Before we do anything else, let’s look at Fastenal’s financials in the latest 10Q report (dated Sept. 30, 2011) to make sure that the company hasn’t suddenly fallen off a cliff this year. The total number of shares is 298,636,424 – a slight decrease for the year. Net liquidity is -$104.943 million, or -$0.35/share, which means that Fastenal has taken on more leverage, albeit still a very modest amount. The net change for the first 3 quarters is -$94.084 million.
Cash flow for the first 3 quarters is $297.827 million ($397.103 million annualized). Normalized capital spending for the first 3 quarters is $47.425 million ($63.23 million annualized), or $0.159/share ($0.212/share annualized). The free cash flow for the first 3 quarters is $250.402 million ($333.87 million annualized), or $0.838/share ($1.118/share annualized). Thus, the annualized return on PPE for the first 3 quarters is 52.8%, a slight improvement over 2010 but somewhat short of our projection of 68.6% (the 4-year smoothed average).
What has Fastenal done with the $250.402 million in free cash flow and $94.084 million of additional leverage ($344.486 million total funding raised)?
$163.854 million of the $344.486 million (48%) was paid as income taxes. $150.414 million (44%) was paid out in dividends. Of the $92.479 million of capital spending, an estimated $45.054 million was spent on expansion (13%). The uses of the free cash flow are amply accounted for.
The financial statements in the 10Q show that free cash flow was somewhat less than expected, but nothing appears to be amiss at Fastenal. Given that nothing is amiss, we could (for valuation purposes) retain the assumptions of our Part 6 projections for 2011. But given that the free cash flow for 2011 has fallen short of the projection, let’s make assumptions based on the figures from the end of 2010, because it’s better to err on the side of caution. Our figures from the end of 2010 are:
Free cash flow: $1.307/share
Net liquidity: -$0.04/share
Part 8 will delve into valuation and comparing the valuations from Doppler Value Investing to those from conventional value investing.
