快扣 (FAST) 2015 Q4 法說會逐字稿

Good day, ladies and gentlemen.

Welcome to the Fastenal Company fourth-quarter and FY15 earnings results conference call.

As a reminder, this conference is being recorded.

I would now like to hand the meeting over to Ellen Trester, Investor Relations.

Please go ahead.

Welcome to the Fastenal Company 2015 annual and fourth-quarter earnings conference call.

This call will be hosted by Dan Florness, our President and Chief Executive Officer.

The call will last for up to 45 minutes.

It will start with a general overview of our quarterly results and operations, with the remainder of the time being open for questions about 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 March 1, 2016 at midnight Central Time.

As a reminder, today's conference call may include statements regarding the Company's future plan and prospects.

These statements are based on 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 carefully.

I'd now like to turn the call over to Mr. Dan Florness.

Good morning, everybody.

Thank you for joining our fourth-quarter call.

2015 was a tough year for our customers.

As the year progressed and as we've reported our various quarters, we touched on how that was playing out.

And I think the best way to look at 2015 is to look at a subset of customers where we have a substantial market share presence with, and that's our Top 100 customers.

That group represents about 24% of our revenues.

And it isn't about that group, what's going on in that group, It's about what's going on there relative to what we've seen in past.

If I look at that Top 100 group of customers and look at it over the last four years, history says at any given point in time, 75%, 75 of those 100 customers, should be growing.

And the reason that number is as high as it is, is because of the growth drivers that Fastenal has at its disposal between our store operation, our vending operation, and all of the other things we can bring to our customers' table.

In the first quarter this year, 72 of our Top 100 customers grew.

In the second quarter, that dropped to 63.

And in the third quarter that dropped to 56.

In the fourth quarter that dropped to 49.

So in the fourth quarter, half our Top 100 customers grew and half contracted.

In the month of December, to amplify that a little bit, 41 of our Top 100 customers grew and 59 contracted.

The next thing that I looked at is try to gauge of the customers that are contracting, how severe is their pain?

And history says of the 25 that are contracting about half of that number, about 13, will contract more than 10% and about half that number again, about 6, are going to contract more than 25%.

And with that last group, that's really a sign of the severity of their pain and what's going on in their industry.

We sell across the continent, around the planet.

Most of our business is in North America.

And we sell to a lot of different industries.

And when you start looking through the list of a lot of names that you'd recognize stand out, and you can see the pain they're feeling in their business.

In the first quarter, that 13 that are down more than 10% and the 6 that are down more than 25% look like our numbers.

We had 13 and 3 in that bucket.

By the third quarter, that had slid to 32 of our customers that were down were down more than 10% and 17 of those were down more than 25%.

After looking at that data in the third quarter, on our third quarter call in October when Will and I went through our commentary on the quarter, you could question the wisdom of the statement, but I made the statement that the industrial economy is in a recession.

And I used this as my reference point.

Again, you could question the wisdom of saying it out loud.

But in the fourth quarter, 37 of our Top 100 customers were down more than 10%.

22 of that group were down more than 25%.

There's one customer in that group where we did lose some business because of acquisition.

Other than that, this is pain those customers are feeling as they progress through calendar 2015.

In the month of December, November and December I noted in the earnings release we saw some shutdowns of our customers.

We really saw it in the month of December.

In the month of December, the Monday before Christmas, looking at the numbers and consulting with a few of our folks internally about what they were seeing in the trends, the trends looked a lot like 2014 in that the Monday before Christmas I felt we had a very good chance of having sales being flat December to December.

And in the ensuing days, the balance of that week and then the week between Christmas and New Year, quickly saw that erode as customers were falling off in their business activity and we produced the number we reported this morning.

The start of January, and again you could question the wisdom of making this commentary, with as of yesterday our month of January is trending to looks like there's potential for us to be positive in the month of January.

A lot can change between now and the end of the month, as we saw in the month of December.

We don't have holidays but we do have weather.

