000 per month. Note – Dollar amounts in this section are presented in whole dollars, not thousands.Store Count and Full-Time Equivalent (FTE) Headcount – The table that follows highlights certain impacts on our business of the 'pathway to profit' since its introduction in 2007.  Under the 'pathway to profit' we increased both our store count and our store FTE headcount during 2007 and 2008. However, the rate of increase in store locations slowed and our FTE headcount for all types of personnel was reduced when the economy weakened late in 2008. In the table that follows, we refer to our 'store' net sales, locations, and personnel. When we discuss 'store' net sales, locations, and personnel, we are referring to (1) 'Fastenal' stores and (2) strategic account stores. 'Fastenal' stores are either a 'traditional' store, the typical format in the United States or Canada, or an 'overseas' store, which is the typical format outside the United States and Canada. This is discussed in greater detail in our 2011 annual report on Form 10-K. Strategic account stores are stores that are focused on selling to a group of large customers in a limited geographic market. The sales, outside of our 'store' group, relate to either (1) our in-plant locations, (2) the portion of our internally manufactured product that is sold directly to a customer and not through a store (including our Holo-Krome business acquired in December 2009), or (3) our direct import business.  The breakdown of our sales, the average monthly sales per store, the number of stores at quarter end, the average headcount at our stores during a quarter, the average FTE headcount during a quarter, and the percentage change were as follows for the first quarter of 2007 (the last completed quarter before we began the 'pathway to profit'), for the third quarter of 2008 (our peak quarter before the economy weakened), and for each of the last five quarters:   Q1 Q3 Q2 Q3 Q4 Q1 Q2   2007 2008 2011 2011 2011 2012 2012                 Total net sales reported $489,157 $625,037 $701,730 $726,742 $697,804 $768,875 $804,890 Less: Non-store sales (approximate) 40,891 57,267 85,535 88,500 86,737 92,459 98,735 Store net sales (approximate) $448,266 $567,770 $616,195 $638,242 $611,067 $676,416 $706,155 % change since Q1 2007   26.7% 37.5% 42.4% 36.3% 50.9% 57.5% % change (twelve months)   17.5% 23.6% 21.1% 21.0% 20.2% 14.6%                Percentage of sales through a store92%91%88%88%88%88%88%                Average monthly sales per store$72$82$80$83$79$86$89(using ending store count)               % change since Q1 2007   13.9% 11.1% 15.3% 9.7% 19.4% 23.6% % change (twelve months)   9.3% 15.9% 15.3% 16.2% 16.2% 11.3%                                   Q1 Q3 Q2 Q3 Q4 Q1 Q2   2007 2008 2011 2011 2011 2012 2012                                 Store locations - quarter end count 2,073 2,300 2,558 2,566 2,585 2,611 2,635 % change since Q1 2007   11.0% 23.4% 23.8% 24.7% 26.0% 27.1% % change (twelve months)   7.2% 6.3% 4.6% 3.8% 3.5% 3.0%                 Store personnel - absolute headcount 6,849 9,123 9,734 10,057 10,328 10,486 10,637 % change since Q1 2007   33.2% 42.1% 46.8% 50.8% 53.1% 55.3% % change (twelve months)   17.9% 15.9% 16.4% 14.1% 12.2% 9.3%                 Store personnel - FTE 6,383 8,280 8,254 8,629 8,684 8,900 9,126 Non-store selling personnel - FTE 616 599 850 920 953 998 1,054 Sub-total of all sales personnel - FTE 6,999 8,879 9,104 9,549 9,637 9,898 10,180                 Distribution personnel-FTE 1,646 1,904 1,757 1,830 1,820 1,815 1,881 Manufacturing personnel - FTE 1 316 340 492 513 516 527 545 Administrative personnel-FTE 767 805 783 811 796 796 794 Sub-total of non-sales personnel - FTE 2,729 3,049 3,032 3,154 3,132 3,138 3,220                 Total - average FTE headcount 9,728 11,928 12,136 12,703 12,769 13,036 13,400                 % change since Q1 2007               Store personnel - FTE   29.7% 29.3% 35.2% 36.0% 39.4% 43.0% Non-store selling personnel - FTE   -2.8% 38.0% 49.4% 54.7% 62.0% 71.1% Sub-total of all sales personnel - FTE 26.9% 30.1% 36.4% 37.7% 41.4% 45.4%                 Distribution personnel-FTE   15.7% 6.7% 11.2% 10.6% 10.3% 14.3% Manufacturing personnel-FTE 1   7.6% 55.7% 62.3% 63.3% 66.8% 72.5% Administrative personnel-FTE   5.0% 2.1% 5.7% 3.8% 3.8% 3.5% Sub-total of non-sales personnel - FTE 11.7% 11.1% 15.6% 14.8% 15.0% 18.0%                 Total - average FTE headcount   22.6% 24.8% 30.6% 31.3% 34.0% 37.7%                 % change (twelve