FAST - Earnings call transcript Q2 2019

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Operator

Greetings, welcome to the Fastenal Company Second Quarter 2019 Earnings Results Conference Call. At this time, all participants are in a listen-only mode. A brief question-and-answer session will follow the formal presentation. [Operator Instructions] Please note, this conference is being recorded.

I would now like to turn the conference over to Ellen Stolts, Investor Relations. Ms. begin. now may you Stolts,

Ellen Stolts

to our Welcome to call. Florness, for answers. quarter quarterly conference with being Holden our hour and and XXXX President opened The the time operations, Fastenal call will Company Lewis, and This Officer; with Dan Chief for call a up second will Financial overview be Officer. and earnings Executive and general the will one last Chief of questions hosted of our results start the by remainder

call is webcast Relations recorded simulcast call audio This conference investor.fastenal.com. homepage, be distribution reproduction, a Today’s consent. and proprietary of being Investor the on available today’s is by transmission on September A Time. replay Fastenal the Central being website is of will recording, Fastenal’s midnight until is presentation permitted Internet without Fastenal. the at X, via No call Fastenal or XXXX the

today’s plans is we results regarding duty conference note expectations statements and update call undertake include These As company’s the that on to current may review based It actual from them. factors release with are Factors anticipated. materially prospects. a could to those and are Exchange latest that Securities to and reminder, our results may encourage future important no company’s the differ actual the from to differ carefully. and we anticipated contained cause you Company’s those the filings statements in results earnings periodic and Commission,

I call to would over Dan Mr. like now Florness. the to turn

Daniel Florness

good and you, morning, everybody. Ellen, Thank

were the successor Will only original CEO, that with really are from I great in they’re my I to had really learned two of two I Oberton, think And at a and fine people. the pleasure good I Kierlin, people. XX and thought mentioned role, I a not stellar over amount they some their just worked And start, with I share Fastenal to at were and have years group. Before distinct tremendous role, individuals want them Bob the his

and I remember third growth back growth, in dropped in -- I we October month, we XX% dropped a believe one went from some was our business XXXX point. XX it about

went I that, really XX% a six you what six to if are don’t And want you that’s and I was. it useful. simple do a on in like quote but -- did are think if me know we things. we there this, think XX%, CEO from And to these to things to want time out you

that priorities you but first do priorities. you should your revisit long-term priorities. step to step one. goals something at start you or The thing center These look take is a on back, your that’s wrong you your with, take And a is

everybody these that XX these two were opening because priorities ago Step we keep executing our is branches, about remind years remind and growth on we America. things. doing drivers. hey, across spreading North everybody, you it’s you was Today,

it and you a back down Business in of in HR; and of a Step that are Winona, three, distribution of we know, right our the travel instructor-led of Head pull expenses programs hotel back the you is our now our our one you airline and in important to so Minnesota because sat need in late We were And for to second-half need pulling need we bunch or of expenses, year the to everybody you Peter Guidinger, centers, pull pull to places. back we long-term a we if or pull months of react back, with back because and business to good me, step really Fastenal didn't May, you that didn't some the our really, anger, with a -- need Reyne lose our I you with I with example things bit. instructor-led you Wisecup, fear. -- are why online six that reacted and team back pull and but we our next success, identify a about Head School your said, back react trainings those what take to pulled XX% the explain on They will on something back in do resiliency. we excuse back an

are be Now what anger that what let immediately freeing maybe had stomach, Fastenal they some an do that to most short-term Lean could some they blueprint and online. fear ISO because stomach, long-term. course, They course, new help some and identified of our reading they in their There metalworking going courses they delivered the maybe develop Several relating had to a the Sigma. they and an identified a didn’t Six quality of abrasives in some identified they their courses we show are resources in course. courses they but would up, course,

the in individual, that employees something in in pull and that the short-term and expenses Now case do signing organization the customers, important to when call as our but anybody take thing important back do believes my guess that's courses, you you this short-term. back we pay because that’s aren't in it. is really they’re dollars there me in you you trade-offs up and those our have of education an the pull to for don’t to Really or to more. But

support first aren't your you frankly to quite also have or necessary that long-term those place. that really that in priorities four, don't Step activities identify the

for Fortunately we’re pretty us frugal.

those -- but always are and stop beings, So, you today. so have those, stop we of you we some human any and develop don't you just we

third The you communicate is to thing the do throughout this organization.

organization. your in normalcy create You

with resiliency. fear remove You it replace and

repeat of And down I slowed and resiliency a simple comfort and really in in we then business again build steps, long. are but they’re communication all the tail it I when has talked normalcy Regional your faltered morning, a you sure on our about effective a I and the in them doing also with that aspects business seven of number and call execution I gross the right. of don’t end share, VPs organization. is and quarter one at you’re at slowed you repeat again it. did. Holden six, in took really Six a how that time market sudden where to fall the everybody, not you out. actually has Had step but that stands things we're talked our of down. margin to this the about chimed

honest with fall. were in products tariffs be on on we To really for been plan thought had we place the has inflation year address fall, some and now steel-based late you, last of there we last a to seeing, since fasteners good

