Fastenal Company (NASDAQ:FAST) Q2 2019 Earnings Conference Call July 11, 2019 10:00 AM ET
Ellen Stolts - Financial Reporting and Regulatory Compliance Manager
Daniel Florness - President and Chief Executive Officer
Holden Lewis - Executive Vice President and Chief Financial Officer
- Ellen Stolts - 财务报告和监管合规经理
- Daniel Florness - 总裁兼首席执行官
- Holden Lewis - 执行副总裁兼首席财务官
Ryan Merkel - William Blair & Company
David Manthey - Robert W. Baird & Co.
Nigel Coe - Wolfe Research
Robert Barry - The Buckingham Research Group
Joshua Pokrzywinski - Morgan Stanley
Adam Uhlman - Cleveland Research
- 瑞安默克尔 - 威廉布莱尔公司
- David Manthey - Robert W. Baird＆Co。
- Nigel Coe - 沃尔夫研究
- 罗伯特巴里 - 白金汉研究小组
- Joshua Pokrzywinski - 摩根士丹利
- 亚当乌尔曼 - 克利夫兰研究
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. Stolts, you may now begin.
欢迎致电Fastenal公司2019年第二季度收益结果电话会议。 此时，所有参与者都处于只听模式。 一个简短的问答环节将在正式的演讲之后进行。 [操作员说明]请注意，此会议正在录制中。
Welcome to the Fastenal Company 2019 second quarter earnings conference call. This call will be hosted by Dan Florness, our President and Chief Executive Officer; and Holden Lewis, our Chief Financial Officer. The call will last for up to one hour and will start with a general overview of our quarterly results and operations, with the remainder of the time being opened for questions and answers.
Today’s conference call is a proprietary Fastenal presentation and is being recorded by Fastenal. No recording, reproduction, transmission or distribution of today’s call is permitted without Fastenal’s consent. This call is being audio simulcast on the Internet via the Fastenal Investor Relations homepage, investor.fastenal.com. A replay of the webcast will be available on the website until September 1, 2019 at midnight Central Time.
As a reminder, today’s conference call may include statements regarding the company’s future plans and prospects. These statements are based on our current expectations and we undertake no duty to update them. It is important to note that the company’s actual results may differ materially from those anticipated. Factors that could cause actual results to differ from anticipated results are contained in the Company’s latest earnings release and periodic filings with the Securities and Exchange Commission, and we encourage you to review those factors carefully.
I would now like to turn the call over to Mr. Dan Florness.
今天的电话会议是Fastenal专有的演示，由Fastenal录制。未经Fastenal同意，不得录制，复制，传播或分发今天的电话。这个电话是通过Fastenal Investor Relations主页，投资者网站（fintenal.com）在互联网上进行音频联播。网站直播的重播将在2019年9月1日中部时间午夜之前在网站上公布。
Thank you, Ellen, and good morning, everybody. Before I start, I just want to share a thought with the group. And I had the distinct pleasure over my 23 years at Fastenal to have worked with some really fine people. And two of them I mentioned are original CEO, Bob Kierlin, and his successor Will Oberton, two individuals that I think were stellar in the role and I had learned a tremendous amount from -- and not only were they great at their role, they’re really good people.
I remember back in -- I believe it was 1998, October and our business growth dropped in one month, about a third we went from 20% some growth, we dropped 10 point. I think we went from 27% to 17%, don’t quote me on that, but I think that’s what it was. And we did simple things. And if you want to -- if you are a CEO out there and you want to know six things to do in a time like this, these are really useful. The first thing you do is, you take a step back, you revisit that your long-term priorities. These priorities should center on your goals if something is wrong to start with, but you take a look at your priorities. And that’s step one.
Step two is you remind everybody about these priorities and you remind everybody, hey, we keep doing these things. 20 years ago that was opening branches, because we were spreading across North America. Today its executing on our growth drivers.
Step three, you take a step back and you identify those things that are really, really important to your long-term success, but you pull back on that a bit. And you explain to everybody why and a good example of something that we are pulling back, back in late May, I sat down with Reyne Wisecup, our Head of HR and Peter Guidinger, our Head of our Fastenal School Business and I said, you know, what we need to pull back expenses and we need to do it in a bunch of places. We need to pull back our instructor led programs for the second-half of the year because we need to pull back the travel expenses, so if you are in an airline right now or a hotel in Winona, Minnesota or one of our distribution centers, you will lose some business in the next six months because we pull back on -- we pull back about 40% of our online -- excuse me, our instructor led trainings and the team didn't react with anger, didn't react with fear. They reacted with resiliency.
Now maybe they had some fear in their stomach, maybe they had some anger in their stomach, but they didn’t let that show and they immediately identified with some of the resources they would be freeing up. What could they do that help Fastenal in the short-term and long-term. They identified some courses they are going to develop as most of our courses are delivered online. There we identified an abrasive course, a metalworking course, a blueprint reading course, so quality course. Several new courses relating to Lean and Six Sigma. Now my guess is there aren't anybody in this call that’s signing up to take those courses, but they’re really important to our employees and to our customers, and that's something that you do when you do trade-offs and you pull back expenses in the short-term. Really important thing as an organization or individual, in the case of me that believes in education more. But in the short-term you pullback because we don’t have the dollars to pay for it.
感谢Ellen，大家早上好。在开始之前，我只想和小组分享一个想法。我在Fastenal度过了23年，与一些非常优秀的人一起工作，我感到非常高兴。其中我提到的其中两位是原始首席执行官鲍勃·基尔林和他的继任者威尔·奥伯顿，我认为这两个人在这个角色中表现出色，而且我从中学到了很多 - 而且他们不仅擅长自己的角色，而且真是个好人。
我记得回来了 - 我相信它是1998年10月和我们的业务增长在一个月内下降，大约三分之一我们从20％增长，我们下降10点。我认为我们从27％上升到17％，不要引用我，但我认为这就是它。我们做了简单的事情。如果你想 - 如果你是那里的首席执行官而你想在这样的时间里知道要做的六件事，这些都非常有用。你要做的第一件事就是退后一步，重新审视你的长期优先事项。如果出现问题，这些优先事项应该以您的目标为中心，但是您要考虑您的优先事项。这是第一步。
第三步，你退后一步，确定那些对你的长期成功真正非常重要的事情，但是你可以稍微退一步。你向每个人解释为什么以及我们正在撤回的一个很好的例子，早在五月下旬，我与我们的人力资源主管Reyne Wisecup和我们Fastenal学校业务主管Peter Guidinger坐下来，我说，你知道，我们需要削减开支，我们需要在很多地方做这件事。我们需要在今年下半年撤回我们的讲师指导计划，因为我们需要取消旅行费用，所以如果您现在在航空公司或威诺纳，明尼苏达州或我们的一个配送中心的酒店，你将在未来六个月内失去一些业务，因为我们会重新开始 - 我们撤回了大约40％的在线 - 请原谅我，我们的导师带领的培训和团队没有对愤怒作出反应，没有做出反应恐惧。他们的反应是弹性。
Step four, you had also identified those activities that don't support your long-term priorities. Quite frankly, aren't really that necessary in the first place. Fortunately for us we’re pretty frugal. So we don't have any of those, but we are human beings, so we -- you always develop some and those you just stop and you stop today. The third thing to do is you communicate this throughout your organization. You create normalcy in your organization. You remove fear and replace it with resiliency.
And then step six, you repeat that communication to everybody and you repeat it again and again and you build resiliency in the organization. Six really simple steps, but they’re really effective in a time when all of a sudden your business has slowed down and you’re not sure how long. I feel comfortable we’re taking market share, but the business has slowed down. Had a call with our Regional VPs at seven this morning, actually Holden did. I chimed in at the tail end of it. I talked to them about a number of things we're doing right. I also talked about on aspects of the quarter that don’t fall in the normalcy, where our execution faltered and gross margin is one that stands out.
To be honest with you, last fall, we thought we had really good plan to address some of the inflation we were seeing and there has been tariffs now in place on steel-based products for a year on Fastenal since late last fall. So we had a really good plan coming in the year how to approach it. I often encourage our team to think big about the business. Unfortunately on that front I feel shy on where we were last fall. In that we had a good plan coming into the year. We didn’t have a great plan. And part of the -- where we faltered was the resiliency part. We didn’t prepare our team for a bunch of things coming their way. We prepared them for that, that big wave coming in with tariffs that were direct. That’s easy one to identify. That’s a easy one to go after. It's not easy to take a downstream upon intended. But it is easier to go after.