months)               Store personnel - FTE   15.2% 16.0% 15.8% 14.1% 13.7% 10.6% Non-store selling personnel - FTE   -2.4% 43.8% 44.0% 33.8% 28.1% 24.0% Sub-total of all sales personnel - FTE 13.8% 18.1% 18.0% 15.8% 15.0% 11.8%                 Distribution personnel-FTE   6.0% 19.7% 16.1% 14.1% 12.9% 7.1% Manufacturing personnel - FTE 1   1.8% 18.3% 19.0% 16.2% 14.3% 10.8% Administrative personnel - FTE   7.9% 10.7% 11.7% 7.0% 4.7% 1.4% Sub-total of non-sales personnel - FTE 6.0% 17.0% 15.4% 12.5% 10.9% 6.2%                 Total - average FTE headcount   11.7% 17.8% 17.4% 15.0% 14.0% 10.4%1 The distribution and manufacturing headcount was impacted by the addition of 92 employees with the acquisition of Holo-Krome in December 2009.    STATEMENT OF EARNINGS INFORMATION (percentage of net sales) for the periods ended June 30:             Six-month period Three-month period   2012 2011 2012 2011           Net sales 100.0% 100.0% 100.0% 100.0% Gross profit 51.4% 52.1% 51.6% 52.2%           Operating and administrative expenses 29.8% 31.3% 29.4% 30.8% (Gain) loss on sale of property and equipment (0.0%) 0.0% (0.0%) 0.0% Operating income 21.6% 20.8% 22.2% 21.4%           Interest income 0.0% 0.0% 0.0% 0.0% Earnings before income taxes 21.6% 20.8% 22.2% 21.4%           Note – Amounts may not foot due to rounding difference.Gross profit – percentage for the first half of 2012 decreased from the same period in 2011. Sequentially, the gross profit increased from the first quarter of 2012. The gross profit percentage in the first, second, third and fourth quarters was as follows:   Q1 Q2 Q3 Q4           2012 51.3% 51.6%     2011 52.0% 52.2% 51.9% 51.2% 2010 51.1% 52.1% 51.8% 52.0% The fluctuations in our gross profit percentages are typically driven by changes in: (1) transactional gross profit, (2) organizational gross profit, and (3) vendor incentive gross profit. The transactional gross profit represents the gross profit realized from the day-to-day fluctuations in customer pricing relative to product and freight costs. The organizational gross profit represents the component of gross profit we attribute to buying scale and efficiency gains. The third component relates to vendor volume allowances. In the short-term, periods of inflation or deflation can influence the first two categories, while sudden changes in business volume can influence the third. We believe a normal gross profit percentage range for our business is 51% to 53%. This is based on our current mix of products, geographies, end markets, and end market uses (such as industrial production business versus maintenance business). Our business operated below our expected gross profit range at the end of 2009, and expanded into the low end of this range during 2010. In the second quarter of 2010, we moved into the middle of the range as the three components of gross profit improved, the contribution being split fairly evenly between the three components. We remained in the middle of the range until the fourth quarter of 2011. In the fourth quarter of 2011, our gross margin felt pressure and dropped to the lower end of the range. This drop was primarily due to changes in our transactional margin (primarily due to changes in product and customer mix), lower vendor incentive gross profit, and lower freight utilization. The latter two items created half of the gross margin drop and are more of a seasonal issue. In the first quarter of 2012, our gross margin improved nominally over the previous quarter. This was primarily caused by the seasonal improvement of vendor volume allowances as rising fuel prices offset our improvements in freight utilization. In the second quarter of 2012, our gross margin improved sequentially. Most of this improvement related to improvements in our transactional gross margin. The improvement was partially offset by the weakening of our selling prices in certain foreign markets due to changes in the exchange rate.Operating and administrative expenses - improved relative to sales in the first half and the second quarter of 2012 versus the same periods in 2011.  