a plan about plan on the of year think faltered where the often that, were go we our that I that feel But that part. team of big to no business. an in was it an prepare have team to really a easy didn’t not the good direct. were that, after. to shy our easy coming part prepared great the last So, it to big for good how We We front year. wave it. It's I one things where into a was we we Unfortunately, plan. a we coming We is their in had coming In way. easier downstream go one intended. to easy take resiliency didn’t to coming for That’s pun encourage That’s on after. And fall. had tariffs bunch that them identify. approach

suppliers We the the it things realized the that and product us. with process in easier them going did some some were prepared those fronts that in of to a from for is job. I be would also relatively we it it we U.S coming Though easy; think to going We import not to good two of our identify, ourselves. on but share We customers. it share of to some relatively with were as our resell and

a We chain supply partner. are

is end for an not a customer Our means us. to

customer really goes with just a -- we Our customer care do they the we and business away it. products not what don’t and are sells that

supply are a and that's chain what We customer. we to represent our partner

we that’s in, some for tides rip was to Where react as both. once ready came the we of in and slows troubling though And To slows result a And failed different on couple and out directions just bunch if too. about weren't will wasn’t economy down, detail there we you me stands coming that there a touch that, waves that. rip from Holden those standpoint of tides thing is, a more the quarter the economy from the is little expands, lost down, that a this economy gross economy margin. the expands, a

we to not margin. a margin that I XX% execute believe did is we this group, result, I’m describing were a we statement as gross where Fastenal $XX achieve. January I expense can to believe XX go on around I that would sitting put And QX. work that’s we an we believed in it I think should the to you didn’t into then here it I reality just is now. believe internally look folks said, a when billion quarter made operating call months I a believe to we up where margin as is when the aspire reality change, and I and a look a can gross gross our six back believe operating a We at achieve I about the XX talking company, be margin And I it XX%. and on do to XX.X some later regard number. we’ve I I

XX% sales growth in slowed the X%. now quarters. reading our to go sub nine will The about I first flipbook. It's

continue and We customers, to if double-digit growth through you vending Account our drivers, Onsites and will. National our growth realize to

we quarter. quarter. But end stepped sure but it construction, time. I will all that it a few quarter, serve let did slowed if driver touch more we slow on to continue growth fourth as we Our did the minutes. weaken driving as our the activity quarter the what's Holden into slow the Not into we at stepped deep know in exactly in of the I during into and don't this that markets overall got as

after There milestones quarter. And right touch in were one few the that the on occurred that quarter I well. will as a

XXX,XXX was the to vending milestone device The say, during first our a -- hard that’s thing installed we quarter.

XX,XXX have We over now. vending little machines

do lease to where XX,XXX check to their customers have adopter, some an number machine to back guinea XXX,XXX out, there. to miles about like had so June. Oshkosh away were for Corp say Appleton, Gus had in another really lives years an early and have [ph], father-in-law Wisconsin, Manufacturing them because opportunity a they they’re night. get with a they I with need of them pretty my beautiful XXX,XXX the make and didn’t And great in go personally business what out worked ago in to a facility that I I XX had XX well hotel special, pig, so We early to about Pierce second continued use Appleton, they -- learn out a trucks, They thank that person. It vending a and them lot chance we specifically product. there added should they our based thank that relationship is Neenah, fire But program a in Wisconsin. organization XX, over early and in I I

Onsite quarter X,XXX. number signed in Late we the

of the big you to think announcing worked now. I’m get formalities branch them not get would Onsite two. for share us I we’re accomplishment. liberty at a quite less to customer or I a few us I X,XXX. name to day get like in right out, X,XXX. all We but took incognito lot that’s thank a It number that to with the need X,XXX. believe a time the to It years took Onsite

X,XXX a now. in we’re think I right

process Fastenal The manufacturing the shutdown. XXXX, XXXX, at that a to third what They facility a next quarter, the They Within in But Connecticut, we years family. the even the Holo-Krome. newly were been it facility. of great year yesterday odd them to have operation a kind addition to of happened yesterday. Holo-Krome from Connecticut, in not acquisition, they renovated business My -- But wasn’t two rather milestone flipbook. team Wallingford, acquired facility an and of in Holo-Krome in was but congratulations in decade. of our XX-year the in we old into Holo-Krome. start a is yesterday celebrated the occurred moved And being -- back nine given a tired back started in years

to Price tariffs fully seeing. has realization and as the been general inflation insufficient I’ve alluded offset we’re to

some third it further the tariffs, apply quarter. We different companies in it indirect across Obviously, of tariff the related bunch price products, impact Nonetheless, fronts. spread direct able going not are the adjustments products. pass through of some ways, lot from buy a taken to but a seeing in to some the fully strictly pass that into In we on chain price inflation. of supply short-term, it it's been We’ve realize the to created along. we’ve all

partner, a will, with share some supply chain as our We customer.

call gross the but margin of beyond plan some came degradation back to it, absorb that current in customer we will quarter. We mix just the

we result, is We flipbook expense that’s only expense a did the flipbook to I As disagreement leverage. talks struggle about The growth. leverage. that. operating looking sales with to would operating at get The obtain have

I growth. think regard operating gross did team to of think expenses the job I profit we did the the expense but And lever, that in quarter. a in the second as not managing operating good

We’re we dialing third. go down as into the

great these share. team executing page, can individually. to great did to on a just We say drivers, next take relates the continuing need our business. I On I as all to need do What the to a the read don’t to continue job market job, growth it

to over it turn Holden. will I that, With

Holden Lewis

and you good Thank Great. morning.