We also prepare them for some of the things that will be coming from our suppliers in the U.S that import product and resell it to us. It's not as easy as the trade [indiscernible], but relatively easy and I think on those two fronts we did a relatively good job. We realized in the process. We were going to share some of it with our customers. We were going to share some of it with ourselves. We are a supply chain partner. Our customer is not a means to an end for us. Our customer -- we are not a business that just sells product and the customer goes away. We don’t really care what they do with it. We are a supply chain partner and that's what we represent to our customer.
Where we failed though is, there wasn’t just a couple of waves coming in, there was once rip tides too. And those rip tides came from a bunch of different directions and we weren't ready for that. And as a result and Holden will touch on a little more detail about that, we lost some gross margin. To me that’s a thing that stands out in this quarter that is troubling from the standpoint if the economy slows down, the economy slows down, the economy expands, the economy expands, you react to both.
第四步，您还确定了那些不支持您的长期优先事项的活动。坦率地说，首先并不是真的那么必要。对我们来说幸运的是，我们非常节俭。所以我们没有任何这些，但我们是人类，所以我们 - 你总是发展一些，你只是停下来，你今天就停止了。第三件事是你在整个组织中进行沟通。您可以在组织中创建常规。你消除恐惧，并用弹性取代它。
我们还为来自美国供应商的一些东西做好准备，这些供应商将进口产品并转售给我们。它并不像交易那么容易[音频不清晰]，但相对容易，我认为在这两个方面我们做得相对不错。我们在这个过程中意识到了我们打算与我们的客户分享一些。我们打算与自己分享一些。我们是供应链合作伙伴。我们的客户不是达到目的的手段。我们的客户 - 我们不仅仅是销售产品而且客户消失的企业。我们并不关心他们用它做什么。我们是供应链合作伙伴，这就是我们对客户的代表。
We did not execute on gross margin. And as a result, the statement I made to this group, I believe look back on the January call where I said, when I look at Fastenal and I’m describing it to our folks internally when we were a $10 billion company, I believe a 46 gross margin is a reality that we can achieve. I believe a 24% operating expense is a reality we can achieve and we should aspire to an operating margin around 20%. I believed it then I believe it now. I didn’t think I would be sitting here six months later talking to you about a quarter where we just put up gross margin that’s 46 and change, 46.7 I believe is the number. And in that regard we’ve some work to do as we go into Q3.
I will go to now the flipbook. The sales growth slowed about 8%. It's our first sub 10% reading in nine quarters. We continue to realize double-digit growth through vending and Onsites and to our National Account customers, our growth drivers, if you will. Our fourth growth driver construction, did weaken as we got deep into the quarter. Not exactly sure what's driving all of that at this time. But overall our activity in the end markets we serve slowed as we stepped into the quarter. I don't know if it continue to slow during the quarter, but it did slow as we stepped into the quarter and I will let Holden touch more on that in a few minutes.
There were a few milestones in the quarter. And one that occurred right after the quarter that I will touch on as well. The first milestone was we installed our 100,000 -- that’s a hard thing to say, vending device during the quarter. We have little over 85,000 vending machines now. We have another 15,000 that we lease to some customers where they use them for second check out, so 100,000 of them out there. I like to personally thank Oshkosh Corp and specifically their Pierce Manufacturing facility in Appleton, Wisconsin. They were an early adopter, I should say an early guinea pig, with our vending program back 11, 12 years ago continued to have a great relationship with that organization and they added machine number 100,000 in early June. And had the opportunity to go over there and thank them in person. It worked out really well because they’re based in Appleton, Wisconsin, my father-in-law Gus [ph], lives about 10 miles away in Neenah, so I had a -- I didn’t need to get a hotel that night. But I had a chance to learn a lot about business and what they do is pretty special, they make fire trucks, a beautiful product.
Late in the quarter we signed Onsite number 1,000. I think that’s a big accomplishment. It took us quite a few years to get the branch number 1,000. It took us a lot less time to get Onsite 1,000. I’m not at liberty to share with you the name of that customer right now. I believe we’re announcing in a day or two. We need to get all the formalities worked out, but I would like to thank them incognito for Onsite 1,000. I think we’re in a 1,026 right now.
The third milestone occurred is not in the flipbook. But yesterday and it wasn’t even in the quarter, yesterday our facility in Connecticut, Wallingford, Connecticut, Holo-Krome back in 2009, we acquired Holo-Krome. They were in a business -- a process of being shutdown. Within two years of the acquisition, we moved them from a 80-year old facility that was rather tired into a newly renovated facility. And -- but Holo-Krome manufacturing started back in 1929, kind of an odd year to start given what happened in the next decade. But they celebrated nine years of operation yesterday. My congratulations to the team at Holo-Krome. They have been a great addition to the Fastenal family.
本季度有几个里程碑。还有一个在季度之后发生的事情，我也会谈到。第一个里程碑是我们安装了100,000个 - 这是一个很难说的话，本季度的自动售货设备。我们现在拥有超过85,000台自动售货机。我们还有另外15,000个租赁给一些客户，他们使用它们进行第二次退房，其中有100,000个在那里。我个人感谢奥什科什公司，特别是威斯康星州阿普尔顿的皮尔斯制造工厂。他们是早期采用者，我应该说是一只早期的豚鼠，我们的自动售货计划回到11年前，12年前他们继续与该组织保持着良好的关系，他们在6月初增加了10万台机器。并有机会去那里并亲自感谢他们。它运作得非常好，因为他们位于威斯康星州阿普尔顿，我的岳父Gus [ph]居住在距离Neenah大约10英里的地方，所以我有一个 - 我不需要得到一个酒店晚。但是我有机会学到很多关于商业的知识，他们做的很特别，他们制造消防车，一个漂亮的产品。
发生的第三个里程碑不在翻书中。但是昨天，甚至在第一季度，我们在康涅狄格州，康涅狄格州沃灵福德，Holo-Krome的工厂，在2009年，我们收购了Holo-Krome。他们在一个企业 - 一个关闭的过程。在收购后的两年内，我们将他们从80年历史的设施搬到了新装修的设施中。而且 - 但Holo-Krome制造业始于1929年，鉴于未来十年发生的事情，这是一个奇怪的一年。但他们昨天庆祝了九年的运作。我向Holo-Krome团队表示祝贺。他们是Fastenal家族的一个伟大的补充。
Price realization as I’ve alluded to has been insufficient to fully offset the tariffs and general inflation we’re seeing. We are seeing in a bunch of fronts. Obviously, the direct impact of tariffs, but the indirect through companies we buy from some pass it on in different ways, some spread it across all products, some apply it strictly to tariff related products. Nonetheless, it's created a lot of supply chain inflation. In the short-term, we’ve not been able to realize the price to fully pass that along. We’ve taken further price adjustments going into the third quarter. We will, as a supply chain partner, share some with our customer. We will absorb some of it, but we plan to call back the gross margin degradation that came beyond just customer mix in the current quarter.
As a result, we struggle to obtain leverage. We did get operating expense leverage. The flipbook talks about that. The only disagreement I would have with the flipbook is that’s looking at operating expense to sales growth. I think the operating expense to gross profit as the growth. And in that regard we did not lever, but I think the team did a good job of managing operating expenses in the second quarter. We’re dialing down as we go into the third.
On the next page, I don’t need to read these all individually. What I can say as it relates to our growth drivers, the team did a great job, continuing to take market share. We just need to continue to do a great job on executing the business.
With that, I will turn it over to Holden.
Great. Thank you and good morning. Before jumping in, I just want to remind everyone that on May 22 we split our stock two-for-one. Therefore any references and the materials to per share information such as EPS will reflect this action.
Moving to Slide 5. Total sales were up 7.9%, which includes up 7% daily sales in June. Pricing in response to tariffs and general inflation contributed 72 to 100 basis point during the period. The lower range than what we saw in the first quarter that largely reflects the current period having to grow over last year's rising contribution from price. Sequentially, we believe price realization was stable.
From a macro standpoint, it's clear that activity slowed. The Purchasing Managers' Index averaged 52.2 in the first quarter, which is still suggestive of a growing market, but well off the 56.9 level recorded as recently as -- as recently as the fourth quarter. Similarly, U.S industrial production in April and May was up 1.3%, which is well below the 3.7% growth that we experienced just in the fourth quarter of 2018. There's no panic in the market and the month-to-month cadence to the quarter was mostly steady, but sentiment has become more cautious. In terms of end markets, manufacturing was up 9.1%. Oil and gas remain soft and our heavy equipment categories also slowed. Construction was up 7.2% in the second quarter with larger customers outperforming smaller ones.