Historically, our two largest components to operating and administrative expenses have consisted of employee related expenses (approximately 65% to 70%) and occupancy related expenses (approximately 15% to 20%). The remaining expenses cover a variety of items with selling transportation typically being the largest. The three largest components of operating and administrative expenses grew as follows for the periods ended June 30 (compared to the comparable quarter in the preceding year):   Six-month period   Three-month period   2012 2011   2012 2011             Employee related expenses 12.9% 23.9%   11.0% 21.6% Occupancy related expenses 3.2% 7.4%   6.3% 6.8% Selling transportation costs 13.5% 19.8%   8.3% 27.1% Employee related expenses include: (1) payroll (which includes cash compensation, stock option expense, and profit sharing), (2) health care, (3) personnel development, and (4) social taxes. The increase in the first half of 2012 was driven by the following factors: (1) employee headcount grew, (2) sales commissions grew, (3) bonus amounts related to our growth drivers grew (this includes items such as industrial vending bonuses and manager minimum pay adjustments), and (4) our profit sharing contribution grew. The increase in the first half of 2011 was driven by the following factors: (1) employee headcount grew, (2) sales commissions grew (this increase was amplified by stronger sales growth, relative to 2010, which had a meaningful impact on the commission earned and higher gross profit margins), (3) total bonuses earned increased due to our profit growth, (4) hours worked per employee grew, and (5) our profit sharing contribution grew. Occupancy related expenses include: (1) building rent and depreciation, (2) building utility costs, (3) equipment related to our stores and distribution locations, and (4) FAST SolutionsSM (industrial vending) equipment (we consider the vending equipment to be a logical extension of our store operation and classify the expense as occupancy). The increase in the first half of 2012 was driven by (1) a dramatic increase in the amount of FAST SolutionsSM (industrial vending) equipment as discussed earlier in this document, (2) an increase in the number of locations, and (3) increased investment in our distribution infrastructure over the last several years. This increase was partially offset by an absolute drop in the utilities expense due to a drop in natural gas prices during the heating season, a mild winter, and our efforts to lower energy consumption. The increase in the first half of 2011 was driven by the same factors noted above with one exception; in 2011 approximately 50% of the increase was due to rising utility costs. Our selling transportation costs consist primarily of our store fleet as most of the distribution fleet costs are included in the cost of sales. Selling transportation costs included in operating and administrative expenses increased in the first half of 2012; however, all of the components of selling transportation costs increased at a rate less than sales growth. The increase in the first half of 2011 was primarily related to the increase in per gallon fuel costs discussed below and the expansion of our fleet related to additions to our non-store sales personnel, particularly FAST SolutionsSM (industrial vending) vehicles. The increase in the first half of 2012 was primarily related to the increase in per gallon fuel costs discussed below and the increased level of sales activity.The last several years have seen meaningful swings in the cost of diesel fuel and gasoline – During the first and second quarters of 2012, our total vehicle fuel costs were approximately $10.6 and $10.8 million, respectively. During the first, second, third, and fourth quarters of 2011, our total vehicle fuel costs were approximately $8.6, $10.5, $9.8, and $9.8 million, respectively. The changes resulted from variations in fuel costs, variations in the service levels provided to our stores from our distribution centers, changes in the number of vehicles at our store locations, and changes in the number of other sales centered vehicles as a result of store openings and the expansion of our non-store sales force. These fuel costs include the fuel utilized in our distribution vehicles (semi-tractors, straight trucks, and sprinter trucks) which is recorded in cost of sales and the fuel utilized in our store delivery and other sales centered vehicles which is included in operating and administrative expenses (the split in the last several years has been approximately 50:50 between distribution and store and other sales centered use).  