remind jumping any will the want references on share I Before to stock as per we that two-for-one. just materials Therefore and action. information May EPS reflect everyone our this XX in, such to split

XX to X. XXX was Moving Pricing the range first includes contribution price the to inflation and current stable. in Slide sales response rising price. in contributed the basis general to we realization that believe tariffs having quarter were to during sales reflects we year's Sequentially, up point X% Total largely in than June. saw daily period. over X.X%, lower up The from last period what grow which

X.X% a -- quarter. the growing averaged activity quarter, panic was cadence industrial well has fourth still market quarter macro as experienced just Purchasing month-to-month recorded sentiment that off the as but become is recently of the that production level recently was mostly the in the X.X%, cautious. standpoint, as the The XX.X U.S the growth but April up clear no a suggestive and as in in XX.X Managers' From is market, it's which slowed. There's below May Index in we quarter of which fourth well the more to first and steady, Similarly, XXXX.

soft In with X.X%. remain terms of outperforming equipment up markets, smaller was and up X.X% manufacturing Construction second the our gas in slowed. quarter also heavy larger ones. end and customers was Oil categories

macro National Accounts X.X%, customer XX.X% cyclical to of non-fasteners XQ deceleration From XXX up believe a product most were reflects the Fasteners a our standpoint, and with fasteners product the From relatively our up from faster XX the quarter accounts we like X.X%. of are in lines the to slower up environment. with top XQ standpoint, were growing.

of growth Account non-National branches quarter. the than less Our was X% with growing XX% our roughly second in

quarters continue production share distribution our rate relative aside and industrial cycle market, the effectively. two quarterly XX.X%, industrial our Our Still growth is every of by a to clearly drivers more goal growth the of growth execute day current its disappointing. to Blue fragmented flows of capture market we out is believe the Team judging averaged ebbs to

Slide to Now X.

of than including was XXXX, year Our drags, There second quarter the gross transportation. factors were XX.X% comparison were a smaller points primary there basis down year But larger two quarter, a expected. the the the was versus of behind decline. second handful margin to XXX in in decline

and This expected customer outcome of gains success drivers. current product market an our our mix. in First, share driving growth through remains

points the than in to which was X% to in grew However, higher-margin in XX net greater basis serve quarter. wide less quarter XX Account the deceleration customers, non-National drag, mix our which the

an widening points. estimated was XX cost to in Second our deficit basis a price to XX

terms the inflation expansive frankly, their tariffs. tariffs far range of above steps to effective offset not alluded beyond products and and, they enough Dan but covered as the initial or raise as As catalyzed ability generalized to price to, to went, offset by of in were were

to effects benefits range continue that mitigate pursue performance realizing should of including streams second-half. broader and to the that introduced the actions already we've a instituted pricing these gross improve incremental in increase sales the We our third price Broadening a of recently margin the in our quarter.

quarter to XX.X% the expenses of was We sufficiently growth, margin points margin. gross despite lower down the overcome sales basis the second but slowdown in operating XXX leveraged in operating Our year-over-year. 'XX, not

of XX FTE was X.X% over in employee to points achieved up growth This due the costs, related which increase leverage a basis were and growth at pieces, largely X.X%. Looking we absolute We we realized were costs, up expenses the X.X%, which leverage installed base period. comprised vending occupancy XX points the related expenses. expand of higher in basis of occupancy flattish over as and

growth, We leverage light will In generated spending. over were the administrative of slightly line the in slower actually points XX to other top and down our reduce period. basis operating seek expenses, which we of own

cost in quarter our market our do will EPS 'XX. those together, as two the second not our take second we one-time quarter drivers continue will Putting pennies to necessary $X.XX and share, investments was resources quarter down second of adjust and growth did tightly reported support up drivers quarter. be which tax growth that from but were by more EPS 'XX add managed. however, all X.X% the Recall, we X.X% to this finance of that support out, if ability $X.XX, We to gain year's the last in from a it benefit

Turning to Slide X.

rate year typical benefits Act. deriving last Looking quarters quarters absent XX% below seasonally to Remember cash are XQ current quarter, statement. from in consistent second rate. would generated the the conversion be operating net the million the close in to at typically the conversion second XX% lower. rate last cash the in flow view we cash which $XXX in conversion year's Tax income. The was generation have of the We we Overall, with XX%, the been one-time current quarter's the

second with are This equipment the property expectations. to but in equipment of support in and our in hub Net high levels vehicles up $XX of that service necessary as our consistent quarter reflects million, as vending support was installed investments spending well the our investments in in and quarter growth to second million from capital $XX XXXX, base.

net XXXX and million $XXX is for capital second $XXX between quarter impacting increase million unchanged Our driving the with full-year. total spending the range same factors the

increase paid added capital believe almost our we XX% XX.X% and in provides relates up Inventories debt at were million. working and dividend. a to XX.X% second down sequentially business from level of last funds that invest at inventory dividends year-end of The ample and but by liquidity the XX%, finished with quarter, in to our We increased out capital Onsites. pay picture $XXX this remains We quarter challenging. the in to to above support total year's XX%

can difficult to making inventory while a of believe we our reduce We overseas XXXX. the lag This the inventory an fourth even growth impacting be reduce lowered slower rate. and overall began quarter, as can of result both between this investments. of these because sheet discern our quarter burn And purchasing and such balance which its because to the in action our sales

these to visible expect become more the of would However, second XXXX. we actions to half

payments meaningful to versus a to has day been year and the the last any receivable the we rate XX.X% its of increase quarters are quarter. quarter Still, recent in receivable of moderated effectively in accounts there X.X not is are result Our increase grew seeing actions days end past balances. reacting more to change second as in and that continue Customers we hard are our unsatisfactory. collect customer's in our case signs out as aggressively push

our for all is presentation. That formal

questions. we will take So operator, with that,

Operator

[Operator you. Thank you. Thank Instructions]