From a product standpoint, fasteners were up 5.5%, with non-fasteners up 9.5%. Fasteners are the most cyclical of our product lines and we believe the relatively faster deceleration from 1Q to 2Q like to reflects the slower macro environment. From a customer standpoint, National Accounts were up 12.5% in the quarter with 72 of our top 100 accounts growing. Our non-National Account growth was less than 1% with roughly 59% of our branches growing in the second quarter.
Our two quarters of quarterly growth averaged 12.9%, our current rate is clearly disappointing. Still ebbs and flows of the cycle aside the goal every day is to capture more market share of a fragmented industrial distribution market, judging by our out growth relative to industrial production we believe the Blue Team continue to execute its growth drivers effectively.
Now to Slide 6. Our gross margin was 46.9% in the second quarter, down 180 basis points versus the second quarter of 2018, a larger decline than was expected. There were a handful of smaller drags, including the year to year comparison in transportation. But there were two primary factors behind the decline. First, customer and product mix. This remains an expected outcome of our success in driving market share gains through our current growth drivers. However, the greater deceleration in our higher-margin non-National Account customers, which grew less than 1% in the quarter serve to wide net mix drag, which was 80 to 90 basis points in the quarter.
Second was a widening in our price cost deficit to an estimated 40 to 60 basis points. As Dan alluded to, initial steps to raise price to offset tariffs were effective as far as they went, but were not expansive enough in terms of the range of products covered or their ability to offset generalized inflation above and beyond and, frankly, catalyzed by the tariffs. We continue to pursue a range of actions to mitigate these effects including a broader price increase that we've already instituted in the third quarter. Broadening our sales streams and realizing the incremental benefits of the pricing that recently introduced should improve our gross margin performance in the second-half.
从宏观角度来看，很明显活动放缓了。第一季度采购经理人指数平均为52.2，这仍然暗示着市场的增长，但远远低于最近的56.9水平 - 最近的第四季度。同样，美国4月和5月的工业生产增长1.3％，远低于我们在2018年第四季度所经历的3.7％的增长。市场没有出现恐慌，本季度的月度节奏也没有大多是稳定的，但情绪变得更加谨慎。就终端市场而言，制造业增长9.1％。石油和天然气仍然疲软，我们的重型设备类别也放缓。第二季度建筑业增长7.2％，大客户表现优于小型客户。
Our operating margin was 20.1% in the second quarter of '19, down 110 basis points year-over-year. We leveraged operating expenses despite the slowdown in sales growth, but not sufficiently to overcome the lower gross margin. Looking at the pieces, we achieved 20 basis points of leverage over employee related costs, which were up 6.8%. This growth was largely due to a 6.6% increase in absolute and FTE growth in the period. We realized 25 basis points of leverage over occupancy related costs, which were up 2.5%, comprised of higher vending expenses as we expand the installed base and flattish occupancy expenses.
We generated 20 basis points of leverage over other operating and administrative expenses, which were actually down slightly in the period. In light of the slower top line growth, we will seek to reduce our own spending. We will continue to add resources as necessary to finance our growth drivers and support our ability to take market share, but cost and investments that do not support those growth drivers will be more tightly managed. Putting it all together, we reported second quarter '19 EPS of $0.36, which was down 3.2% from the $0.37 in the second quarter of '18. Recall, however, that last year's quarter did benefit by two pennies from a one-time tax gain if we adjust this out, our EPS were up 1.5% in the second quarter.
Turning to Slide 7. Looking at the cash flow statement. We generated $128 million in operating cash in the second quarter, which was 63% of net income. Remember the cash generation in the second quarters are typically seasonally lower. The conversion rate in the current quarters below last year's 72%, the last year we would have been close to 66% absent one-time benefits deriving from the Tax Act. Overall, we view the current quarter's conversion rate to be consistent with the typical 2Q conversion rate.
Net capital spending in the second quarter was $67 million, up from $25 million in the second quarter of 2018, but consistent with our expectations. This reflects investments in hub property and equipment and vehicles that are necessary to support our high levels of service as well as investments in vending equipment to support growth in our installed base. Our 2019 range for total net capital spending is unchanged between $195 million and $225 million with the same factors driving the second quarter increase impacting the full-year.
We increased funds paid out in dividends by 16% to $123 million. We finished the quarter with debt at 16.6% of total capital above last year's 16%, but down sequentially and from year-end 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. Inventories were up 15.7% in the second quarter, almost 40% of this increase relates to inventory added to support Onsites.
We believe we can reduce overall inventory even while making these investments. And as a result began to reduce our overseas purchasing in the fourth quarter of 2018. This can be difficult to discern both because of the lag between such an action and its impacting our balance sheet and because of the slower sales growth this quarter, which lowered our inventory burn rate. However, we would expect these actions to become more visible to the second half of 2019.
Our accounts receivable grew 11.7% in the second quarter. Customers continue to aggressively push payments out past quarter end and as a result of 2.9 day increase in our receivable days is unsatisfactory. Still, the rate of increase has moderated versus last year and there are signs that we are reacting more effectively to our customer's actions as its been the case in recent quarters we are not seeing any meaningful change in hard to collect balances.
That is all for our formal presentation. So with that, operator, we will take questions.
我们的应收账款在第二季度增长了11.7％。 客户继续积极推动上个季度末的付款，由于我们的应收账款天数增加2.9天，因此不能令人满意。 尽管如此，增长率与去年相比有所缓和，并且有迹象表明我们对客户的行为做出了更有效的反应，因为最近几个季度我们没有看到难以收集余额的任何有意义的变化。
Thank you. [Operator Instructions] Thank you. Our first question comes from the line of Ryan Merkel of William Blair. Please proceed with your questions.
谢谢。 [操作员说明]谢谢。 我们的第一个问题来自William Blair的Ryan Merkel。 请继续你的问题。
Hey, thanks. So, a couple questions on gross margins to start here. So, first, what exactly the issue with recapturing product inflation? I recall you thought you recaps the 20 basis point price cost deficit last quarter, this quarter, but it in fact got worse. So what exactly is going on?
嘿，谢谢。 因此，从这里开始，有几个关于毛利率的问题。 那么，首先，重新获得产品通胀的问题到底是什么？ 我记得你认为你在本季度的上个季度重估了20个基点的价格成本赤字，但事实上它变得更糟。 到底是怎么回事？
The -- I mean, the goal coming into the year was to eliminate the price cost deficit that we had. The -- that was the goal the prior year as well, but we still wound up with one and so it comes down to execution. And the issue was, we put in place a plan to address tariffs in particular. And that resulted in our getting incremental price to offset those tariffs. What I think we underestimated Ryan was the degree to which there was general inflation in the marketplace, including general inflation that was being sort of caused and following on the tariffs that were going into place. And on top of that, the pricing improvements that we put in affected a significant amount of product within our overall portfolio, but didn’t necessarily affect all of it. And we had assumed that we will get enough price to sort of make up for what we didn't address in terms of the product categories, but we didn't quite get there. Again, a lot of the reason for that is simply the incremental inflation above and beyond tariffs that we saw in the marketplace. So we looked at the situation, we’ve sort of evaluated the issues that were in place and we’ve taken additional pricing actions at the beginning of Q3, the end of Q2 really to address both the gap that we had for the inflation that we didn't build into the original expectations so to catch up, if you will, as well as the new tariffs that are beginning to come through the system that we will experience in our COGS and the -- in the latter half of the year.
- 我的意思是，今年的目标是消除我们所拥有的价格成本赤字。 - 这也是去年的目标，但我们仍然只有一个，所以它归结为执行。问题是，我们制定了一项特别针对关税的计划。这导致我们获得增量价格以抵消这些关税。我认为我们低估了瑞恩是市场普遍存在通货膨胀的程度，包括一般的通货膨胀，这种通货膨胀正在引发并跟随已经实施的关税。最重要的是，我们投入的定价改进影响了整个产品组合中的大量产品，但并未一定影响所有产品。而且我们假设我们将获得足够的价格以弥补我们在产品类别方面没有解决的问题，但我们并没有完全达到目标。同样，其中很多原因仅仅是我们在市场上看到的超出关税的增量通货膨胀。所以我们看一下情况，我们对已经存在的问题进行了评估，我们在第三季度开始时采取了额外的定价行动，第二季度末真正解决了我们对通货膨胀的差距。我们没有达到最初的期望，所以赶上，如果你愿意的话，以及我们将在COGS中体验到的新系统关税以及 - 在下半年 - 。
So just a follow-up, if I understood what you said correctly, it sounds like your systems aren't capturing inflation appropriately for you to be able to pass it on because you're not saying that you’re -- you’ve been unable to pass on the price inflation to your customers or that they’re pushing back too hard? Am I hearing that right?
