Good day, ladies and gentlemen, and welcome to the Fastenal Company Q3 2014 earnings conference call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session, and instructions will follow at that time. If anyone requires the operator's assistance during today's conference, please press star then zero on your touch-tone telephone. As a reminder, this conference is being recorded. I would like to introduce your host for today's conference, Ms. Ellen Trester. Ma'am, please begin.
Welcome to the Fastenal Company 2014 third quarter earnings conference call. This call will be hosted by Willard Oberton, our Chief Executive Officer, and Daniel Florness, our Chief Financial Officer. Also present for today's call is Leland Hein, our President. The call will last for up to 45 minutes. The call will start with a general overview of our quarterly results and operations by Will and Dan, with the remainder of the time being open 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 December 1st, 2014, at midnight Central Time.
As a reminder, today's conference call includes statements regarding the company's anticipated financial and operating results, as well as other forward-looking statements based on current expectations as defined by the Private Securities Litigation Reform Act of 1995. Forward-looking statements may often be identified with words such as "we expect," "we anticipate," "upcoming," or similar indications of future expectations. It is important to note that the company's actual results may differ materially from those anticipated. Information on factors that could cause actual results to differ materially from those forward-looking statements are contained in the company's periodic filings with the Securities and Exchange Commission, and we encourage you to review those carefully. Investors are cautioned not to place undue reliance on such forward-looking statements, as there is no assurance that the matter contained in such statements will occur.
Forward-looking statements are made as of today's date only, and we undertake no duty to update the information provided on this call. I would now like to turn the call over to Willard Oberton. Go ahead, Mr. Oberton.
Thank you, Ellen, and thank you, everybody, for joining us on the call this morning. Talk about the third quarter of 2014. Overall, we feel that we had a good quarter. Starting out with sales, July was a little bit weak. Actually, September was a good number. We had a very slow start after the holiday. Once we got through the first four days, we had a very good run rate, very much on pattern of what we would expect off the historical numbers. On the margin, I also believe we did a good job on the margin. There are a lot of gives and takes in the margin right now. We have customer mix. Larger customers are growing faster. We have some product mix issues. The fastener growth continues to rebound, and that's very positive.
We also saw nice growth in our exclusive brands, which run at a much higher margin. Going forward, we have a lot of opportunity to improve the margin on our vending product through T-HUB and other things we're doing to source that product, lower our cost to package, and lower our cost to serve the customers. I think the most important thing to think about on margin, though, is a piece that Dan put in talking about the margin in larger stores and the inherent profitability of those larger stores. As he put in there, the stores with the revenues north of 100, the two groups, the one from 100 to 150, and then 150 and above, have about a 90-basis-point lower margin than the company average. Bigger stores, bigger customers. That's really the story.
The most important part there is their operating profit is 350 basis points above the company. We are not as concerned about the absolute gross margin. We're concerned very much about the pre-tax and return on investment, and we continue to make that point, and that's why I'm pounding it here today. From an expense standpoint, we did a good job. We didn't do a great job on that because, put it this way. We did a nice job considering the labor we added in the store. We would have expected a little more leverage. We continue to add labor in the stores. Going forward, we're in a very good position with store labor.
We will continue to add labor in the stores at a rate of about 10% more hours, which translates into about 5% or 6% higher labor cost, plus commissions and things like that. We're in a very good position labor-wise, and I believe our expense growth going forward will look much better. One area in particular that we did a nice job, kind of a shout-out to our team, is the transportation. It's been a tough area right now. Excuse me. Transportation's been tough. Trucks are hard to find. Rates are going up. Our team just did a great job in both the second and the third quarter. I'm very proud of what they've been able to do. Vending, very steady progress. We're happy with what's going on in vending. Our signings have basically been steady all year.
The best numbers, or the numbers that give me the most, or I'm the happiest about, sorry, are really the sales going through the customers that have vending. I'm stumbling. Excuse me. The customers with vending grew at 21.9%, and that represents 37.8% of our business. Very good progress. Growing as a percentage of our business and vending in general, the overall business concept has a long pathway. We continue to see other ways we can use the technology. We continue to lower our cost of the product and lower our cost to serve the customer. Very competitive. We believe it's a very long-term business for us. On the inventory, working capital inventory grew much lower than sales. We made nice progress there.