The average per gallon fuel costs (in actual dollars) and the percentage change (on a year-over-year basis) for the last three years was as follows:Per gallon average price Q1 Q2 Q3 Q4Annual Average1             2012 price           Diesel fuel $3.92 3.98       Gasoline $3.53 3.73                   2011 price           Diesel fuel $3.60 4.04 3.90 3.87 3.85 Gasoline $3.22 3.78 3.62 3.37 3.50             2010 price           Diesel fuel $2.89 3.06 2.96 3.14 3.01 Gasoline $2.68 2.80 2.71 2.84 2.76            Per gallon price changeQ1Q2Q3Q4Annual             2012 change           Diesel fuel 8.9% -1.5%       Gasoline 9.6% -1.3%                   2011 change           Diesel fuel 24.6% 32.0% 31.8% 23.2% 27.9% Gasoline 20.1% 35.0% 33.6% 18.7% 26.8%  1 Average of the four quarterly figures contained in the table.Income taxes – Incomes taxes, as a percentage of earnings before income taxes, were approximately 37.5% and 37.8% for the first half of 2012 and 2011, respectively. As our international business and profits grow over time, the lower income tax rates in those jurisdictions, relative to the United States, have begun to lower our effective tax rate. OPERATIONAL WORKING CAPITAL: The year-over-year comparison and the related dollar and percentage changes related to accounts receivable and inventories were as follows:   Balance at June 30: Twelve Month Dollar Change Twelve Month Percentage Change   2012 2011 2010 2012 2011 2012 2011 Accounts receivable, net  $ 399,993 357,195 280,823 42,798 76,372 12.0% 27.2% Inventories  $ 662,689 608,657 522,214 54,032 86,443 8.9% 16.6% Operational working capital1  $ 1,062,682 965,852 803,037 96,830 162,815 10.0% 20.3%                 Sales in last two months  $ 543,797 479,164 381,978 64,633 97,186 13.5% 25.4% The growth in accounts receivable noted above was driven by our sales growth in the final two months of the period. The strong growth in recent years with our international business and with large customer accounts has created some difficulty with managing the growth of accounts receivable relative to the growth in sales. Our growth in inventory balances over time does not have as direct a relationship to our monthly sales patterns as does our growth in accounts receivable. This is impacted by other aspects of our business. For example, the dramatic economic slowdown in late 2008 and early 2009 caused our inventory to spike. This occurred because the lead time for inventory procurement is typically longer than the visibility we have into future monthly sales patterns. Over the last decade, we increased our relative inventory levels due to the following: (1) new store openings, (2) expanded stocking breadth at individual stores, (3) expanded stocking breadth at our distributions centers (for example, our master stocking hub in Indianapolis expanded its product breadth over six fold from 2005 to 2011), (4) expanded direct sourcing, (5) expanded exclusive brands (private label), and (6) expanded industrial vending solutions. Items (4), (5), and (6), plus the impact of strong growth with national accounts and international expansion, created most of our inventory growth in the first half of both 2012 and 2011. Our operational working capital improved relative to sales in the first half of both 2012 and 2011.1 For purposes of this discussion, we are defining operational working capital as accounts receivable, net and inventory.BALANCE SHEET AND CASH FLOW: Our balance sheet continues to be very strong and our operations have good cash generating characteristics. During the second quarter of 2012, we generated $58,243 (or 51.9% of net earnings) of operating cash flow; year-to-date, we generated $190,431 (or 89.6% of net earnings) of operating cash flow.  Our first quarter typically has stronger cash flow characteristics due to the timing of tax payments; this benefit reverses itself in the second, third, and fourth quarters as income tax payments go out in April, June, September, and December. The remaining amounts of cash flow from operating activities are largely linked to the pure dynamics of a distribution business and its strong correlation to working capital as discussed above. The strong free cash flow (operating cash flow less net capital expenditures) during 2011 and 2012 allowed us to increase our dividend in 2012. We paid our regular semi-annual dividend in the first quarter of 2011; subsequent to this, we declared and paid our 'first' second quarter dividend. With this payment, our board of directors indicated their desire to begin paying quarterly dividends. Our dividends (per share basis) were as follows in 2012 and 2011:   2012 2011 First quarter  $ 0.17 0.25 Second quarter  $ 0.17 0.13 Third quarter*  $ 0.19 0.13 Fourth