所以只是一个跟进，如果我理解你说的正确，听起来你的系统没有适当地捕捉通货膨胀，因为你不能说你是 - 你已经 我们无法将价格通胀转嫁给您的客户，或者他们正在努力推回？ 我听到了吗？
No, that’s correct. The pricing that we put through, we captured. The -- what we didn't capture is the pricing that we didn't put through that we should have. And so the new pricing is intended to address the gap between what we did capture and the price increases that we've seen, and what -- and sort of what we didn't wind up putting through the first time around.
不，那是对的。 我们捕获的定价是我们所接受的。 - 我们没有捕捉到的是我们没有通过的定价。 因此，新的定价旨在解决我们捕获的内容与我们所看到的价格上涨之间的差距，以及我们在第一时间没有结束的内容。
Okay. And then presumably you’ve improved the systems and you have a better handle on what more inflation is coming. So how much price do you estimate you’re going to need in the second half of '19, maybe into 2020 to offset rising product inflation?
好的。 然后据推测，你已经改进了系统，你可以更好地处理更多的通货膨胀。 那么你估计在19年下半年需要多少价格，可能到2020年以抵消产品通胀上升？
You know, I think we've looked at it and we're expecting -- we are putting into place a couple of percentage points of price.
你知道，我认为我们看过它并且我们期待 - 我们正在实现几个百分点的价格。
Okay. And you’re confident that will cover or at least offset most of the price cost deficit?
Yes, we are.
Okay. [Indiscernible]. Thanks.
The next question is coming from the line of David Manthey with Robert W. Baird. Please proceed with your questions.
接下来的问题来自David Manthey与Robert W. Baird的合作。 请继续你的问题。
Thank you. Good morning, guys.
Hi, David. Good morning.
First question on gross margin. Holden, I think you gave some data on this, but could you just disaggregate the gross margin decline of 180 basis points into mix factors versus pricing factors? And then, along with that, Dan, I’m wondering if you can address this, the 46%. I’m wondering why is 46% a line in the sand when you’re at 47% and changed today in your gross margins then declining, I don't know, 70, 80 basis points annually for the last 5 plus years. Can you talk about that issue as well?
关于毛利率的第一个问题。 霍尔顿，我认为你提供了一些这方面的数据，但你能否将180个基点的毛利率下降分解为混合因素与定价因素？ 然后，Dan，我想知道你是否可以解决这个问题，46％。 我想知道为什么当你达到47％的时候，为什么46％的线路在沙滩上，今天你的毛利率会有所下降然后下降，我不知道，过去5年多来每年70,80个基点。 你能谈谈这个问题吗？
I will handle on mechanical side of it first and then we will pass it over. But the mix piece was about an 80 to 90 basis point drag, which was probably about 20 basis points more than I would've expected, frankly. The price cost piece was a 40 to 60 basis point drag, which again was a widening versus what we saw in the first quarter. There was about a 20 basis point drag from freight than there's a couple other sort of organizational elements that make up the difference.
我将首先处理它的机械方面然后我们将它传递过来。 但坦率地说，混合物的阻力大约是80到90个基点，比我预期的要高约20个基点。 价格成本是40至60个基点的阻力，这与我们在第一季度看到的相比有所扩大。 货运大约有20个基点的阻力，而不是其他几种组织元素构成了差异。
Got it. Okay. Thank you.
得到它了。 好的。 谢谢。
David, I will think about it this way. Think about as it's a desired outcome. If we desire over the next $5 billion of growth to expand our operating margin. There's two ways to do it. Either you do it by how much you allow your gross margin to move or how much you allow your operating expense to move or force the operating expense to move. Could you make the math work by it going to 44 and operating expenses going to 22, that’s conceivable, but that's really difficult to do because you really have to -- you’ve to understand how much your business is going through our Onsite model versus our branch model, what our average branch is going to do. The old pathway to profit that we talk about years ago was really about as that branch population matures, it becomes much more profitable because you run away from a lag of fixed costs. And so it's really a case of putting a line in the sand, tells your team. This is about a message for internal as much as its message for external. It tells your team that if we want to be able to afford these things in the future, we have to clawback on this piece, this piece, this piece and this piece. Sometimes that’s clawing back on gross margin and some are price. Sometimes it's about cost, sometimes it's about mix. Sometimes it's about how much freight you put on your own truck versus somebody else's, how much you charge for freight? It's looking at all those pieces and saying if we can be a $10 billion company at 46%, we can afford to be a 24 and hit 22. If we can't and that goes to 45 or 44, which is conceivably possible. I mean, in January I talked about that. If -- then we either need to decide is 24, the number and we're willing to be at 20 or 21 or that we squeeze that down to 23 and 22. So the line in the sand is more about the desired outcome and what you’re going to challenge your business internally due to achieve that outcome.
大卫，我会这样思考。想想它是一个理想的结果。如果我们希望在接下来的50亿美元增长中扩大我们的营业利润率。有两种方法可以做到这一点。要么你做了多少你允许你的毛利率移动，或者你允许你的运营费用移动多少或强迫运营费用移动。你可以把数学工作分到44，运营费用可以达到22，这是可以想象的，但这真的很难做到，因为你真的需要 - 你要了解你的业务在我们的现场模型中的对比我们的分支模型，我们的平均分支将要做什么。我们多年前谈论的旧利润途径实际上就是随着分支机构人口的成熟，它变得更有利可图，因为你摆脱了固定成本的滞后。所以这真是一个在沙滩上划线的情况，告诉你的团队。这是关于内部消息和外部消息的消息。它告诉你的团队，如果我们希望将来能够买得起这些东西，我们必须回击这件作品，这件作品，这件作品和这件作品。有时这会影响毛利率，有些则是价格。有时它是关于成本的，有时候是关于混合的。有时它是关于你自己的卡车与其他人的运费有多少，你收取多少运费？它正在查看所有这些部分，并说如果我们可以成为一个价值100亿美元的46％的公司，我们可以承担24美元并且达到22美元。如果我们不能，那就达到45或44，这是可能的。我的意思是，在一月份我谈到了这一点。如果 - 然后我们需要决定是24，数字，我们愿意在20或21，或者我们将其压缩到23和22.所以沙子中的线更多地是关于期望的结果和什么由于取得了这一成果，您将在内部挑战您的业务。
Okay. That makes sense. Thanks, Dan. I appreciate it.
好的。 那讲得通。 谢谢，丹。 我很感激。
And one thing I would also mention is recall when we sort of had that initial conversation about those aspirations, we also noted that the impact of mix and stuff might pull the margin down to 45% and improvements we make in the business would actually add another 100 basis points or what have you now. That’s from $5 billion to $10 billion. Obviously, we haven't had the time to get that additional 100 basis points of improvement just from the things we do to improve our supply chain right. So when you think about the baseline don't forget that always inherent in that guidance was the suggestion that over that period we would also make process improvements on our own business that would offset some of that mix drag.
我还要提到的一点是，当我们对这些愿望进行初步对话时，我们也注意到混合和东西的影响可能会将利润率降低到45％，而我们在业务上所做的改进实际上会增加另一个 100个基点或你现在有什么。 这是从50亿美元到100亿美元。 显然，我们没有时间从我们为改善供应链所做的事情中获得额外的100个基点的改进。 因此，当您考虑基线时，不要忘记该指南中始终固有的建议是，在此期间我们还会对我们自己的业务进行流程改进，以抵消部分混合阻力。
Got it. Okay. Thank you. And then just quickly on the SG&A. I think you’ve only been growing it at a 5% or 6% rate in the first half before you’ve taken any actions relative to the slowing market. But -- and obviously if things slowdown you will get a little natural flex in OpEx lower. Where can you take that set point in the back half of this year? I mean, are you prepping this for sort of mid single-digit top line and you can set that at 3% or can take it a flat, I don’t know. I mean, you’ve done a good job to this point. I'm just wondering how much further you can work down on that?