But as of the 14, we are trending in a pattern that looks like we should be able to tread water or be slightly positive, and time will tell how that plays out.

The next item probably of note in the earnings release is our gross margin.

Long-term trends that we've talked about on previous calls, that we talked about at our Investor Day in early November, are unchanged.

One thing we did see in the quarter, and it was most acute in November and December, as our customers were tightening their belts we saw a layer of transactions just evaporate from our business.

And the layer of transactions, if you look at our business, there's stuff that we sell every day.

Vending is a perfect example.

Examples of products we sell every day through our store operations, through our regular sales channel, through our VIN stocking and our OEM stocking, there's products that we sell every week and every month.

There's also a subset of products that we sell on a less frequent basis, some of those out of our stores, some of those out of our distribution centers.

A piece of that, a layer of that transaction disappeared.

And that's higher margin business for us.

And our gross margin drop was largely attributed to that disappearing.

That's the bad news.

The good news, I believe, we did not see a structural change in our gross margin.

Time will tell if that layer returns and how much it returns.

I am hopeful and expecting that it largely will.

On the expense side, this is -- I officially became CEO on January 1 of this year from a practical standpoint after the Board informed me of the decision.

I was stepping in the role in mid-October.

Will and I tag-teamed it a bit, but this quarter was largely under my watch.

And I think from an expense standpoint we frankly did a mediocre job.

And I put that squarely on my shoulders.

Fulltime and part-time expense trends, and I'm looking at -- our biggest expense on the P&L after cost of goods is people.

We have just over 20,000 employees.

The fourth quarter and the seasonality of our business is no secret to anybody who owns our stock, and it's no secret to anybody who works at Fastenal.

In 2014, if I look at our expense trends for fulltime headcount from Q3 to Q4, we managed it well.

There's always some attrition in the business.

We try not to replace that attrition in the fourth quarter.

And in the fourth quarter of last year our fulltime dollars paid, and this is base pay only, dropped about 0.3 of a percent.

Our part-time, we can manage the hours quite well, and as we typically go into the post-Thanksgiving season, we see our expense falling off because there's less work to do and therefore we need fewer hours.

And last year from Q3 to Q4 our expense dropped about 13.5% for our part-time labor.

In total our expense was down about 2.5%, 2.4% to be exact.

In 2015 fulltime headcount crept up a little bit to -- it increased about 3.5%.

Our part-time dropped about 4.5%.

I'm throwing a lot of percentages out here, and it's not about the percentages.

And quite frankly, it's not even about the expense itself.

It's about managing the business through the seasonality of the year, and we could have done a better job.

In total our labor costs were down from Q3 to Q4, but that's really more of a function of -- when we don't do a good job, the leaders of our business at the district, the region and at the national level as well as our support areas feel the impact of that in their bonus program.

Our bonus programs are largely mechanically produced numbers.

And so our overall expenses were down despite the fact we didn't manage the expense well, but they could have been down more.

The message I've conveyed to our regional and national leadership is, right now we are in an uncertain economy.

We made substantial investments in calendar 2015.

We added about 1700 people into our stores.

We added about 2300 people into our organization in general.

We are well staffed.

To that end, I would expect our headcount to not grow between now and March 31.

As we see some stabilization, that's assuming we see some stabilization and we believe there's reason for that belief to be there, as we see stabilization, we will revisit our willingness to make investments in both store and support areas as we go into the new year.

If I look at the rest of our SG&A expense, we did a nice job on the occupancy side.

The increase in that area was solely related to vending.

As I've talked about in the past, I see that as a good expense increase because we know vending where it touches our business improves our interaction, our interface, our engagement with our customer and improves our growth.

For those of you that -- I'm approaching this conference call in the vein of I've stepped out of my CFO role and I'm stepping into the CEO role.

So I'm trying to avoid the weeds as much as possible, probably got into it a bit with the last few sets of numbers, some things.

It's hard to change habits.

I will point out one thing, if you look at expense trends.