Please with comes questions. proceed from question first William of your line of Merkel the Blair. Our Ryan

Ryan Merkel

thanks. Hey,

a questions margins gross couple to start here. on So,

So, the recapturing got quarter, this it product first, cost deficit fact I issue inflation? last worse. but you in quarter, price recapture XX-basis-point is the you’d thought recall what with exactly

So on? what exactly going is

Holden Lewis

inflation was we down as cost one, The coming quite execution. of the degree price deficit the product caused in would of And year to the a that but that including plan I The offset were place. into the we price that and inflation necessarily didn’t following pricing in prior -- for of we on in think sort that getting And and goal particular top we amount saw to was, within the a being goal was we general categories, into a to what terms but What was the those for of get tariffs comes we year in eliminate that and on in the that, wound the it. there the so with and to And the inflation I well, didn't still tariffs. improvements that put sort was general place -- to Ryan up mean, we make of enough significant incremental up assumed that we the affected put get that marketplace. didn't had. to going of price the it issue marketplace, address our we was which Again, underestimated of in beyond affect in is had portfolio, above the product address our incremental but tariffs the simply tariffs reason there. overall we lot that resulted all

in the at situation, and were both additional didn't in as we to our So -- we inflation the experience to well sort if that looked at QX, to beginning place the expectations the year. of the COGS of you build that will into had that end through will, catch issues the half we the of evaluated really are the we of beginning gap actions address for and as tariffs so that in that the we’ve system the QX new pricing the the we’ve come up, original latter taken

Ryan Merkel

pushing too like systems aren't understood inflation back I So you said follow-up, able for what right? to that you’ve to it Am I that because sounds been pass hard? your you not your customers saying you’re just pass unable you're appropriately a to -- on inflation be hearing or that price it correctly, to on the they’re capturing if

Holden Lewis

correct. captured. is we we didn't the put No, what have. The that we capture through through, pricing put that didn't pricing we we should -- that’s The that

capture is time what putting the and up around. what sort we pricing new the first we the so we've didn't -- seen, to of wind and what price through that And address did and between intended the increases gap

Ryan Merkel

better on And systems presumably a you and inflation is improved coming. you’ve then Okay. more have what the handle

into you of So to in the how rising to and 'XX, inflation? need estimate price going you’re XXXX maybe much do product second offset half

Daniel Florness

I of know, couple into price. place a we percentage at and -- looked we've it of You think expecting are we're putting points

Ryan Merkel

most And the deficit? Okay. offset cover cost that least price confident of you’re will or at

Daniel Florness

Yes, we are.

Ryan Merkel

on. it Thanks. pass Okay.I’ll

Daniel Florness

Thanks.

Operator

coming next line your is the The proceed question with Baird. from Robert Manthey David of W. with questions. Please

David Manthey

Good Thank you. guys. morning,

Daniel Florness

Hi, David. Good morning.

David Manthey

question has XX%. the about on you Holden, the can factors margin. that, First I’m declining, Dan, on today gave gross could disaggregate XXX if when wondering gross I’m and you that a factors? you as don't data XX well? but just X think Can decline plus this, in and you’re sand of with talk I why XX% margin margin XX% last some line the mix know, points at XX, I issue your for then, versus this, basis is address years. gross annually along change pricing basis the you And points wondering into been

Holden Lewis

freight which XX-basis-point about in XX organizational the of couple basis a saw the point XX a difference. there's other the a it handle again first about XX There from But XX of I drag probably it was quarter. mix The would've XX point what versus a we was which about elements expected, widening sort that drag, make to points basis was piece mechanical to frankly. pass drag, we will price the piece cost up basis than I then was over. first will an side than more and was

David Manthey

Got it.

you. Thank Okay.

Daniel Florness

to you our way. do margin expense it by expenses we you Think over how or a to it. business move. Either to to through the to gross have going -- it branch think difficult do allow you our you model, going understand about I’d two a to by desire that's move of XX%, run we really away about math that’s to population versus because but margin, you’ve about fixed the Onsite really more much and allow becomes how as to If much really ways that move your operating expand much do. profit lag how billion the average old our operating talked you this going as of much about is to desired you do to $X operating be conceivable, to to profitable your model force branch is to next branch what it ago costs. it that of The growth was Could going going David, expense it's XX% outcome. your pathway from operating or make matures, years because our it work there’s

as a And in team putting so, it's internal for really about a is a case your sand, a this for as because tells message line the of much it’s message external. piece, It team in tells things this piece, this your the and want on these piece. this to have able clawback that afford if piece, be to we we this future, to

back clawing that’s Sometimes price. on gross margin of some and

sometimes cost, about it's mix. it's Sometimes about

which conceivably own possible. is in and goes how can XX can to It's do you those down need mean, at XX%, at we If truck we much or then -- at we you on willing how the company and XX. decide is I saying January XX If pieces charge talked afford for XX be billion versus that freight a somebody we about number freight? XX. and XX%, at hit put to we're be your and to else's, squeeze or can't $XX looking that. about XX% I much XX it's we either all and or to to that be XX Sometimes, if

and desired more what going the challenge achieve sand to outcome your in to you’re do line about the the So, to that business internally is outcome.

