The Nuts and Bolts of Fastenal's Frugality
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The Nuts and Bolts of Fastenal's Frugality
By Arne Alsin
Special to TheStreet.com
06/18/2002 07:08 AM EDT
"..........But the purpose of this column is not to throw another dagger in the direction of corporate America. It's to recognize that many companies are above the current fray and provide clean financial information to investors. My guess is that close to 95% of publicly traded American companies provide entirely clean, accurate and reliable numbers to investors.
On recent trips to Eastern Europe, I've talked to accounting professionals there about the condition of financial record-keeping. It's a morass of missing documentation, fictitious business units and rough estimates/guesstimates about the numbers.
In the U.S., plenty of companies respect and protect shareholder interests. Not all executives are busy hoarding capital at the expense of shareholders. Here's a well-deserved tip of the cap to a company that watches out for its shareholders, Fastenal (FAST:Nasdaq - news - commentary - research - analysis), led by CEO Robert Kierlin.
Fastenal is a plain-vanilla company that sells threaded fasteners such as nuts, bolts and screws and other industrial and construction supplies. The company has no debt, and its ratio of current assets to current liabilities is 6 to 1. The gross margins at this company, at roughly 50%, are amazing. Annual revenue and profit growth has been near 30%.
This is a company that respects shareholders. You won't see a table like the one below very often, with (1) no difference between basic shares outstanding and diluted shares (an accounting adjustment to account for dilution because of stock options) and (2) no change in shares outstanding over a period of years. In a difficult market context, dilution is the scourge of investment capital. Here, as the company grows, the shareholder's ownership interest doesn't change at all.
Here are some of the aspects of this $2.8 billion-market-cap company that deserve kudos:
1. CEO Kierlin, who owns 10% of Fastenal, earns a salary of about $121,000. He receives no extra bonuses or stock options.
2. Kierlin's personal stock backs the stock-option plan, so there won't be any dilution to remaining shareholders.
3. Directors are reasonably paid: an annual retainer of $1,000, plus $3,000 for each board meeting.
4. Frugality dominates the corporate culture, to the benefit of shareholders. There's no reimbursement for meals eaten on the road (you have to eat anyway); motel rooms have to be shared (even by executives); there are no parking privileges, personal secretaries, company cars or executive lunchroom; and the company buys used furniture for offices.
I don't own this stock, nor do I have plans to buy it. Like Kierlin, I'm cheap. I'm not willing to pay the hefty market premium that Fastenal commands.
After the excess of the last cycle, with premium valuations accorded companies that were going to change the world in technology and telecommunications, it's interesting to see the market pay a premium price for a simple, old-fashioned business that's run for the benefit of shareholders. You can't get more plain vanilla than nuts and bolts.
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Arne Alsin is the founder and principal of Alsin Capital Management, an Oregon-based investment advisor specializing in turnaround situations. At time of publication, neither Alsin nor ACM held a position in any securities mentioned in this column, although holdings can change at any time. Under no circumstances does the information in this column represent a recommendation to buy or sell stocks. Alsin appreciates your feedback and invites you to send it to arne@alsincapital.com. Click here to receive Arne's latest favorite stock picks from his newsletter, The Turnaround Report................" |