A history, [I said], from Q4 to Q1.

We're going into winter.

Last week here in Minnesota its been sub-zero, so winter is definitely here.

I typically expect to see our utilities increase about $2.3 million from Q4 to Q1, and that's solely related to heating locations.

Thought I'd throw that out there for those of you that find that of interest.

We also had an item that we highlighted -- or several items we highlighted in the positives and negative of our earnings release.

We made the decision, and we had been bantering this around for a number of months - a number of quarters, excuse me.

But we made the decision to close down our joint venture manufacturing facility, or to exit participating in our joint venture manufacturing facility in Brazil.

We had several other disputes unrelated to that that we also resolved during the quarter.

The tally of all of those items was about a $4 million impact to the quarter.

I thought it was worth noting, again in the for what it's worth department.

Finally, let's talk about 2016 and some of the things we've told you to prepare for 2016.

At our Investor Day in early November, we had a great participation.

For those of you that made it, thank you for attending.

For those that had the opportunity to listen to it, I hope you found it informative.

We really focused on four items that day.

The one was our FAST Solutions, our industrial vending program.

That's not new to anybody, that we've grown that business wonderfully over the last five years.

We're very excited about that business.

And when I look at that business today, about 45% of our districts in the Company have more than 200 machines in their business scattered across 10, 11, 12 stores.

We made the decision that at this stage in our Fastenal vending business, we wanted to place more dedicated resources within our districts to support that business and really challenge them in a two-prong attack.

The first one was what we called optimizing of our machines.

And that's really looking at the data across these 200 machines, 300 machines, 100 machines, depending on the district you're looking at.

Looking at those machines and optimizing the machines.

The math is really quite simple when you think about our Helix machines, and most of the machines out there are Helix.

And that is if we want a machine to do -- pick a number, $1500 a month, and every time a coil spins on average it drops $5 worth of product.

That means in the course of a month we need to spin a coil 300 times in that machine.

20 days in the month, 15 times a day a coil needs to spin.

And we need to look at the product that's in that machine and say, can we get 15 spins a day?

If we can, we know we have a home run.

If we can't we need to work to optimize the machine.

And that's what we're doing right now.

When we spoke to you in early November, about 11% of our machines across the Company had been optimized already.

As of the end of December that number is up to 18%.

And the team that is driving that, clearly it's everybody in the organization.

It's the folks in the stores, it's our district managers, it's our regional leaders, it's folks involved in our vending program, but actual dedicated team, we started the quarter with about 60 individuals.

We added just over 130.

So we have about 191.

Our goal is to get to about 230 people to support our 260 district managers in North America.

And the way we pay for that group is through optimization.

And we're 18% of the way complete, but we have a ways to go.

After they get that piece, their next prong of attack will be helping to grow our signings, helping to grow that business.

It's a wonderful business.

It's a business when you truly inform your customer what it's about, it sells itself.

The second half that we talked about is related to vending in our November Investor Day, centered on the use of what we call our vending tab.

And that's really about the efficiencies behind the scene.

While 13% of our stores were using the vending tab, and it's really how we replenished the machines and how automated that process becomes.

As of the end of December we're at 29% of our stores are now using the vending tab.

The second item we talked about was a relatively new concept for us to talk openly about externally, and that was our onsite program.

History has said we will add about nine a year.

It's a program where we take a store, and we essentially set up a store on site inside the customer's facility.

And it takes engagement one step further, even deeper than vending does.

It changes the relationship with the customer.

In the current year we signed 82 onsites, again our average was 9. Those 82 onsites came from 71 districts in the Company.

So that means presumably 10 people signed two.

Those districts grew double digits.

And so in 2015, the Company grew 3.5%, roughly, for the year.

The 71 districts on it, if you averaged the group out, grew double digits in 2015 because they had a means to combat what the economy was doing to them.

They grew their business.

They took market share at a ever faster pace.

Our goal as we enter 2015 -- 2016 excuse me, is to do 200.