David Manthey

Okay. That makes sense. Thanks, Dan. it. I appreciate

Daniel Florness

mix billion that recall of had noted in that business we initial we margin also would then when and the we mention And or right. what pull $XX to you the sort we also to the XX% those one conversation aspirations, might to stuff thing and make down is improvements I impact would about the that $X of supply billion. do time improvement had just the Obviously, from basis improve points now. basis from actually have points add XXX our things another get haven't we chain, XXX That’s of to additional

that you period mix offset business was the over when make inherent we some that that the on baseline, process would in forget about guidance of that that don't suggestion would that our own also So, drag. think always improvements

David Manthey

it. Got

Thank you. the Okay. And then quickly just SG&A. on

in of slowdown I that rate flex it any or will half prepping single-digit before set mean, first further can or in good -- wondering can think if obviously I sort you’ve the the this relative only point of a a and to But you this take work to can X% take line know. you I'm this X% little lower. year? that you actions at natural get I growing Where top down a much been I point. taken the on you’ve a just you mean, and things mid that? slowing flat, set you’ve it OpEx job how in can back market. done for X% don’t are you half at

Holden Lewis

will I -- it, now, this Yes, doing answer where my our right on now. our context thinking where is in business Dave, right what is based

We to That quarter. expense run our some we a about do rate XXX up that going are frees every every on closing quarter. some close. Based branches we’re branches

that lot are or might expand it's we still our existing customer a some are we while might through the than the of it's low-cost to need mile a us closing our have cheaper and flexibility. an that room to sufficient cost. that expand we storage gives branches able of customer a expense. a and within footprint fund and Onsites branch two that that not have branches all the But So and some There some we’re

is growth And we the so not onset been fact branch from there. put is occupancy machines contracting that coming so occupancy, that's has more our vending occupancy, net That The piece and out net slightly. in funding growing.

is If a done non-labor think right we've the raining dollars travel we component, -- labor the pulling other other expenses The are reduced nice we you for our year. you pieces of operating which that we've second now, that have look is operating half and expenses, at in in really the our triggers about will example, in expenses. -- training job real we -- because operating some if

growing works, that comp a the And of different the within us in I gives July flex and in it crazy past materially as you July luxury with XXXX. can the aptly what in days, Fastenal of tell in sales XX points in rapidly can't shock was standpoint be we of what’s today pulling some And X% So incentive you’re of not incentive gross there are X% folks profits growing -- right where that. get that but X% expense you’ve our absorbers, not it expenses growing sure that to are -- we’ve at having The the or from headcount and does that comp number and how X%. happening. because growth XXXX environment is back of last an described the for because

our we which you’re where really components that's we’ve really other one are need the well, of was a really XX% tact. and labor and well change SG&A, different two see but So going the to first environment those because to the managed toggle that been are for managing that

Holden Lewis

zip you’re we of at to sort it to there's people the the to whether Certainly you need Yes, if to the do look adds at added, of to market look May, our look we’re support do I added be invest to FTE, David, our down growth X.X% are the getting headcount outside highest to to look one if We but but in the headcounts are we're payrolls just growth some at of as environment go be you -- to selling continue up headcount X%, in so, you our in and share opportunities drives of room this going it back that functions mean where if organization, I seen getting if the or rate back within Onsite growth. full-time think, right? so. was month they’re through and that’s headcount And and it to obviously, even gains, cycle, we there, our environment because seeing we absolute actually even conservative, branches. take we’ve that all up rate that need at have selling well, more Onsite need closing outside where

rate had in able And that it's should marketplace down non-selling off quarter whether growth outside we coming we Onsites support the heads reality the simply and where good a in organization, of or of -- the to. come the pretty so in in the whether growth we're needs it's that’s be growth organization selling the to to given

Daniel Florness

years A XXX Onsite, few from and of about all Onsites, years that handle to a our team implementation the just National believe over XXX-ish last field, our implementing the XXX-ish, Onsite, as not over last it's about kind so the Evian general. but XXX to it's these attracted National up that’s I good ramped the and customers business. example we now our we Accounts we’ve signing in We we that because two took we’re zone think to cadence good our not going team XXX, not as around to XXX are rapidly in we’re from XXX. for Accounts grow of a in of stable relatively having for That sites to number

us group. require So to it that doesn’t expand

that last were think the has XX X% So been, months. I group up in

that we like that things it's the So in can short-term. do

David Manthey

guys. color, Thanks. Great

Daniel Florness

You bet.

Holden Lewis

Thanks.

Operator

Wolfe is of question Nigel next Please with Research. the your line from Our proceed Coe questions. from

Nigel Coe

Thanks. Good guys. morning,

Daniel Florness

Good morning.

