Despite the sluggish economy and pressing industry conditions, nut and bolt maker Fastenal
The quarter unfolds
Revenue for the quarter rose 23% year on year to $701.7 million. This was fueled by higher sales from nonresidential construction. The 75 new stores added in the first six months of 2011 also helped send sales higher. Nonetheless, like many companies in the space, costs jumped on higher freight and metal costs. Cost of revenue went up to $335.5 million. Gross margin showed a negligible increase, rising a tad to 52.2% from 52% a year ago.
Net income rose 36% to $94.1 million, and the operating margin came in at 21.4%, 180 basis points higher than the year-over-year quarter. Fewer new store openings and a reduced new hiring schedule helped the company produce higher profits.
The capital position
While the numbers were generally good, cash and cash equivalents came in at $115.7 million, down 48% from the year-ago quarter. This was primarily due to cash from operations plunging 33% to $27 million this quarter. Higher costs and increased spending on inventories led to this drop. Fortunately, the company's debt load is a nonissue -- it's zero, in fact.
The company's good current ratio of 5.7 times is nevertheless short of the year-ago quarter's 6.6 times. But on an absolute basis, there is more than ample room to run this company with what is available on hand.
The construction industry will recover at some point. Fastenal's smaller competitor MSC Industrial Direct
The Foolish bottom line
Recently, Morgan Keegan analyst Brent Rakers lauded Fastenal's minimal susceptibility to economic doldrums, and that's music to investors' ears. Moreover, the company is on a hiring spree to boost revenue. Since a strong sales force led to increasing sales last quarter, we may expect this strategy to push up sales in the coming quarter as well.
Debarati Bose does not own shares of any of the companies mentioned in the article. Motley Fool newsletter services have recommended buying shares of MSC Industrial Direct. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.