In the first -- as of -- through Wednesday of this week, we've signed five this month.

If you take that to the month it would imply a run rate of about 12 or 13 for the month.

If you take that times 12, it would imply a number just under 150.

We have a little ways to go, but I think we're off to a good start.

And I'm optimistic what this means for 2016, but as importantly for 2017, 2018 and 2019 and 2020.

This customer-specific business, if I take our onsites, add to it what we call our strategic count stores, which is an onsite that's just down the street or near the customer but not physically in the building, if you add this altogether it's about 16% of our business today.

I'm very optimistic about what this can be in the future because with our low cost model we're uniquely designed as a business to go after it.

The third item we touched on in November was e-commerce.

Our 2016 plans centered on our website rollout for Canada and then ultimately the US.

That's not really a 2016 story, that's more of a 2017 story, but we wanted to provide an update on things that are in the works as it relates to the e-commerce strategy.

And finally we talked about CSV2016.

That is a remerchandising of our stores.

We converted about 800 stores to this format in the fourth quarter.

We intend to do a similar number in the first.

And really it's about positioning our store locations to be even better equipped at same-day service, at efficient replenishment for our customers.

And we're excited about what that means for our future.

With that, I will open it up to Q&A.

Thank you.

(Operator Instructions)

Our first question comes from the line of Ryan Merkel from William Blair.

Hey, good morning.

Dan, how are you?

So starting with demand, I think you said there's reason to expect stabilization.

And I'm wondering what signs are you seeing, or is it just the early January trend that sort of makes you think we could see some stabilization?

My comment, Ryan, is solely on the early January trend and what we were seeing in December before we saw the business just dial down.

And that was the first two weeks of December were tracking fairly good and it was really just the last two weeks that may have been impacted by the shutdowns and just the tighter spending by customers, which could be a transitory issue, is that the summary?

Yes.

And time will tell if I'm seeing that number -- seeing that in the data because I want to or if it's truly there.

But with 10 days left in the month our trends were looking a lot like last year.

Right.

Well then, my second question was in the press release you mentioned 2015 started slow because of oil and gas, but then as the year progressed it spread into other industries and other geographies that aren't typically driven by oil and gas.

So can you expand on this a bit?

Has this broadening of the weakness maybe stopped at this point based on everything you're seeing and hearing?

I mean the broadening related to everything from other industries that you don't normally associate with oil and gas that are impacted in other parts of the country, companies that are involved in export, just companies that are involved in really a weak industrial economy.

I can't say that I've seen the contagion change.

One thing I've always said over the years is our -- history in this business, for Fastenal's business that is, the trends from January to October are the trends that really matter.

November and December are months you go through, but history has said they're never really indicative of anything.

We saw some patterns in November and December.

I thought they were worth noting.

But I don't think there's anything that we've learned in the last two months that tell us if it's spreading, if it's stabilized, other than what we saw with 10 days left in December and what we're seeing in the first 8 days or so of January.

And again, I throw that out there only because when there's more uncertainty, I do believe, and I've always believed this, that we have an obligation to maybe share a little more insight.

And so we're trying to share as much as we can, but always mindful of the fact that the month can change on a dime.

One of the reasons we've never talked about January in the January call, or we've done it very infrequently, is that we're always wrong.

The question is how much.

But I can't say that we know anything about the contagion.

Yes, I think it's fair.

In the past, extrapolating December hasn't been the right move.

That month is goofy, so I think that that's fair.

Just lastly, you think initiatives that you announced at the Investor Day could add maybe 3 to 6 points of sales growth in 2016.

So I'm wondering, do we see that right away in January or does that build as we go through the year?

I think that builds.

If you think about it, in that discussion we talked about what the concept of 200 new Onsites mean.

And you can really count them half, because if they're turning on throughout the year -- because the 82 Onsites we signed last year, not all of those are operational yet.

We have, I believe, 58 of the 82 are operational as of December, because some of them we just signed in November and December.