quarter $          0.14  Total  $ 0.53 0.65 *The third quarter dividend was declared on July 11, 2012, and is payable on August 24, 2012 to shareholders of record at the close of business on July 27, 2012.STOCK REPURCHASE: We did not purchase any stock in the first half of 2012. We currently have authority to purchase up to 1,800,000 shares.CONFERENCE CALL TO DISCUSS QUARTERLY EARNINGS: As we previously disclosed, we will host a conference call today to review the quarterly results, as well as current operations. This conference call will be broadcast live over the Internet at 9:00 a.m., central time. To access the webcast, please go to the Fastenal Company Investor Relations Website at http://investor.fastenal.com/events.cfm. The Fastenal Company logo is available at http://www.globenewswire.com/newsroom/prs/?pkgid=6432ADDITIONAL INFORMATION: This press release contains statements that are not historical in nature and that are intended to be, and are hereby identified as, "forward looking statements" as defined in the Private Securities Litigation Reform Act of 1995, including statements regarding (1) the goals of our long‑term growth strategy, 'pathway to profit', including the growth in average store sales and profitability expected to result from that strategy (including our belief that we can achieve targeted profitability due to an improvement in our gross margins and a lowering of our operating expenses even if our average store sales do not grow as originally expected), (2) the expected rate of new store openings, (3) our belief in the transformative nature of FAST SolutionsSM (industrial vending) and our advantage as a first mover in this area, and our expectations regarding expansion of that business, including our goals regarding our rate of 'machine signings', and (4) our expected gross profit range, and (5) our expected future dividend practices. The following factors are among those that could cause our actual results to differ materially from those predicted in such forward looking statements: (1) a downturn or continued weakness in the economy or in the manufacturing or commercial construction industries, changes in the expected rate of new store openings, difficulties in successfully attracting and retaining additional qualified sales personnel, an inability to realize or sustain improvements in our gross margins and savings from lowering our operating expenses, and difficulties in changing our sales process could adversely impact our ability to achieve the goals of our 'pathway to profit' initiative and the expected time frame for achieving those goals, (2) a downturn or continued weakness in the economy or in the manufacturing or commercial construction industries, a change from that projected in the number of North American markets able to support stores, or an inability to recruit and retain qualified employees could cause the rate of new store openings to change from that expected, (3) a weaker level of industry acceptance or adoption of the vending technology from what we are currently experiencing could cause us to alter our plans to introduce new vending machines or cause us to fail to meet our goals regarding our rate of 'machine signings' or cause industrial vending to be less transformative than expected, (4) our competitors could choose, over time, to open additional locations and to develop their own vending platform which could allow our competitors to replicate our local storefront combined with industrial vending business model mitigating our first mover advantage, (5) changes in our current mix of products, geographies, end markets, and end market uses could impact our expected gross profit range, and (6) changes in our financial condition or results of operations could cause us to modify our expected future dividend practices.  