Nigel Coe

the for detail. Thanks

going Just X%. point? able and non-National price Is that think mentioned of this is be locked are contractually the And question the so certainly get at whole so I Accounts, across is, spirit Accounts? to boats the the for you the price you Holden increases in or to that National that back

Holden Lewis

that the business after the our Account. National in We go increases Accounts we’re XX% of the are is price impact that We not and not of it non-National can't looking in is relates business business at as XX% the the right? cost that address our place, putting sense to of differently and

certain where mechanical, same has behaving and costs perhaps the work same. as build there necessary process the that more products and bit mechanisms increases Account that price little intention process but into the are into are contracts National are the well we that that Accounts through get National a the we Accounts is non-National to Now that because are make as selling

setting we’re business of what are aside achieve. successful can we that taking So not trying it this. half and and We as to our do we're not be touch going to

Nigel Coe

Okay.

Daniel Florness

add average. sometimes just will an cited I be can a thing for color dangerous. Holden little is Average One

think you China. of on the produced if I steel inside the -- about Earth point a I believe as ballpark. but off two, industrial planet of I’m an that’s the of in might China producer, is be have or XX% We produced

which fasteners third percentage represent Our minority earlier, high world, North roughly in a are is of a the of fastener of but steel. the of -- company of a they the started And most -- consumed are product, they’re that America. our the business the I Holo-Kromes was made

this made So getting most or is who the of moved. production on And the China. I moved some you’re importer, in fasteners regardless distributor mean, of we've who out, of where we’ve fasteners the planet are them, is the actually most

economy has, environment, if at producer amount than a XX% we've -- the lowest-cost still the are moving, reality the but they look at the compare China more a in even out an oftentimes statistics. you item. or is last And the XX% look months you of If tariff U.S of is economy nine in actually we've the what U.S and it moved the moved to

that there. the squarely list that and Holden didn’t list to that We in it's what’s has like on of products happened went identified our product. quarter. to the lists fastener in hit there's of There's said, List a two one the four XX% second I from on hit of list and area. most us don’t in into hold. know will be those there. four, U.S yet, XX% quite happen steel. impact We List have going do non-fastener That And September, and hard an have raw four hits a nothing here government. parts so three bunch import there's while been whole average by lot much. us across of List items products, don’t different really -- last

X% we’re mindful parts so materially we’re parts of that. -- raising are but there for higher than and And And are touching. be not there

Nigel Coe

Okay.

Holden Lewis

something impact. have our but what And this We Accounts XX% or of Difficult we it that you, we're not will saying X% specifically, or say think to think aside average. again business to the we relates -- versus any non-National in as be can. so we yes, given Accounts less and more an given quarter National whether Accounts is National is setting not can intention

Nigel Coe

the impact you pattern? seasonally half How Understood. seasonal Understood. cadence And versus does balance how in margin normal you’re I mean, tend maybe year lower increase have to that second the that the then, the of Holden, margin first the because half address we that gross just gross price very can quickly, over implementing, a does XQ.

Holden Lewis

already price -- Yes, have installed. so been the increases already are

a then it we expect that fourth to and quarter, the of from and but heading The in greater we’re course, the would of new season September will benefit begin would August in in July cost see already and up. impact middle would the I the benefit So costs behind into So that us right? cost probably would from on ramp generalize part new inflation, QX. tariffs, tariffs begin or

QX points would maybe cost. QX. pieces think margin basis I typically think quarter, to that from about -- out. think that on flat this affected I that points, how XX down seasonally, gross be about cadence the basis XX XX our I If plays to So down,

XX seasonal get freight that of from be think think I to pattern. the that’s back think that But freight, I quarter. some So able probably this basis from I saw typical points we the we might drag

cost quarter bit in that path there seeing. the bit I be to a And the can a something there's like which decline I point less or we the that of basis third a give this quarter may to basis gross a out, path XX that that you think And and all take a margin, lay quarter. of think the I in would think a price North points third when quarter things half. have expect XX%, we XXX on given that’s the that, as maybe well fourth in had cut that we're little little drag

kind add do the I of effectively, which that and think see. Obviously, you executing gain that on our we bit a expect. then that’s little cadence we that should there's so, from seasonality, the So But I we freight gain. price little from think add a bit cost it you relies could

Nigel Coe

All right.

guys. Thanks, Okay.

Holden Lewis

Yes.

Operator

Research. Buckingham proceed Barry your Robert is the question next with line with Please questions. of from The

Robert Barry

Good guys. Hey, morning.

Daniel Florness

morning. Good

Robert Barry

just where left you’ve we there, Holden. pick up actually to Maybe off

that into the of on think XXs it fourth gross the you of think tariffs mid the to you can call going also the quarter. So I new in kind it back you but to impact low then sounds to you the margin, said start like call are

price So does you and that more then, again back or go to direction mean there? kind moving down need get be other of in then start back the will

Holden Lewis

I over what said I off. what -- mid XX. think I a just I think XXs, … little was a I off I first, throw will said said little don’t was first Well, think I’ve

Robert Barry

XX.X. [Indiscernible]

Holden Lewis

in play the Yes, tariffs into of the I something in throw latest QX. came round just will

product there's it but on in that if -- not but was impacted. the water that is it was impacted, stuff we’re So shift hadn't

latest So we’ve are that cost wave. that that right from coming in are now

in specific costs August. of July a that will our in piece turns A certain product September based days. bigger customer those we cadence. in does turn Some might at turn piece But updated faster bring there's will in on returned turn XX then and inventory that

So we’re now. place, the are comes price we in right in, costs, moves the doing in waves, putting while and that

happening every individual your response a and with sell to in customer but to working of Systematically to place a it moving waves. not September, now. can in in every month are based keep they’re team and is more team both mind, supply price be case doing to is place you we part, increase it. it, our There piece multiple of makes message that some That’s in but locally. stuff is that’s given some go because It will will manage. chain on -- doing in their There's I’ve big what in on August, some month, the what’s -- we’re the stuff unique isnt customer. a And our difficult go what

Robert Barry

Right.