And like a vending machine, you sign it in November, it might take you 60 days, 90 days to turn it on.

To me it's about momentum.

But as far as what it means for the year, my belief of these growth drivers and what they mean for calendar 2016 is completely unchanged from what I believed in November.

A lot of what I believe is -- I'm a very practical person.

And what I believe is based on what I see in fact, and what I see in fact is a tremendous advantage we have in the pieces we talked about in November, whether it be vending or Onsite.

Fastenal is uniquely situated to go after those two businesses unlike any other company out there because one of the things that I always tell our folks internally, and I try to remember myself, is in a world where everybody is talking about building the last mile in this online world, we're a Company that's built the last mile already.

It's a very efficient last mile.

And how can we take that last mile, take our employees at the store, take our employees that are supporting the store and together grow a great business.

And that's what we focus on.

Right.

Very helpful.

Thank you.

Ryan, I'm going to keep you from working in a fourth one there so we can go to the next person.

Sorry.

Fair.

Thanks.

Our next question comes from the line of Robert Barry from Susquehanna.

Hey, Dan.

Good morning.

Good morning.

Just a quick follow-up actually on that, and I really don't want to dwell on the first two weeks of January.

But in assessing how to read it, there is a 500 basis point easier comp and one less selling day.

So how does that factor into how we should interpret what you're seeing in January?

The one less selling day helps our number.

Adds 0.5%.

When we get to the month, you could probably look at it and say, yes, we were helped slightly from a daily basis by the fact that we have one less day.

What was your commentary about daily sales?

My commentary was about daily sales.

So maybe that means if I'm looking at it right now and thinking we will be nominally positive, maybe that means we're flat.

If you ignored out the day.

But I guess the point wasn't about getting lost in is it 40 basis points of growth or 40 basis points contraction.

It was really about a trend we're seeing.

And again, January and February in the northern half of the country, weather can change things dramatically.

But I'm trying to give a pulse on what we're seeing right now.

Appreciate it.

I guess where I really wanted to focus was on the gross margin commentary in the release.

You mentioned that substantially, I think was the word, all the year-over-year decline was on this lower discretionary spend.

Yet you also in that paragraph talked about pressures from lower rebates and mix and deflation.

So if it's all from lower discretionary spend it doesn't seem to leave much room for those other factors.

So I'm curious what the commentary is really on gross margin?

And especially going forward, is there any reason to think that the trend will change in 2016 versus what we saw in 2015?

Two hours ago I had a call with our regional leaders to talk about what we're seeing and some things that we needed to do on the gross margin front.

And our team that really challenges our gross margin and finds opportunities for us to improve it.

Had a lengthy discussion with them over the last few weeks.

And after them providing us with a dizzying amount of data, I said you know what?

What really happened?

Did our gross margin structurally change, or is there more to it?

Because the usual suspects are still there.

There's always a nominal impact in the fourth quarter based on what's going on with our rebates, what's going on with the utilization of our trucking network.

The same trucks are running in November and December that are running in October and September, but they are carrying fewer packages.

So you always have some leakage there in our gross margin.

And depending on the year, if it's a strong year you get a little lift from some of the supplier allowances.

Some years you get a little drag.

So those are the usual suspects.

The wildcard in it is there were a layer of transactions that just disappeared.

And they disappeared, we saw them disappear in both November and December.

And that was shining through in our gross margin, and that really was the cause of our gross margin change.

I honestly don't know if that layer comes back in January and February.

I don't know if the belts are really tight and it's not going to come back for a few months or this is stuff needed and people towards the end of their fiscal year, and they just turned off the spigots and they closed their PO books and they didn't buy anything.

History, I'm a firm believer that trends have meaning.

And if history says these transactions are there because the business needs them over time, I believe they will return and I don't believe it's structural.

But only time will tell.

Yes, but does that mean the impact from deflation and mix and rebates was absent in the quarter?

No it means that most of the impact came from this piece.

Not all of it.