得到它了。 好的。 谢谢。 然后快速上SG＆A。 我认为，在你采取任何相对于放缓市场的行动之前，你在上半年只是以5％或6％的速度增长。 但是 - 显然如果事情放缓，你会在OpEx中获得一点点自然灵活性。 你能在今年下半年采取哪些设定点？ 我的意思是，你准备这个中等单位数的顶线，你可以设置为3％，或者可以把它放平，我不知道。 我的意思是，你在这一点上做得很好。 我只是想知道你还能进一步努力吗？
Yes, I will answer it, Dave, in this context where my -- where our thinking is right now, based on what our business is doing right now. We are closing some branches every quarter. That frees up some expense every quarter. Based on our run rate we’re going to do about a 100 branches that we close. So that gives us some flexibility. There are some branches that we need to expand that existing footprint and expand the cost. But we are able to fund all that through the branches that we’re closing and some of our Onsites the customer might not have sufficient room and we might have a low-cost storage within a mile or two of our customer and while it's a lot cheaper than a branch it's still an expense. And so that's funding that piece and so our branch occupancy, onset occupancy, net net is not growing. That has been contracting slightly. The growth in occupancy is coming from the fact we put more vending machines out there. If you look at expenses, other operating -- other non-labor operating expenses that we've done a really nice job which is raining that in and we will -- we have some pieces -- triggers we are pulling right now, for example, the travel component, because we've reduced our training in the second half of the year. The real dollars is in labor if you think about our operating expenses. So there we’ve some flex points from the standpoint of how our incentive comp works, I can tell you that. The incentive comp for a number of folks within Fastenal is materially different in July of 2019 that was in July of 2018. And that -- what that does and you’ve described it aptly in the past as the shock absorbers, it gives us the luxury of not having to get crazy with expenses right today in the last 90 days, because you’re not sure what’s happening. And -- but we are pulling back headcount growth rapidly and because that expense can't be growing at 6% or 7% in an environment where sales are growing 8% and gross profits growing 4%. So that's really where you’re going to see that the toggle because the other two components which are 30% of SG&A, those are managed really well and we’ve been managing the first one labor really well, but that was for a different environment and we need to change our tact.
是的，我会回答这个问题，戴夫，在这种背景下，根据我们现在正在做的事情，我的思维就在于此。我们每个季度关闭一些分支机构。每季度释放一些费用。根据我们的运行率，我们将关闭100个分支机构。这样可以给我们一些灵活性。我们需要一些分支机构来扩展现有的足迹并扩大成本。但我们能够通过我们关闭的分支机构以及我们的一些现场客户可能没有足够的空间来支付所有这些资金，而且我们可能在一两英里的客户中拥有低成本的存储空间，而且很多它比分支便宜，但仍然是一笔费用。因此，我们的分支机构占用率，开工率，净净额不会增加。这一点略有收缩。占用率的增长来自我们放置更多自动售货机的事实。如果你看看费用，其他运营 - 其他非劳务运营费用，我们已经做了非常好的工作，正在下雨，我们将 - 我们有一些 - 触发我们现在正在拉动，例如旅游部分，因为我们在下半年减少了培训。如果你考虑我们的运营费用，真正的美元是劳动力。因此，从我们的激励计算如何运作的角度来看，我们有一些灵活点，我可以告诉你。 Fastenal内部的一些人的激励因素在2019年7月2018年7月发生了实质性的不同。那就是 - 这样做了，你过去恰如其分地描述了减震器，它给了我们在过去的90天里，没有必要为费用而疯狂，因为你不确定发生了什么。而且 - 但我们正在迅速撤回员工人数增长，因为在销售额增长8％和毛利润增长4％的环境下，这笔费用不会增长6％或7％。所以这就是你要看到切换的地方，因为其他两个组件是SG＆A的30％，那些管理得非常好，我们一直在管理第一个劳动力，但这是针对不同的环境我们需要改变我们的机智。
Yes, if you think, David, our -- if you look at our headcount adds whether it be full-time or FTE, I mean they’re up 6.5% and just to zip back to May, go back one month and if I look at the absolute headcount it was up 7%, that’s actually the highest rate of growth in our headcount that we’ve seen through this cycle, right? And so, obviously, we need to take that rate down and there's room to do so. Certainly outside of the selling functions we all need to look at sort of where we have opportunities to be more conservative, but even within the selling organization, we're going to continue to invest in people to support the Onsite growth. We need to do that because it drives our market share gains, but if you look at where headcounts are getting added, payrolls are getting added there, you’re seeing growth outside of the Onsite environment as well, even in environment we’re closing some branches. And so whether it's in the selling organization outside of the Onsites to support growth or whether it's in the non-selling organization, we -- we're coming off a quarter where we had pretty good growth in heads that’s simply that rate needs to come down given the reality of the growth in the marketplace and should be able to.
是的，如果你认为，大卫，我们 - 如果你看看我们的员工人数增加是全职还是全职员工，我的意思是他们涨了6.5％而且只是拉回到五月，回去一个月，如果我看看绝对人数增长了7％，这实际上是我们在这个周期中看到的人数增长率最高，对吗？所以，显然，我们需要降低这个速度，并且还有空间这样做。当然，除了销售功能之外，我们都需要考虑一下我们有机会保守的地方，但即使在销售组织内，我们也会继续投资于人才来支持现场增长。我们需要做到这一点，因为它推动了我们的市场份额增长，但是如果你看看人数增加的地方，那里的工资增加，你会看到现场以外的增长，即使在我们关闭的环境中也是如此一些分支。因此，无论是在现场以外的销售组织中支持增长还是在非销售组织，我们 - 我们已经离开了一个季度，我们的头脑中有相当好的增长，而这只是需要来的鉴于市场增长的现实，应该能够。
A good example over the last few years as we ramped up our Onsites, our implementation team that we’ve in the field, I believe we took the number over the last two years from about a 140-ish, 130-ish to about 230 to handle all these implementing of National Accounts and Onsite, so it's not just Onsite, but National Accounts in general. That team we’re not having to grow as rapidly now attracted it's relatively stable because we’re not going from signing Evian sites 280 to 300 to 400, we are kind of in that zone of around 400. We think that’s a good cadence for our customers and for our business. So it doesn’t require us to expand that group. So that group has been, I think were up 5% in the last 12 months. So it's things like that that we can do in the short-term.
在过去的几年里，随着我们加入我们的现场实施团队，我们认为我们在过去两年中将这个数字从大约140-ish，130-ish变为大约230 处理国民账户和现场的所有这些实施，所以它不仅仅是现场，而是一般的国民账户。 我们不需要快速成长的团队现在吸引它相对稳定，因为我们不会将埃维昂站点280签到300到400，我们在400左右的区域。我们认为这是一个很好的节奏 我们的客户和我们的业务。 因此，它不需要我们扩展该组。 所以这个小组已经过去了，我认为在过去的12个月中上涨了5％。 所以我们可以在短期内做到这一点。
Great color, guys. Thanks.
Our next question is from the line of Nigel Coe from Wolfe Research. Please proceed with your questions.
我们的下一个问题来自Wolfe Research的Nigel Coe。 请继续你的问题。
Thanks. Good morning, guys.
Thanks for the detail. Just going back to the price increases and I think Holden you mentioned 2%. Is that across the whole boats or that be the non-National Accounts? And certainly the spirit of the question is, are you able to get price for National Accounts, so is that so contractually locked in at this point?
谢谢你的细节。 回到价格上涨，我认为Holden你提到了2％。 那是整艘船还是非国民账户？ 当然，问题的精神是，你是否能够获得国民账户的价格，那么合同上是否已经锁定了这一点？
We are not looking at our business differently in that sense as it relates to the impact of cost increases and the price we’re putting in place, right? We can't go after the 50% of our business that is non-National Accounts and not address the 50% of the business that is National Account. Now National Account has certain mechanisms that are build into the contracts that that make that process perhaps a little bit more mechanical, but the intention is to work through that process and get price increases there where necessary as well because we are selling the same products into National Accounts as we are non-National Accounts and the costs are behaving the same. So we're not taking half of our business and setting it aside as we are not going to touch this. We can do that and be successful what we’re trying to achieve.
在这个意义上，我们并不是以不同的方式看待我们的业务，因为它与成本增加的影响和我们正在实施的价格有关，对吗？ 我们不能追求50％的非国民账户业务，也不能解决50％的国民账户业务。 现在国民账户已经建立了合同的某些机制，使得这个过程可能更具机械性，但目的是通过这个过程并在必要时提高价格，因为我们将相同的产品销售到 国民账户，因为我们是非国民账户，费用表现相同。 因此，我们不会占用我们业务的一半并将其放在一边，因为我们不会触及这一点。 我们可以做到这一点并取得成功，我们正在努力实现。
One thing I will just add for a little color is Holden cited an average. Average sometimes can be dangerous. We have -- if you think about China as an industrial producer, I believe 52% of the steel that’s produced on the planet Earth is produced inside of China. I might be off of a point or two, but I’m in the ballpark. Our fastener product, which is roughly a third of our business was made of steel. And a high percentage -- most of the -- they’re are the Holo-Kromes of the world, the company I started earlier, but they represent a minority of the fasteners that are consumed in North America. So most of the fasteners regardless of where you’re getting them, I mean, who is the distributor or who is the importer, most of the fasteners on this planet are made in China. And we’ve moved some production out, actually we've moved. If you look at the amount we've moved in the last nine months out of China and compare it to what the U.S economy is moving, we've actually moved more than the U.S economy has, if you look at the statistics. And -- but the reality is even in a 10% or a 25% tariff environment, they oftentimes are still the lowest-cost producer of an item. And so there's -- while Holden like said, an average across a whole bunch of products, there's a lot of different parts in there. There's four lists of items that have been identified by the U.S government. List one and list two didn’t really impact us that much. We don’t import raw steel. List three hit last September, hit us quite hard and that list went from 10% to 25% here in the second quarter. That hits squarely into our fastener product. List four, nothing has happened yet, it's on hold. I don’t know what’s going to happen there. We do have products on list four and most of those will be in the non-fastener area. And so there are parts for we’re raising materially higher than 2% and there are parts we’re not touching. And -- but be mindful of that.
