Fastenal Returns to Form

Industrial and construction supplier Fastenal (Nasdaq: FAST) focuses on providing small-yet-vital nuts, bolts, and related products to its customers. Historically, the company has grown rapidly, and a couple of minor initiative changes appear to have helped it return to form.

Today's earnings announcement demonstrated that Fastenal is seeing little ill effect from a slowing U.S. economy and worries that industrial activity will fall further. Today's dour results from industry titan General Electric (NYSE: GE) only stoked those fears, but Fastenal reported a nice 16% jump in first-quarter sales and an even nicer 28% pop in diluted earnings.

It looks like the timing of a rough patch in Fastenal's business was fortuitous, as it occurred in April last year, before signs of a recession began to take hold. For perhaps the first time in the company's history, returns from new-store growth began to wane, and it started to look for another "primary growth driver" for its business. It quickly settled on adding "outside sales personnel into existing stores" and better inventory management to improve working capital efficiency, which had fallen somewhat dramatically.

Well, according to the recent results, to quote our current President: "Mission Accomplished." The only difference being that Fastenal's planning and execution appear to have actually worked. First-quarter sales and earnings handily beat analyst projections, which is all the more impressive, given the current economic climate and fact that Fastenal also had to overcome rising fuel costs related to sales force travels and product freight costs. Even almighty FedEx (NYSE: FDX) and UPS (NYSE: UPS) haven't been able to offset the latter with their distribution clout and experience through past downturns.

Recent cash flow trends even hung in there nicely in the current quarter, after a stellar doubling of operating cash flow in the most recent fiscal full-year period. The only downside to this enviable string of performance is Fastenal's stock price is again bumping up against its highs for the year. The forward P/E on 2009 earnings also stands at a 24, which is a little too lofty for my tastes. But you can't argue with the current operating performance, and Fastenal may only be getting warmed up.    

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