Most of the impact.

Okay.

So it would imply that if it does rebound, the discretionary spend, that your best guess now is that the gross margin in 2016 would be, I don't know, flattish, modestly down?

Is that kind of your take?

Well, my commentary really centered on, here is where we were in Q3, here is where we are in Q4.

And here is the piece -- here's some of the leakage, here is where it came from.

I believe these transactions come back again.

Nobody knows right now, but I believe they come back because I think businesses need these products.

But we will be working to claw back our gross margin every month of the year on the leakage we've seen through the year.

The long-term trends are still there that we talked about.

On the positive side, our ability to continue improving our trucking network, its utilization.

This is over time.

Our ability to drive our exclusive brands, to channel spend with preferred suppliers.

Those positives are always there.

But the drag that comes -- if Onsite truly takes off the way I believe it can over the next five, six, seven years, that's going to lower our gross margin over time.

But it's also going to lower our operating expense over time, because we like the Onsite business.

But in the short term, I believe this business resumes and returns.

Dan, thank you.

You bet, Rob.

Thank you.

Our next question comes from the line of David Manthey from Robert W. Baird.

Hey, Dan.

Happy New Year.

Thanks.

You too.

So I guess I'll stay on your favorite topic here, gross margin.

Could you tell us, in the fourth quarter were there any year-end accrual adjustments up or down that impacted the number?

And second, could you quantify for us the average gross margin differential between national account customers and the rest of the business?

And then finally, last quarter you mentioned about 2% price degradation on fasteners, and I'm just wondering if you can give us an update on fastener pricing or other product pricing as well?

Sure.

The national accounts piece, the delta between that and the rest of our -- and our Company average has really been unchanged for quite some time.

There's an 8 to 10 point delta there.

If it's an Onsite that delta moves down, the margin there moves down into the 30s, as we talked about.

And is prevalent in that 16% of our business that is Onsite or Onsite-like business in our existing mix.

From the standpoint of the pressure on deflation, that's holding pretty steady to what we were seeing in the third quarter.

I wouldn't say it's gotten worse, I wouldn't say it's gotten better.

So I'd say that's holding pretty steady.

There was a third piece.

Sorry, I didn't jot the first one down.

Just any year-end accrual true-ups that impacted gross margin.

Nothing outside the norm.

There's always a little bit of noise, but nothing outside the norm.

And then just one quick one here.

The $4 million charge for this Brazil joint venture, could you tell us what that amount was after tax?

Yes.

That $4 million is not solely related to Brazil.

We tried to identify several things that were unusual in the quarter to get -- and again, felt the need to give some insight.

The after-tax piece of Brazil, that piece of itself, and I don't want to get into the details of each one.

But the after-tax number was bigger than the pre-tax -- was not helped by the tax because we've been incurring losses in that business and therefore there is no tax benefit.

So part of the write-off was looking at what we're going to net realize on that business, because we are selling it to our partner for an amount.

And then there is no tax benefit from that.

So it actually impacted our tax slightly as well.

Okay.

I guess we'll follow-up on the rest of that $4 million.

Thank you.

Our next question comes from the line of Adam Uhlman from Cleveland Research.

Hi, Dan.

Happy New Year.

Happy New Year, Adam.

Just a clarification first.

How much of your business would you describe as being that discretionary spend, the spotlight business that melted away?

I don't have a definitive number for you.

I would venture to guess, and this is a little bit of a guess, it's around that 10%.

That's helpful, thanks.

And could you walk through how you're thinking about the cash flow for the year?

There seems to be several moving pieces in terms of capital spending.

I think you'd previously guided that down somewhat materially for the year.

But then you had the CSP-16 program that's coming through.

You took up the dividend.

I'm trying to think through how much cash generation you think you can do, and if you're planning on paying down debt?

The CapEx, as we talked about in early November, we came in on a net basis because we sold our old distribution center up in Kitchener, and so we had some proceeds there.