有一点我只想添加一点颜色是Holden引用的平均值。平均有时可能是危险的。我们 - 如果你认为中国是一个工业生产国，我相信地球上生产的钢铁中有52％是在中国生产的。我可能不在一两点，但我在球场。我们的紧固件产品约占我们业务的三分之一，由钢制成。并且很高的比例 - 大多数 - 他们是世界上的Holo-Kromes，我之前开始的公司，但他们代表了北美消费的少数紧固件。所以大多数紧固件无论你在哪里获得它们，我的意思是，谁是经销商或谁是进口商，这个星球上的大部分紧固件都是在中国制造的。我们已经把一些产品搬了出去，实际上我们已经搬走了。如果你看看我们过去九个月离开中国的数量，并将其与美国经济的变化进行比较，如果你看一下统计数据，我们实际上已经超过了美国经济。并且 - 但实际情况甚至在10％或25％的关税环境中，它们通常仍然是物品成本最低的生产商。所以有 - 虽然Holden喜欢说，在一大堆产品中平均而言，那里有很多不同的部分。美国政府已经确定了四个项目清单。列表一和列表二并没有真正影响我们那么多。我们不进口原钢。去年9月排名第三，打击我们非常努力，第二季度这个名单从10％上升到25％。这完全符合我们的紧固件产品。列表四，还没有发生任何事情，它已暂停。我不知道那里会发生什么。我们在列表4中有产品，其中大部分都在非紧固件区域。因此，有些部分我们的物质上涨幅度高于2％，而且有些部分我们没有触及。并且 - 但要注意这一点。
And as it relates to National Accounts versus non-National Accounts specifically, so yes, 2% is an average. Difficult to say whether National Accounts will be more or less given -- in any given quarter or what have you, but again the intention we're not setting aside 50% of our business and saying this is not something we think that we can impact. We think we can.
因为它与国民账户和非国民账户有关，所以是的，2％是平均值。 很难说国民账户是或多或少会给出 - 在任何一个季度或者你有什么，但我们再次意图我们没有放弃50％的业务，并说这不是我们认为我们可以影响的事情。 我们认为我们可以。
Understood. Understood. And then, Holden, very quickly, I mean, can you maybe just address the gross margin cadence over the balance of the year because we tend to have a seasonally lower gross margin in the second half versus first half 2Q. How does the price increase that you’re implementing, how does that impact that normal seasonal pattern?
了解。了解。 然后，霍尔顿，很快，我的意思是，你可能只是在今年余额中解决毛利率的问题，因为我们在下半年的季度毛利率往往比第二季度的上半年更低。 您正在实施的价格涨幅如何？这对正常的季节性模式有何影响？
Yes, so the price increases are already -- have already been installed. So I would expect it would begin the season benefit in July and that we would see a greater benefit in August or September and then heading into the fourth quarter, right? So that will ramp up. The cost from the new tariffs, of course, we’re already behind on cost and generalize inflation, but costs from new tariffs would begin to impact us probably in the middle part of Q4. So think about that cadence on cost. If I think about the pieces that affected our gross margin this quarter, how that plays out. I -- seasonally, I think Q2 would typically be down, 10 to 20 basis points, maybe flat to down 20 basis points from Q2. So I think that’s probably the typical seasonal pattern. But I think that some of the drag from freight, I think we might be able to get 10 basis points back from freight that we saw this quarter. I think that there may be a path to 40 basis points give or take on price cost in the third quarter. And when you lay that all out, I think that there's a path in the third quarter to have a gross margin, that’s a little bit North of 47%, which would cut the 180 basis point drag we had this quarter and half. And I think that we can expect something like that, maybe a little bit less of a decline in the fourth quarter as well given the things that we're seeing. So that’s kind of the cadence that that we see. Obviously, it relies on our executing effectively, which we expect. But should we do so, I think that there's the seasonality, then I think you add a little bit from price cost gain and you could add a little bit from freight gain.
是的，所以价格上涨已经 - 已经安装好了。所以我预计它将在7月开始本赛季的收益，并且我们会在8月或9月看到更大的收益，然后进入第四季度，对吗？所以这会增加。当然，新关税的成本已经落后于成本和推广通货膨胀，但新关税的成本可能会在第四季度中期开始影响我们。所以想想成本的节奏。如果我考虑一下影响我们本季度毛利率的因素，那将会如何发挥作用。我 - 季节性地，我认为Q2通常会下降10到20个基点，可能从第二季度下降20个基点。所以我认为这可能是典型的季节性模式。但我认为从运费中拖出一些阻力，我认为我们可能会从本季度看到的运费中获得10个基点。我认为第三季度可能会有40个基点给出或承担价格成本。当你全力以赴时，我认为第三季度有一条道路可以获得毛利率，这个数字有点偏向47％，这将减少我们本季度和下半年的180个基点的阻力。而且我认为我们可以期待类似的东西，在第四季度可能会略微下降，考虑到我们所看到的东西。这就是我们所看到的那种节奏。显然，它依赖于我们有效的执行，这是我们所期望的。但是，如果我们这样做，我认为有季节性，那么我认为你从价格成本增加中加一点，你可以从运费增加一点点。
All right. Okay. Thanks, guys.
行。 好的。 多谢你们。
The next question is from the line of Robert Barry with Buckingham Research. Please proceed with your questions.
接下来的问题来自Robert Barry与Buckingham Research的合作。 请继续你的问题。
Hey, guys. Good morning.
Maybe actually we just to pick up where you’ve left off there, Holden. So it sounds like you think you can kind of call back into the call it low to mid 47s on the gross margin, but then I think you also said that the impact of the new tariffs are going to start to you in the fourth quarter. So does that mean you need to go back then, again and get more price or will be then kind of start moving back down in the other direction there?
也许实际上我们只是去你离开那里的地方，霍尔顿。 所以听起来你认为你可以在毛利率低至47s的时候回电话，但我认为你还说新关税的影响将在第四季度开始。 那么这是否意味着你需要回到那时，再次获得更多的价格，或者那时候开始向另一个方向开始向后移动？
Well, first, I think what I said was a little -- I think what I said was a little over 47. I don’t think I’ve said mid 40s, first off. I will just throw off …
好吧，首先，我认为我所说的有点 - 我认为我所说的有点超过47.我不认为我说的是40年代中期，首先是关闭。 我会甩开......
Yes, I will just throw something in the latest round of tariffs came into play in the Q2. So there's product that we’re -- but in stuff that was on the water was not impacted, but if it hadn't shift it is impacted. So we’ve cost that are coming in right now that are from that latest wave. Some of those costs will turn in July and then updated piece will turn in August. A bigger piece returned September based on our faster inventory does turn at a certain cadence. But there's customer specific product that we might bring in that turns in 60 days. So the price moves we’re doing and the costs, while that comes in, in waves, we are putting in place, right now. And some will go in place in August, some will go in place in September, but they’re both moving now. It isnt the case of it. There's multiple waves. There is -- what the message I’ve given to our team is we’re not doing a price increase on every part, you are doing some stuff every month based on what’s happening in that month, working with your customer and their individual supply chain because keep in mind, a big piece of what we sell is stuff that’s unique to a customer. That’s it, makes it more difficult to manage. Systematically and -- but our team can be response to locally.