The supply chain group is very focused on improving the service levels, while at the same time reducing our days on hand. I spent a lot of time talking with that group recently, and we believe we have a lot of opportunity over the next 4 to even 8 to 12 quarters to continue to improve our service to our customers, and at the same time, reducing the working capital need of inventory, using new tools they're buying and just getting better at understanding how to use the inventory. Overall, for the quarter, I feel very good about where we are. We have good sequential growth going into 2015. We watch that very close. Our margin seems to be more stable than it was earlier in the year. Excuse me. Labor in the stores is at a good level. We've added the labor. Our margin is stable.
We have good sequential growth. If the economy stays steady, we are in a very good position to see the benefits of Pathway to Profit in 2015. Before I turn it over to Dan, I apologize for stumbling. I was looking at the stock going down at the same time, and I couldn't speak clearly. No. With that, I'll turn it over to Dan. He'll cover some more things. We'll come back and answer questions. Thank you very much.
Thank you, Will. Good morning, everybody, and thank you for joining us on the call today. Reiterate the commentary. We added some commentary in the quarterly release, I think much more explicit than maybe we've been in the past. Maybe that's remiss on my part. On the page reference I'm going to use are on my copy. If the version you print on the web is slightly different, I apologize for that. On Page one, top of Page two, we talked about gross margin and relative profitability, as Will touched on a few minutes ago. That takes me right to Page 10, which is our discussion on profit drivers of our business and really the Pathway to Profit. Some things that I think are worth pointing out on that table.
One is, we've continued to make this point in both of these sections, our profits and ability to leverage profits long term is about the top-line growth and growing our average store size. We've said that for a number of years as it relates to Pathway to Profit. We're trying to accentuate a few of the components, the puts and takes in the math, both on the P&L as well as the working capital side. I think they're both important to talk about long-term profit growth, relative profitability, and relative returns. We think we have amplifying effects for all. Some things that I think probably jump out to you is the relative profitability decline in the different groups. It really is stemming from four components when I look at it.
One, in comparison to both 2012 and 2013, our gross margin in those periods were 51.6% in 2012, third quarter, I believe. Last year was 51.7%. We're at 50.8%. We've given up about 90 basis points of gross margin. That's one component when I look at that table. Another component is, as we talked about last year in the July and October calls, we felt we were under-investing in people, especially at the store level. There was a little bit of under expense in those two periods when I look at those relative groups of stores, and I believe we've corrected that, and we have the appropriate staffing in our stores today to grow our business. Growing our business drives our average store size up.
When you look at these tables, yes, we gave up some relative profitability in the groups, but look at the percentage of the stores that are now in the fourth and fifth group, the 100-150 and 150+. The relative in the 100-150 has gone from 15%, 16%, one in two years ago, to 21%. The relative percentage of stores in the fifth group, the over 150, is now at 17%. Last year, it was at 13% and change. Two years ago, it was at 11% and change. That's what's driving our overall profitability, even giving up 90 basis points and adding people at a faster clip than we've done in each of the last two years when I look at the third quarter time frame. I think those are important distinctions to make.
The other distinction that I think is important that's often overlooked, I believe, by many people, sometimes myself, until you take a step back and you think about it. Our relative expenses, if you look at our P&L over a number of years, is a gross margin in the low 50s, an operating expense, 29%, 30% kind of neighborhood, and the operating profit in the low 20s. I think those are important things to sit back and think about because when I think about a lot of companies I look at in the industry, I'm not just talking about public companies, I'm talking about private companies, too. In the industry, when I think about profitability within industrial distribution, I think about a number in the low double digits. I think of a P&L that probably is gross margin in the lower half of the 40s.
I think of operating expenses around 30%, maybe 29%, maybe about our number, and an operating profit in the low double digits. Some of the better players in the industry, some of the better-leveraged players in the industry, start moving that up into the teens. I think an important thing to ask yourself is, Fastenal has an average store size of 107,000, which means that sometime in our history, 20, 30 years ago, we figured out how to make money in a store doing $50,000 a month. There aren't too many players in the industry who have done that. If you look at the average store size of most private and public players in the industry, their average store size is a multiple of ours. Eight, nine, 10 times larger average store. The operating expenses really don't change appreciably.
In fact, in many cases, I look at them, they're at or slightly higher than ours, which always makes me scratch my head a little bit of why the industry is so different. Maybe it's just a case of, we developed a frugal nature 30 years ago, and that frugal nature continues to shine through in our business and gives us just a structural delta to everybody else. I'm not sure. I think it's something for people to think about, because it positions us long-term with that structural advantage to keep going after the market and to keep going after the market in a profitable way and with great returns. Speaking of going after the market and top-line growth, some thoughts that always pop in my mind is it really gets down to a handful of things. Our top-line growth is about the existing market. It's big.