But on a net basis we spent about $145 million on CapEx in 2015, which is about a 15% drop from what we had seen in 2014, which is about an 8%, 9% drop from what we saw in 2013.

And really what had happened is back in 2011 time frame, we had an Investor Day and we talked about how our CapEx was going to be going up.

History has said our CapEx should be somewhere between 25% and 30% of our earnings.

That's a pretty good accurate number over a decade.

And we noted that for a multi-year period that number was going to materially go up.

And the two things that were really going to drive that increase centered on we were putting automation into our distribution centers.

And today over 80% of our picking activity occurs in automated distribution centers.

The most meaningful project we have going on right now, we're adding automation into our distribution center in North Carolina.

That's a 2016 project.

But we were going to have about a three-year period where we were putting in a massive amount of automation.

And that came with a price tag.

So that is largely behind us.

This year our CapEx as it relates to facilities center on the North Carolina facility I talked about, and then investments in Indianapolis related to manufacturing and expansion of our automated warehouse.

The other piece was we were very optimistic about what vending could be.

And we knew we were spending a tremendous amount of dollars on vending over a multi-year period.

Two, we felt very good about the ability for us to grow the business.

And the second half of that equation is we didn't want to run out of supply.

So we built an inventory of machines.

And so today our spend is coming down in both of those, largely because the automation is behind us and then the vending standpoint our patterns are more stable today.

And we're able to burn in a little bit of that inventory as well.

So all those pieces we identified in November in expectation that CapEx would drop probably around 12% to just under $130 million.

And the only wildcard on that centers on things that we -- the pace of what we do with vending as we go through the year.

There's some things I'm optimistic about, and we'll see how that plays out.

But that's probably the only wildcard, whereas the rest of the projects are pretty well known at this vantage point.

Dividend, We just announced a $0.30 dividend last night.

We had been running at $0.28.

So if that were to continue throughout the year, that would imply about a $344 million dividend versus the $327 million last year based on where our share count is right now.

And then the wildcard is what we do in buybacks.

We did a fair amount of buybacks in the current year.

If you look at our debt we have on the books right now, it's really about the buybacks we've done in the last 1.5 years.

I would expect some additional buybacks as we go through 2016.

How that plays out is going to be largely dependent on the marketplace.

But a distribution business by its nature throws off a lot of cash.

This year our operating cash flow, as we saw last year, is just over 100% of earnings.

And for a distribution business to throw off operating cash that's greater than the earnings tells me that at a year you didn't grow very well and you didn't need that much in working capital.

So that gives us prospects for strong cash flow generation as we go into 2016.

Frankly, I'd prefer to see a number in the upper 90%s because that'd tell me we're growing better.

Got you.

Okay, thank you.

Thank you.

Our next question comes from the line of Chris Dankert from Longbow Research.

Morning, Dan.

Thanks for taking my question.

First off, thinking about fasteners going to the vending machines in the quarter seems kind of rough, down about 8%.

I was wondering just given the utilization numbers and the production numbers we're seeing this morning and your optimism on the early start to January, is there any commentary you can give us on fasteners?

So far have you seen an uptick in those numbers?

I guess I'm a little confused by your question, Chris, only from you started it by talking about fasteners and vending.

Fasteners, there's no connection between fasteners and vending size.

Maybe I just misheard your question.

I'm sorry.

(Multiple speakers)

Only non-fasteners go through the vending platform.

I guess the upshot was your fastener sales, have they improved in January commensurate with what you're seeing on total sales?

I typically don't get too caught up in the total numbers.

I don't even look at product line mix during the month because it's not a meaningful exercise.

So I don't even know the number.

Fair enough.

I guess the other question I had was as far as the IT costs, the investments you were talking about back at the Analyst Day.

Can you break out how much of that is dollar value for the year, and then is it going to be classified OpEx, CapEx or a mix of the two?

Well, our biggest investment we've made over the last several years is we've grown and built a development team and we've -- over the last two years, I believe we now have somewhere between 75 and 80 people in India that are solely about development.