We assume no obligation to update any forward looking statement or any discussion of risks and uncertainties related to such forward looking statements. A discussion of other risks and uncertainties which could cause our operating results to vary from anticipated results or which could materially adversely effect our business, financial condition, or operating results is included in our 2011 annual report on Form 10-K under the sections captioned Certain Risks and Uncertainties and Item 1A – Risk Factors. FAST-EFASTENAL COMPANY AND SUBSIDIARIES       Consolidated Balance Sheets (Amounts in thousands except share information)          (Unaudited)    Assets June 30, 2012  December 31, 2011             Current assets:     Cash and cash equivalents  $ 185,916 117,676 Marketable securities 27,166 27,165 Trade accounts receivable, net of allowance for doubtful     accounts of $5,934 and $5,647, respectively 399,993 338,594 Inventories 662,689 646,152 Deferred income tax assets 13,741 16,718 Other current assets 88,591 89,833 Total current assets 1,378,096 1,236,138       Property and equipment, less accumulated depreciation 459,652 435,601 Other assets, net 12,999 13,209       Total assets  $ 1,850,747 1,684,948             Liabilities and Stockholders' Equity       Current liabilities:     Accounts payable  $ 81,243 73,779 Accrued expenses 119,279 111,962 Income taxes payable 9,997 2,077 Total current liabilities 210,519 187,818       Deferred income tax liabilities 39,331 38,154       Stockholders' equity:     Preferred stock, 5,000,000 shares authorized 0 0 Common stock, 400,000,000 shares authorized,      296,150,999 and 295,258,674 shares       issued and outstanding, respectively 2,962 2,953 Additional paid-in capital 47,251 16,856 Retained earnings 1,536,342 1,424,371 Accumulated other comprehensive income 14,342 14,796 Total stockholders' equity 1,600,897 1,458,976       Total liabilities and stockholders' equity  $ 1,850,747 1,684,948  FASTENAL COMPANY AND SUBSIDIARIES           Consolidated Statements of Earnings (Amounts in thousands except earnings per share)                        (Unaudited)   (Unaudited)     Six months ended June 30,   Three months ended June 30,    2012 2011 2012 2011                     Net sales  $ 1,573,765  1,342,313 804,890  701,730           Cost of sales  764,437  642,700 389,739  335,497 Gross profit  809,328  699,613 415,151  366,233                     Operating and administrative expenses  469,508  420,560 236,538  215,868 (Gain) loss on sale of property and equipment  (108)  284 (282)  259 Operating income  339,928  278,769 178,895  150,106           Interest income  240  224 144  76           Earnings before income taxes  340,168  278,993 179,039  150,182           Income tax expense  127,668  105,334 66,733  56,070           Net earnings  $ 212,500  173,659 112,306  94,112                               Basic net earnings per share   $ 0.72  0.59 0.38  0.32           Diluted net earnings per share   $ 0.72  0.59 0.38  0.32           Basic weighted average shares outstanding  295,826  294,918 296,110  294,974           Diluted weighted average shares outstanding 297,021  295,690 297,130  295,916  FASTENAL COMPANY AND SUBSIDIARIES       Consolidated Statements of Cash Flows (Amounts in thousands)                (Unaudited)     Six months ended June 30,    2012 2011       Cash flows from operating activities:     Net earnings  $ 212,500 173,659 Adjustments to reconcile net earnings to net cash     provided by operating activities:     Depreciation of property and equipment 25,712 21,363 (Gain) loss on sale of property and equipment (108) 284 Bad debt expense 4,791 4,258 Deferred income taxes 4,154 204 Stock based compensation 2,100 1,800 Excess tax benefits from stock based compensation (8,103) 0 Amortization of non-compete agreements 297 297 Changes in operating assets and liabilities:     Trade accounts receivable (66,190) (91,320) Inventories (16,537) (51,288) Other current assets 1,242 (2,359) Accounts payable 7,464 22,646 Accrued expenses 7,317 4,016 Income taxes 16,023 15,547 Other (231) 2,170 Net cash provided by operating activities 190,431 101,277       Cash flows from investing activities:     Purchase of property and equipment (50,980) (56,324) Proceeds from sale of property and equipment 1,325 1,635 Net (increase) decrease in marketable securities (1) 4,976 (Increase) decrease in other assets (87) 122 Net cash used in investing activities (49,743) (49,591)       Cash flows from financing activities:     Proceeds from exercise of stock options 20,201 5,353 Excess tax benefits from stock based compensation 8,103 0 Payment of dividends (100,529) (112,047) Net cash used in financing activities (72,225) (106,694)       Effect of exchange rate changes on cash (223) 724       Net increase (decrease) in cash and cash equivalents 68,240 (54,284)       Cash and cash equivalents at beginning of period 117,676 143,693 Cash and cash equivalents at end of period  $ 185,916 89,409       Supplemental disclosure of cash flow information:     Cash paid during each period for income taxes  $ 113,810 89,583CONTACT: Sheryl Lisowski Controller 507.453.8550