是的，我会在最新一轮的关税中投入一些东西在第二季度发挥作用。所以有我们的产品 - 但是在水面上的东西没有受到影响，但如果它没有转移它会受到影响。因此，我们现在的成本正是来自最新一波。其中一些费用将在7月份转换，然后更新的部分将在8月份转变。基于我们更快的库存，9月份返回的更大的一块确实转向了一定的节奏。但是我们可能带来的客户特定产品将在60天内完成。因此，价格变动我们正在做的事情和成本，而这一点在波浪中，我们现在正在实施。有些将在8月份到位，有些将在9月到位，但它们现在都在移动。事实并非如此。有多波。有 - 我给我们团队的信息是我们没有对每个部分进行价格上涨，你每个月根据当月发生的事情做一些事情，与你的客户和他们的个人供应因为请记住，我们销售的大部分产品是客户独有的产品。就是这样，使管理变得更加困难。系统地 - 但我们的团队可以对当地做出回应。
And then, when I talk about 40 or 50 basis points of clawback in the back half of the year. I’m assuming you get both a little bit more price and a little bit more cost in Q4 versus where you are in Q3. So we’re -- that’s how we see that playing out. I do think costs will be higher in Q3. There will be a little bit higher than Q4, but I think the price side of it will also escalate a little bit.
然后，当我在今年下半年谈论40或50个基点的追回时。 我假设你在第四季度和第三季度相比，价格和成本都要高一点。 所以我们 - 这就是我们看待这种情况的方式。 我认为第三季度的成本会更高。 会比Q4略高一点，但我认为它的价格方面也会升级一点点。
Right. So given the mention of the waves, I mean, waves is the full impact of the list three at 25% volume to the P&L.
You start seeing the puller impact of it by the time you get into those middle part of Q4. That’s that.
Got it. And then I guess just to circle back to an earlier question about achievability. I mean, given the slowing demand environment impacted, these are now much bigger numbers than 10%. I mean, what’s the confidence on getting to price costs neutral or is that even the goal? Because I think you mentioned earlier planning to share some of the burden with the customers.
得到它了。 然后我想回到之前关于可实现性的问题。 我的意思是，鉴于受影响的需求环境放缓，现在这些数字远远大于10％。 我的意思是，让价格成本保持中立的信心是什么，甚至是目标呢？ 因为我认为你之前提到计划与客户分担一些负担。
I don't believe getting cost price to be neutral is realistic. With that said, we have to work to get -- you have to work to get close of it and some of that as I said on prior calls, some involves having a challenging conversation with your customer, sometimes its price substitution. Sometimes it's looking and saying the cost of this is up, here's a different alternative that’s a cheaper price to start with. For whatever reason, maybe it's a more standard product, maybe what the customers using is actually a nonstandard item and there is a more standard substitute. And Henry what requires in some cases some engineering support to get it approved for use in that process. Those are the challenging aspects, but that’s in times like this, you cradle-more friction to create those challenges, because then it allows both Fastenal and our customer to win. Neither one of us takes the whole branch because you changed the math, but it takes a lot of work. And then bear in mind as well that while I think the environment today might be a little bit more challenging than it would have been six months ago. We also are better at executing this than we were the first time we did it. We’ve learned more about the systems that we have, we made tweet to the systems that we have, so that fewer things, won't be covered in that sort of thing. So I think you’re right that the environment perhaps is little bit more difficult and we’re through six months ago. I think that our knowledge of how to manage the process is also better. And so now we just need to go and execute it.
我不相信让成本价格保持中立是切合实际的。话虽如此，我们必须努力获得 - 你必须努力接近它，其中一些就像我在之前的电话中所说的那样，有些涉及与客户进行富有挑战性的对话，有时甚至是价格替代。有时它正在寻找并说它的成本上升，这是一个不同的选择，这是一个更便宜的价格开始。无论出于何种原因，也许它是一种更标准的产品，也许客户使用的实际上是非标准产品，并且有更标准的替代品。而亨利在某些情况下需要一些工程支持才能将其批准用于该流程。这些都是具有挑战性的方面，但是在这样的时候，你就是摇篮 - 更多的摩擦来创造这些挑战，因为这样就可以让Fastenal和我们的客户都获胜。我们俩都没有拿整个分支，因为你改变了数学，但它需要做很多工作。然后请记住，虽然我认为今天的环境可能比六个月前的环境更具挑战性。执行此操作比我们第一次执行此操作更好。我们已经了解了更多关于我们所拥有的系统的信息，我们向我们所拥有的系统发了一条推文，这样就可以减少事情的数量。所以我认为你是对的，环境可能有点困难，而且我们已经过了六个月了。我认为我们对如何管理流程的了解也更好。所以现在我们只需要去执行它。
All right. Thanks, guys.
Thank you. The next question is from the line of Joshua Pokrzywinski with Morgan Stanley. Please proceed with your questions.
谢谢。 接下来的问题来自Joshua Pokrzywinski与摩根士丹利的合作。 请继续你的问题。
Hi. Good morning, guys.
Just want to follow-up on the deceleration you guys saw in non-resi in June. Holden any color or Holden or Dan, can any color on maybe some pockets or verticals there. Anything you’ve heard from the regions that may give little bit more of an indication how persistent that is versus maybe one bad month?
只想跟进六月份你们在非resi看到的减速情况。 Holden任何颜色或Holden或Dan，可以在那里的某些口袋或垂直上有任何颜色。 你从这些地区听到的任何东西可能会给出更多的迹象，表明这可能是一个糟糕的月份？
Not as much color as I wish I could give you. Our larger customers did pretty well. The customers that we’ve a lot of volume with, they tend to be National Accounts grew fairly well within the construction side. What did not grow as well was the smaller customer base. Now some of the RVPs commented about weather and things like that, but that was scattered. It wasn’t a consensus by any means. And so, I’m not sure exactly why that piece of the market was slower for us than was true of the larger customers, which I had more color for you. But I don’t think I’ve a lot.
没有我希望的那么多颜色可以给你。 我们的大客户做得很好。 我们拥有大量客户，他们往往是国民账户的客户在建设方面增长相当不错。 没有增长的是较小的客户群。 现在一些RVP评论了天气和类似的东西，但这是分散的。 无论如何，这都不是一致的。 所以，我不确定为什么市场对我们来说比较大的客户要慢，为我提供更多的颜色。 但我不认为我有很多。
Got it. And then, just on the kind of, directionally some more National Account deceleration. I couldn’t help but notice in the press release as well some comments around monitoring investment. How much of that is directed to National Accounts or Onsite programs versus the general concept of investment or cost containment. Just trying to think about if there's a trend to be had here on National Accounts as some of those dollars get caught.
得到它了。 然后，就那种方向而言，更多的国民账户减速。 我在新闻稿中不禁注意到一些关于监控投资的评论。 其中有多少是针对国民账户或现场计划的，而不是投资或成本控制的一般概念。 试着想一想国民账户是否有这种趋势，因为其中一些美元被抓住了。
Well, our intention is to continue to invest in those things that allow us to gain market share. We believe that we continue to gain market share in the marketplace that are pretty good clip. And that’s ultimately the goal. The -- whatever happens in the market -- it happens in the market. But what we can control is how we -- how much we gain market share. And so our intension is with Onsites, we have all the staff on sites and we’re going to continue to add personal to be able to deliver that model to the customers that are entrusting more of their supply chain with us. With vending we’re going to continue to invest in what we need to pursue that 23,000 to 25,000 unit gold this year. So there was nothing in there that was intended to convey that we were going to be tighter on gross drivers, because we’re not. We need to invest in those to continue to gain market share. It's really resources outside of the growth drivers where we have to look at it, and we have to say, where can we save ourselves to some expense. And headcount was one thing that we talked about that. And again, I think I emphasized there that we’re going to continue to staff the Onsite. That’s not where we are going to be going after the headcount, but there's other areas whether it would be the hubs, whether it would be the branches, whether it would be the Winona headquarters, etcetera. There is when growth slows there's an opportunity to slow the rate of headcount in the areas like that. And those are types of things we need to look at, but when we talk about monitoring, investment monitoring spending, that really is more of a message outside of the growth drivers provided we're doing the right things on the growth drivers, by the way. If we find that we're doing something we need to in a growth level, we will address that as well. We are not looking to spend where we don’t have to anywhere. But this is the real scrutiny has to occur outside of the growth drivers because we are not -- our goal is to gain market share and the growth drivers are key to that.
