Fastenal Company (NASDAQ:FAST) Q1 2019 Earnings Conference Call Transcript

Apr 11, 2019 • 10:00 am ET

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Fastenal Company (NASDAQ:FAST) Q1 2019 Earnings Conference Call Transcript

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Presentation
Executive
Holden Lewis

it to continue to play out over time. So putting it all together, we reported first quarter '19 EPS of $0.68 versus $0.61 in the first quarter of 2018, an increase of 11.9%.

Turning to slide seven. Before jumping into the numbers, I just wanted to call to your attention, a change in our balance sheet. This quarter, we adopted FASB's new standards for accounting for leases, which requires us to move operating leases onto the balance sheet. You will see these values on separate lines identified as right-of-use assets and current long-term liabilities. The impact of adopting this standard on our income statement and cash flow was immaterial.

Now, looking at the cash flow statement. We generated $205 million in operating cash in the first quarter of 2019 or 106% of net income. This remains below the historical rates of conversion that we have experienced in first quarters, but is meaningfully above last year's 92% figure. The challenge remains working capital, which I will cover in a moment.

Net capital spending in the first quarter was $53 million, up from $29 million in the first quarter 2018, but consistent with expectations. This reflects investments in hub property and equipment that are necessary to support our high-service levels, as well as investments in vending equipment to support growth in our installed base.

Our 2018 range for total net capital spending is unchanged between $195 million and $225 million to invest in hub property and equipment and vehicles to support our growth and vending devices to support our rising success in this initiative. We increased funds paydown dividend by 16% (ph) to $123 million and reduced debt. We finished the quarter with debt at 16.9% of total capital above last year's 15.7%, but down sequentially and at a level that we believe provides ample liquidity to invest in our business and pay our dividend.

The working capital picture remains challenging but improved. Inventories were up 14% in the first quarter of 2019, with days on hand flat year-over-year. We continue to experience inflationary pressure on our inventories. However, during the period, we worked off the foreign sourced inventory that was accelerated into the US in the fourth quarter of 2018 and advanced several initiatives aimed at making us more efficient with inventory.

AR grew 15.2% in the first quarter of 2019, with customers continuing to aggressively push payments out past quarter end. As has been the case in past quarters, we are not seeing any meaningful change in hard-to-collect balances. Reducing these annual growth rates will be an area on which to improve over the balance of the year.

That is all for our formal presentation.

So with that operator, we'll take questions.