A great team.

I've not personally been over to meet with them but everybody that has met with them, they're really impressed with the quality of the people we have there.

That obviously goes through our P&L.

Historically for us, most of the investments we make in IT go through the P&L in the period because they are ongoing coding investments.

Obviously things like equipment or third-party software, those are capitalized and would be spread out over a multi-year period, as one would expect.

But most of the expense would be the cost of those 75 people, and we're continuing to grow that group.

I talked about several places we're adding, where we're not adding.

I think that number will continue to grow and will probably get to the point we have about 100 people over there, because we want to build up our capabilities in that area to support our business more thoroughly.

But you can back into a number pretty fast just with the 75 people.

That's helpful, thank you.

Yes.

Thank you.

And our next question comes from the line of Ryan Cieslak from KeyBanc Capital Markets.

Hey, Dan.

Good morning.

Morning.

I wanted to just first maybe hit the margin question again.

And you took a step back and you guys clearly have some strategic growth opportunities in the top line, but clearly have puts and takes still on the margin side.

Directionally when you think about incentive comp, the mix with Onsite maybe ramping, what's going on with vending.

Is this a year, if you're able to hit your top line internal goals or grow the top line directionally, how should operating margins trend for you guys relative to 2015?

If we're able to hit our top line, to the extent we're doing that because of the Onsite, that's going to be a little bit of leakage.

But again, we're talking a relatively small piece of the pie.

Our ability to grow our earnings long term has always been centered on the fact of what we call pathway to profit, and that is our stores as they mature, the level of profits improve dramatically.

The 900 stores we had in the fourth quarter that did more than $100,000 a month in revenue, the profitability in that group is completely on a different -- just in a different place than the profitability of the remaining stores that do less than $100,000 a month.

So to the extent all these programs, the vending, these initiatives cause our average store size to grow, there's no reason why that won't enhance our profitability and fund any leakage we might have as it relates to the Onsite.

Now, if our Onsites were wildly successful, let's say our Onsites were front-end loaded and we get them turned on faster than we expect such that you don't have this wave coming in during the course of the year and the wave hits us earlier and the wave keeps increasing, and we do materially more than the 200, I could see our growth being better than we expected and our operating margins being a little worse.

I don't think anybody would call and complain about that.

And then Dan, with the Onsite onboarding, is there incremental one-time or onboarding costs that come through initially that might weigh on the incremental EBIT contribution this year versus maybe what it looks like into the out year in 2017?

Sure, but that's a constant in our business.

That's true of any new business we're turning on any year.

A new large national account.

The first few months are kind of tough.

First six to nine months, you're throwing resources at it.

You aren't as good at sourcing the products, so your gross margin isn't where you'd like.

If I look at the Onsites that we turned on in 2015, their performance would be materially different than the existing book.

And that's something we talked about in November.

And that would be true of every year.

Again it's really about -- I think at the end of the day the real question is, does it allow us to grow our business faster, and do you have confidence that Fastenal, if we're getting the growth, can manage the operating expenses?

I believe we can manage the operating expenses if we're getting the growth.

I believe these growth drivers allow us to grow faster and take market share at a faster clip than our competitors.

And I see we're at 9:46, and so Ryan, I'm going to have to ask you if there's a follow-on we'll take it offline.

One rule we've always had is we realize it's earnings season and everybody has a very, very busy day.

So we try to hold this call to 45 minutes.

So I guess I'd close on that note of, again, thank you to everybody for listening to our earnings call this morning.

Hope you didn't mind hearing just my voice.

In the past it's typically been two.

Felt that it was appropriate to talk a bit about the quarter, but more importantly to talk about the growth drivers we have going into 2016 because that's why we held the Investor Day back in November, because we think it's really about where is our business going long term.

Thank you, and have a good day.

Thank you.

Ladies and gentlemen, thank you for your participation in today's conference.

This does conclude the program and you may now disconnect.

Everyone have a good day.