好吧，我们的目的是继续投资那些让我们获得市场份额的东西。我们相信，我们继续在市场上获得相当不错的市场份额。这最终是目标。 - 无论市场发生什么 - 它都发生在市场上。但我们可以控制的是我们如何获得市场份额。因此，我们的目标是在现场，我们拥有现场的所有员工，我们将继续增加个人能够为那些委托我们更多供应链的客户提供该模型。随着自动售货，我们将继续投资于今年追求23,000至25,000单位黄金的需求。所以那里没有任何东西可以表明我们会对总驾驶员更加紧张，因为我们不是。我们需要投资那些继续获得市场份额的人。这是我们不得不关注的增长动力之外的资源，我们不得不说，我们可以在哪里节省一些费用。人数是我们谈到的一件事。而且，我想我在那里强调，我们将继续为现场工作人员。这不是我们将要追踪员工的地方，但还有其他领域，无论是中心，是否是分支机构，是否是Winona总部等等。当增长放缓时，就有机会减缓这类领域的人数增长率。这些是我们需要关注的事情类型，但是当我们讨论监控，投资监控支出时，如果我们在增长动力上做正确的事情，那么这真的更像是增长动力之外的信息。办法。如果我们发现我们需要在增长水平上做一些事情，我们也会解决这个问题。我们不打算花费在任何地方都没有的地方。但这是真正的审查必须在增长动力之外发生，因为我们不是 - 我们的目标是获得市场份额，增长动力是关键。
Got it. And I guess just a corollary to that inventory and that’s coming in the release. Yes, I would imagine that given some of the advance purchases last year, they weren't much, but there were some and the cutting of purchases this year. Should we expect something to show up in terms of the rebate structure looking like a little bit more of a headwind than you would have contemplated before?
得到它了。 我想这只是该库存的必然结果，并且即将发布。 是的，我认为，考虑到去年的一些预购，它们并不多，但今年有一些和减少购买量。 我们是否应该期望在回扣结构方面出现一些看起来比你之前想象的更多的逆风？
Well, the -- with regards to the inventory, I think we are sort of past that sort of accelerated purchase that we made in Q4. I think between Q4 and Q1 that kind of adjusted itself out. I think more meaningful for the inventory as you go into the second half of this year is our purchasing teams, our supply chain teams they really reduce their spend. Starting in Q3, Q4 last year through Q2 of this year and fairly meaningfully so because we have enough products in the hub today for the level demand that we're currently seeing and that allows us to be a little bit more cautious with that spend. And so we have seen a reduction in spend, particularly of imported products currently versus where we were three quarters ago, two quarters ago. And I think that will begin to flow through in lower inventory as we go through the third quarter and fourth quarter. Now interestingly rebates are actually a heavier component on domestic spend and they are in the imported spend. And so I would necessarily assume that a reduction in import is you’re going to have a terribly dyer impact on the rebate piece. The rebate is going to be more affected by the domestic spend and right now we’ve really gone after that imported spend as much than anything else. Makes sense.
Okay, got it. Yes. Appreciate the color. Thanks.
好，知道了。 是。 欣赏颜色。 谢谢。
Thank you. The next question is coming from the line of Adam Uhlman with Cleveland Research. Please proceed with your questions.
谢谢。 接下来的问题来自Adam Uhlman和Cleveland Research的合作。 请继续你的问题。
Hi. Good morning.
Hey, Dan, you made an interest comment a little bit ago that the company has moved more suppliers out of China than the broader economy. I kind of missed what exactly you were getting at there. Could you just share with us in more detail kind of the actions that the company has taken on moving activity out of China? And then maybe to share with us today where do we stand and in terms of your total purchases that are coming out of that country.
嘿，Dan，你刚才有兴趣评论说公司已经把更多的供应商从中国转移到了更广泛的经济体之外。 我有点想念你到底在那里得到什么。 您能否更详细地与我们分享一下该公司将活动移出中国的行为？ 然后可能今天与我们分享我们的立场以及来自该国家的总购买量。
Yes, I prefer not to get into specifics from a standpoint of percentages, just from the standpoint. And I’d honestly want to share that information publicly, and that’s for competitive reasons, quite frankly. But we always have multiple sources of supply for product. In the case of fasteners and non-fasteners they include a variety of suppliers and sometimes that can include a variety of countries, but the universe of countries is not that large, but the university supplier is quite large. And you do that because our covenant with our customers will have product available for them when they needed. And the other reason to have it is you -- the one challenging thing from the standpoint of how many you have and how fast you can move it, it's not only due, it have tail, confidence in your supply, you need to have conference and your quality of supply. Because at the end of the day we're selling a product that hold stuff together or is used by people. Half of our revenue is either a fastener or a safety item. And so you have a important quality consideration in all the products, but especially in those. And -- but if you look at the statistics and the statistics are out there for me to look at. The mono product that has been resourced. As far as what’s coming through and as measured by U.S customs. The percentage that’s been resourced is actually fairly small. And a lot of it is, there's sophisticated supply chains out there that are difficult to change that has been set up not in the last five years, but in the last 25 years. In the case of us, where we head a cost ability early on. The other challenging thing is we might have the resource to supply, they might be 20% more expensive, in different places. You don’t move the 5%. The 5% stuff you move, if you can, and you try to get ahead of everybody else, we what to do the same thing when there is tariffs at 10%. But the 12% you might not or you might, depending on what you think is going to happen next. And so we moved on some of that fairly aggressively last -- late last fall. And so we moved a chunk of our product out of China. Most of that, that we moved went to other Asian countries, Taiwan primarily and so there's inflation introduced because of that because you’re probably buying it for more, but you’re paying less or equal to the tariff. And it's really because of the supply chain relationship we have for our customer. But percentage wise, we’ve moved more than what the U.S economy has looking at import data.
是的，我不想从百分比的角度来看待具体情况，仅从观点来看。而且我真的希望公开分享这些信息，这是出于竞争原因，坦率地说。但我们总是有多种产品供应来源。在紧固件和非紧固件的情况下，它们包括各种供应商，有时可能包括各种国家，但国家的范围并不大，但大学供应商相当大。而这样做是因为我们与客户的契约将在他们需要时为他们提供产品。而拥有它的另一个原因是你 - 从你拥有多少以及移动它有多快的角度来看，这是一个具有挑战性的事情，它不仅是因为它有尾巴，对你的供应有信心，你需要召开会议和你的供应质量。因为在一天结束时我们正在销售一种产品，这种产品可以将东西放在一起或供人们使用。我们收入的一半是紧固件或安全物品。因此，您对所有产品都有重要的质量要求，尤其是那些产品。并且 - 但是如果你看一下统计数据，我可以看一下统计数据。资源的单一产品。至于正在经历的事情以及美国海关的衡量标准。资源的百分比实际上相当小。其中很多是，那里有复杂的供应链，这些供应链很难在过去的五年里，但在过去的25年中已经建立起来。就我们而言，我们在早期就掌握了成本能力。另一个具有挑战性的事情是我们可能有供应的资源，它们在不同的地方可能要贵20％。你没有移动5％。你移动的5％的东西，如果可以的话，你试图超越其他人，当关税达到10％时，我们该做同样的事情。但是你可能没有12％，或者你可能，这取决于你认为接下来会发生什么。所以我们最后一次相当积极地进行了一些 - 去年秋末。因此，我们将一大块产品从中国转移出去。大多数情况下，我们搬到了其他亚洲国家，主要是台湾，因此引入了通货膨胀，因为你可能会购买更多，但是你支付的费用低于或等于关税。这真的是因为我们为客户提供的供应链关系。但百分比方面，我们的移动量超过了美国经济对进口数据的看法。
Okay, got you. And then a clarification. You had mentioned that the incentive comp was reduced a lot, and I’m just wondering if that came through the P&L in the second quarter or if that’s the third quarter event and if it was material for the quarter? Thanks.
好的，有你。 然后澄清一下。 你曾经提到激励计划减少了很多，我只是想知道这是否来自第二季度的损益表，还是第三季度的事件，以及它是否适用于本季度？ 谢谢。
It would have come through on the second quarter. It's a piece of the equation, because if you think about what’s going on with labor expense, there's two dynamics there. I mean, one is the sheer headcount -- or three dynamics. One is the sheer headcount growth. The other is there's inflation, particularly in the part-time areas, but there's inflation in general, in payrolls across the U.S economy because we have very low unemployment. And so those two dynamics are adding or pushing it up this actually pulled it down a little bit, yes.
它将在第二季度实现。 这是一个等式，因为如果你考虑劳动力支出的情况，那里有两种动态。 我的意思是，一个是纯粹的人数 - 或三个动态。 一个是纯粹的员工人数增长。 另一个是通货膨胀，特别是在兼职领域，但总的来说是通货膨胀，因为我们的失业率非常低。 所以这两个动态正在增加或推动它实际上拉了一点，是的。
Thank you. At this time, there are no additional questions. Would you like to make some closing comments, Mr. Florness?
谢谢。 目前，没有其他问题。 弗洛丽斯先生，你想发表一些结束意见吗？
Just want to thank everybody for the time this morning and hope you found this call and our disclosures useful and understanding what’s happening in our business selling into industrial in North America and the rest of planet. Thank you.
Thank you. This concludes today’s conference. You may disconnect your lines at this time. Thank you for your participation.
谢谢。 今天的会议结束了。 您可以在此时断开线路。 感谢您的参与。
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