Daniel Florness

get talk where I a more a more in little both price bit when year. of then, clawback XX about and points you or basis in are little XX of half the I’m back versus you cost assuming QX. QX And bit in the

side but -- There QX. do a of think higher will than we bit be we’re how in that it higher little playing the little will a price QX, will escalate that’s costs So I bit. I be think out. see also

Robert Barry

Right.

to of impact mention at of So XX% I mean, given three the list is the the the P&L. the waves volume waves, full

Daniel Florness

You those time of start part get seeing puller it middle the of QX. you that. into the by impact That’s

Robert Barry

achievability. back impacted, And to circle earlier are an just mean, I slowing to numbers with than about given it. price now the is the I some what’s environment bigger much these guess goal? question on I costs to demand Got even customers. XX%. earlier the getting think the of confidence to mean, burden share that neutral then I the or planning you mentioned Because

Holden Lewis

to neutral your substitution. conversation a sometimes that getting as With work and with it cost price have is I realistic. be involves having to price I some to of that work get challenging you -- we get believe its don't to said, have customer, some said prior of close to on calls,

alternative a saying Sometimes and a it's of with. cost to different up, here's is this start the cheaper that’s price looking

but standard the engineering customers are math, lot win. actually it you us some and like some it branch to have Neither because in Henry for in work. to challenging For the approved months environment aspects, as six a the nonstandard standard I and bit it's what challenges, is those because times use Fastenal might challenging item this, a get more mind a think requires of little been customer while Those a today then maybe but you it what there well substitute. our cases process. And allows is whatever be And support than using ago. one more both in would that’s a more the the whole in friction create that it that takes product, bear then of reason, changed to maybe takes cradle-more

We’ve the won't learned that of are We that than we executing sort we at that we the things, systems better be in more did we to that time the have, also first thing. fewer made were this systems so we covered have, tweet it. about

environment that right we’re more and through is ago. So difficult six little months the think you’re bit perhaps I

of how knowledge our better. also that is think process I to manage the

now go need to execute we And and it. so just

Robert Barry

guys. right. All Thanks,

Daniel Florness

Thanks.

Operator

Please Pokrzywinski your with from question is next Thank Joshua proceed you. Morgan Stanley. with questions. The line of the

Joshua Pokrzywinski

Hi. guys. morning, Good

Daniel Florness

Morning.

Joshua Pokrzywinski

saw Just or there. or that from want guys some pockets non-resi Holden more June. the to Holden you’ve the an maybe versus maybe deceleration verticals regions that in color any follow-up in on indication any give bit heard one on of Anything or month? you bad persistent can is may little color Dan, how

Holden Lewis

much as you. color could as give I Not wish I

the we’ve The well. smaller National was customers as within larger customers customer volume Accounts construction that with, fairly grew grow side. Our base. they lot did did well of What tend be well a to not the pretty

weather wasn’t Now that was by and means. the RVPs of but like some scattered. that, any about consensus things commented a It

true of not of the for I’ve But customers, that had for And lot. the exactly piece was so, larger which a why was you. I’m think more sure color slower I us I market don’t than

Joshua Pokrzywinski

more I of as to is Got some Account some directed containment. cost How investment of it. or National And the investment. Accounts notice National the or then, much Onsite press just concept on general couldn’t well of, kind deceleration. the directionally comments around monitoring programs that help release but in versus

to on there's Just some dollars think about National caught. had a Accounts as get of if here to trend those be trying

Daniel Florness

how the is we gain in to to whatever good that in those much continue invest allow share. the that can us marketplace pretty what -- intention we goal. is But market market to in how we share happens clip. to our things -- Well, the And happens market share. market continue in that’s gain ultimately that the gain believe The are market. it We we control --

our what all to that are gold unit chain to entrusting continue going going sites more the to we’re and customers supply to deliver need staff in pursue is of to so us. model intension year. be the with add to XX,XXX that to to on personal have invest we And that Onsites, we’re their XX,XXX able vending continue we With to with this

staff we slows it there's those whether really whether was an of we market I Onsite. say, resources I there to when intended and would at, And at to ourselves be convey was And it look the again, whether types like a continue in we of If the monitoring, can growth that. to growth the is monitoring there the It's things to to we areas we're We but it, the the drivers, drivers expense. opportunity of thing a some tighter those talked outside really in that level, to to in are the to headquarters, etcetera. on hubs, spending, have we’re going are going nothing we we growth of be on where will would areas would headcount about we’re way. where of the that. the we headcount, where we talk outside to be we look And the to address drivers to going to we're other about find be need that branches, there's share. to because that There rate doing the was slow investment provided continue things that Winona after emphasized there have not So That’s that more save the drivers, going right message headcount is gain need something as gross it need doing not. one growth that be invest in were growth we we think to by that when well. but

are is to that. are share drivers where looking to We drivers our spend goal occur the we growth are real don’t -- and scrutiny because gain growth to outside we the market anywhere. of not to have not But has is to key this the