The relative health of our existing market share. That's had a tough couple of years for us. We talked a lot about what we saw in our fasteners business, what was going on with our large customers over the last several years. The fact that that was stabilizing, improving slightly. I think you see that in nice growth numbers or good growth numbers in our fasteners business. We grew about 10% this quarter, and that's a big business. We're pretty excited about the improvements we've seen there. Then the growth in the average in the available selling store energy, the fact that we've right-sized, we've corrected the headcounts in our store, and we're positioned really well going into 2015 and our trends year-to-date. You look at our daily gains in overall business, in fasteners business, in non-fasteners business, are quite strong as we approach 2015.
Other things that jumped out for me when I'm going through the release, and again, I'm using my page references. On top of page four, looks at our five-year stores and what's happening to the growth in our five-year stores. We've had five months now of 10% plus growth. Look at the three years on that table. That never happened. I think we had five months in 2012 with 10-plus growth, but they weren't consecutive. I don't believe we had any last year. So there's some powerful things going on because we've added the selling energy into our store and our large account business has stabilized. Our heavy equipment manufacturers have stabilized, and our inherent growth is shining through.
Page six, and I touched on this already, but our end markets and our product, we're seeing improving trends there, both when you look at absolute year-over-year numbers, but more importantly, when you look at year-to-date numbers. Where were we in January? Where were we in September? How are we trending? As we've said in the past, September and October tells us where we're going to start the new year. On page 12, you see the numbers. That's our headcount numbers. You see the numbers settling down now as we get into the third quarter because we're anniversarying where we started to add people at post Labor Day last year. Gross margin, we've touched on that, I think, pretty explicitly, both in the early part of the document as well on page 13. Page 14, our SG&A.
Probably the only thing that stands out for me there is, okay, our labor expense is up because of the headcount we added and because there's been improvements in our profitability bonuses, in our profit-sharing contributions because of where we're performing relative. That's more about the last several quarters so much than the anniversarying. One thing that jumps out, our selling transportation is too high. As we're adding people, we are adding, I believe, some expenses there faster than we should, and those are some things we're working on to correct right now. Kind of rounding out the release. Our operating cash flow is okay. Operating cash is about two points lower than where I'd care it to be. It's rare that you won't get that comment out of me on a quarter, even if we were two points higher.
We bought back some stock in the third quarter. Year-to-date, we bought some in the first quarter, we had previously disclosed. We bought some in the third quarter, and we increased our line of credit during the quarter to have some cash ready and available to buy back those shares and potentially some more. One item I'd like to throw out there that I want to point out, our international business. We were particularly pleased with that business. By international, our U.S. and Canadian business are very homogeneous businesses from the standpoint of our store footprint, the infrastructure in those countries, and the amount of time we've been in those countries. When I talk about international, I'm excluding the Canadian piece. I'm just looking at south of the border, Europe, Asia business. Very pleased with the performance of that business.
We grew our earnings more than 50% in that business, third quarter to third quarter. Partly a recovery as some struggling a year ago, but partly just some darn good performance and a good compliment to Steve Wiercinski and his team in those businesses. With that, I'm going to turn it back over for some Q&A. As we've asked in previous quarters, please limit yourself to one question with maybe a potential follow-up, and we'll go from there. Thank you.
Thank you. Ladies and gentlemen, if you have a question at this time, please press star then the number one on your touch-tone telephone. If your question has been answered or you wish to remove yourself from the queue, please press the pound key. Our first question comes from the line of Ryan Merkel with William Blair. Your line is open. Please go ahead.
Thanks. Good morning, everyone.
Morning, Ryan.
Morning, Ryan.
I guess the big question here is how can we have confidence that gross margin stays near 51% if the plan is for larger stores across your network, which larger stores have larger customers and the larger customers have lower gross margins?
Dan, I'll give it to Dan.
Yep. First off, as we cited, the stores that are north of that have a gross margin that is slightly lower. I think, Ryan, it really gets back to what's our operating profit going to be. I think if everybody who looks at the Fastenal business and looks at owning our stock and looks at owning our stock today and having that stock 3 years from now and 5 years from now, if you believe we can grow the business and we look out to a larger business some years into the future, let's just say for discussion's sake that the margin drops 40, 50 basis points, but the operating margin is at 23 or 24.
Right now, the one thing that I probably didn't touch on, because sometimes I've learned to shut up when I should shut up, is 23.7 for 100, 150. I'd be lying if I didn't say I was really disappointed in that number. I don't think that number should be below 24. I think it should be more like 24.5. Would you own the Fastenal organization, that larger organization in the future? Because I believe it's going to grow. If it grows, our average store size has to increase. The question you should ask yourself, would you own that company that looks a lot like that, even that disappointing number that we have in my mind today. Would you own that business versus some other stock? I would.
