Jan. 21--The recession has caught up with the Fastenal Co., the Minnesota industrial distributor that has for years been a steady financial performer and the leader in its field.

Earnings grew more than 11 percent for the fourth quarter and 20 percent for the year, but slowdowns in manufacturing and construction are taking their toll on the firm. The company was founded in Winona in 1967 and now has 2,300 U.S. and international stores.

Sales were flat in December and have shrunk since, CEO Willard Oberton told analysts in a Tuesday conference call to discuss the company's earnings.

"It was a good year -- good for the first three quarters -- but then it slowed down hard," Oberton said. "We don't know where bottom is at this point."

Fastenal earned $62.5 million in the fourth quarter, or 42 cents a share. That's up 11.3 percent from the year-earlier quarter and a penny above the consensus Wall Street estimate. For the year, earnings rose 20.2 percent to $279.7 million, or $1.88 per share, a penny shy of the analysts' consensus. Fourth-quarter revenue rose 5 percent to $545 million, and annual revenue rose 13.5 percent to $2.3 billion.

About half of Fastenal's business consists of fasteners, such as nuts, bolts, clamps and clips; the remainder involves selling supplies for maintenance, repair and operations. While Fastenal has a few large competitors such as W.W. Grainger and MSC Industrial Direct Co., many of its competitors are smaller, privately -owned distribution businesses.

"Fastenal is the market leader," said David Manthey, an analyst at Robert W. Baird & Co. in Milwaukee. "It is outperforming its industry, continues to gain market share, and continues to have some of the strongest growth and profit margins. But clearly any company selling industrial supplies is at risk in this economic environment."

"Fastenal is not immune to the economy, but relative to its peers it generally grows faster in a good environment and doesn't decline as much in a poor one," Manthey said.

So far, earnings and revenues have held up. But the pace slowed sharply in the fourth quarter, said Dan Flomess, the chief financial officer. In December, sales were flat for the first time in the company's 42-year history.

Sales to construction companies, which normally decline 4 percent in the fourth quarter, dropped 18 percent in the fourth quarter of 2008, Flomess said. Sales to manufacturing firms, normally down 3.5 percent in the fourth quarter, declined 16 percent.

So far, January sales are showing declines of 4 to 6 percent, "the first time we've seen that in this company," Oberton said.

In response, Fastenal is altering its business model, which has been largely driven by adding new stores. Now, it's emphasizing the addition of more salespeople to existing stores in order to sell more products to smaller customers, who typically generate higher profit margins.

While the overall employment trend has been up at Fastenal, the company let 4 percent of its jobs go unfilled as a result of attrition between Dec. 1 and Jan. 15. These were nonsales jobs that did not affect the company's strategy of boosting revenue from existing stores.

The company opened 161 new stores in 2008, but didn't say how many it will open this year.

Fastenal stock closed Tuesday at $32.90, down 25 cents, or less than 1 percent. It is trading near the low end of its yearly range; the highest close was $55.01 on Sept. 16.

Manthey said the stock is priced by traders less on current financial results than on potential results as the economy improves. "The stock reflects a certain belief in the future, and today's financial report didn't change that viewpoint," Manthey said.

Steve Alexander --612-673-4553

-----

To see more of the Star Tribune, or to subscribe to the newspaper, go to http://www.startribune.com/.

Copyright (c) 2009, Star Tribune, Minneapolis

Distributed by McClatchy-Tribune Information Services.

For reprints, email tmsreprints@permissionsgroup.com, call 800-374-7985 or 847-635-6550, send a fax to 847-635-6968, or write to The Permissions Group Inc., 1247 Milwaukee Ave., Suite 303, Glenview, IL 60025, USA.

NASDAQ-NMS:FAST, NYSE:GWW, NYSE:MSM,

A service of YellowBrix, Inc.