Joshua Pokrzywinski

of some inventory there would Got were something to cutting it. the much, And looking that year. they the corollary would and weren't we coming I Yes, to release. have the that I the and Should guess year, that’s of just headwind contemplated you show than purchases bit some advance last a given up of imagine before? structure a in expect but like this little of rebate terms more a purchases in

Daniel Florness

of sort we with that past QX. in sort the the purchase we made that Well, accelerated are of think inventory, regards -- to I

between kind of adjusted out. QX that and think itself QX I

as teams, our year I year chain think our this in the really for purchasing inventory the spend. more go they QX, half meaningful last through second QX into Starting is their more that teams reduce year in QX you spend. a level because we're supply have and this allows that the little be products demand meaningfully we the seeing to so of cautious fairly currently hub and enough for with bit today that of us

lower quarters that And ago. currently will we in ago, imported so inventory we where reduction to the quarter. have go a through we seen of I were begin third two And think and quarter three in through particularly products as versus fourth flow spend, quarters

Now interestingly rebates are in the actually and a are on they domestic spend. spend imported component heavier

And spend than we’ve assume so in is reduction is on now much that as the spend really going by to affected I impact the else. The dyer more have going right would necessarily import gone sense. after domestic you’re be a piece. Makes that rebate anything to imported and rebate a terribly

Joshua Pokrzywinski

color. Thanks. it. got the Yes. Appreciate Okay,

Operator

with with of from next The Research. Cleveland the line Uhlman Please Adam questions. you. coming proceed Thank question your is

Adam Uhlman

morning. Hi. Good

Daniel Florness

Adam. Hey,

Adam Uhlman

the made kind today detail do out ago what we total missed you of country. stand of us share and on that has of moved an Could more there. kind out more Dan, you interest purchases Hey, in just to getting company has were out China? you I terms economy. a with of share that moving And the China company your the that coming exactly of maybe suppliers with then where bit us comment broader of little in actions are activity than the taken at that

Daniel Florness

can large, product. want specifics Yes, Half it non-fasteners large. they the other that the for reason quite And reasons, one of -- of And of to that’s is it's sometimes you supplier countries in honestly information our And needed. and have with In how have the have not university product you a the available confidence them and by end it and sources or either but variety I’d is include universe only challenging a will is that of always to item. case from not they of that your supply. move quality revenue Because competitive because supply, together stuff thing multiple need fasteners not we're to the of do share of the a you safety covenant include product used countries, a and is due, have but or into at have our fast percentages, tail, customers you your But get standpoint. variety the many is standpoint you and that conference quite selling can of prefer standpoint publicly, hold supply to we it, from for people. the a suppliers the of day our when fastener have from of I a frankly. just how that for

in have those. so quality important The statistics at. -- all but that in And statistics and has out consideration resourced. product been And the look products, if a you to you are especially look the the but at mono for there me

is percentage is, a there there's And fairly chains and The measured small. that’s by it as through actually coming what’s supply as that out of customs. U.S resourced been far As lot that to we the where the in in difficult a has cost the years, are case head In last us, five set years. last early change of but on. not XX been ability up sophisticated

might might they thing The more other challenging have different we XX% resource be in supply, is the to expensive, places.

the depending try might, what everybody or you of is we the the next. to think can, is thing do move on tariffs XX% if there you to at you happen move, might you But and XX%. ahead to X% when get The same X%. you going you don’t You stuff what not else,

last some that of we on so last -- aggressively moved late fall. fairly And

And to of so and we moved chunk went a more, that of we there's of inflation you’re the that, probably chain so primarily Taiwan but China. that moved out the we’ve countries, product to for our buying introduced And or Most because other really our Asian moved equal it data. percentage than because of the wise, paying what has tariff. it's more customer. U.S relationship at looking supply you’re import less because we economy have of for But

Adam Uhlman

a you. And got clarification. Okay, then

if a that through quarter that’s was reduced in quarter it wondering had was second for came event and I’m material third incentive the and You the lot, that the comp mentioned just if the the if P&L or Thanks. quarter?

Daniel Florness

equation, the think I there. It's is a going second It the three would on have is with headcount the you about if come or there's of labor sheer what’s the One headcount expense, growth. dynamics. because through sheer on dynamics quarter. piece two mean, one --

particularly areas, because unemployment. inflation inflation, there's in is in U.S general, the very low payrolls part-time the there's economy across we other The but in have

bit, And pushing it two yes. this are a so down little actually those it or dynamics pulled adding up

Adam Uhlman

Okay. Thanks.

Operator

are you time, additional this At some like you. Thank closing Mr. Would comments, no questions. there Florness? make to

Daniel Florness

and to disclosures selling hope you understanding thank time planet. want happening and rest our the everybody industrial into this America and and this of morning business Thank call what’s found our the in in useful North Just for you.

Operator

Thank you. This concludes today’s conference.

time. disconnect your for may Thank at this your You participation. lines you

Fastenal (FAST) 11 Jul 192019 Q2 Earnings call transcript