Ryan, I know history doesn't always predict the future, we're focused on big stores margin going down. Over the years, we focused on company gets bigger, the margin goes down, fastener mix drops, margin goes down. There's a long list of things I could address there, our margin has been around 51% as the center point for 25 years. A lot of it, and Bob Kierlin always stated this, the number one thing that determines our margin is our branch pay programs or our incentive programs, not just at the branch, but at all the levels, and that continues to come true. If you pay people to hit a goal, high % of the time, they will hit a goal. It's far more about that than it is about product mix, customer mix, or store size.
Okay. I guess my follow-up or second question, do you have an updated Pathway to Profit average monthly store size to hit that 23% EBIT margin target? Is there an update there? I mean, that clearly looks like it's higher than $110,000 a month.
Yep. I removed that paragraph.
Yeah, I know.
There was some discussion on whether I should or shouldn't. I looked at it and I said, "You know what? We've had that paragraph in there for years, and I think the table removes the need for the paragraph." I just finally decided to get it out of there. Partly because I think there was always so much questions about 23. 23 has never been a target. 23 is a point-in-time reference. I just cited a company in the future that has a 24%. But right now, if you look at the table, that 100-150 is at 23.7%. I'll throw out some components. Right now, the 2,647 stores that are in that table, as you see on the next page, represent about 87%-88% of our sales.
If I look at the first five groups in that table, the ones where we explicitly call out the percentages, that subset represents about 80% of our sales and the delta's in the strategic accounts and overseas stores. I look at a number that's with the gross margin being lower than it was a year ago, it's not 110. Because we're at 107 right now for average store size.
We're also not happy with where those numbers came out this quarter, Ryan. I don't think it's that far off, but we off the 110, somewhere in that range, 110-125, but it's really about point in time and growing the average store size.
Okay. Thanks, guys.
You bet.
Thank you. Our next question comes from the line of Robert Barry with Susquehanna. Your line is open. Please go ahead.
Hey, guys. Good morning.
Hi, Robert.
Hi, Robert.
I did just want to follow up on that and clarify. I understand that some of the targets could be a little bit soft at times, but it does sound like versus last quarter, your outlook for the profitability of your business has gone down. It sounds like both on the gross margin side and on the EBT margin side. I mean, is that a false interpretation?
Yes.
Yes. Our optimism about the ultimate profits of the organization and our ability to grow profits has never been stronger.
I guess I-
We did-
Yeah.
We expanded the language around gross margin. If you went back to the transcripts from the second quarter call in July, I was very much expecting a call that would center on top line growth. How do you get that top line growth? Primarily because a year ago, we were in that July timeframe, our growth was pretty anemic. Our growth was more in line with the industry. We had started to expand our growth. We felt there was great momentum to continue to expand our growth. I was frankly a little disappointed that the entire call was about 15 basis points, 20 basis points of gross margin, not about our ability to grow the business.
When I look at that table, on that Pathway to Profit table, it's so compelling about where we can move the profit of the business to if we're growing and we grow our average store size. The discussion was getting lost in a few fixation points, and I think the fixation should be, how do we move deeper into that table? What are we doing to grow our top line, and how does that happen? The market's big. What's the health of our existing market share, and what are we doing to grow the business? I think that's where the headcount, the energy in the store really comes into play. Those are the three most important things.
Yeah.
Back to your question. You misinterpreted our report. We are very confident in our ability to be highly profitable.
Yeah. Just to clarify, I guess I'd agree with you about maybe there was too much focus on the gross margin, but at the end of the day, I think we need to measure the growth as well as the cost to engender that growth. As we move further down the income statement, I'm more concerned, I guess, about what sounds like backing off the ability to get to the 23% EBT at the $110,000 than I am about the softer gross margin target, because it does sound like there's some offset on the SG&A.
Let me jump in here. If you think about the 2007, I don't know if you followed us then, when we came out with Pathway to Profit, our 23% goal was at $125,000 a month.
Halfway between the $100 and the-
It was 125,000. In the interim, when we got very tight with our expenses during the very tight recession of 2008 and 2009, we lowered our base cost, and we brought that down to 110. Now we're back to where we were at 2007, somewhere in the middle there, and actually at 125, I think it pointed to 23.7.
Yep.
The difference between 110 and 125 and 22 and 23.7 to us is going to move around. It's an inexact thing. We believe we're going to go right by that number and be highly profitable. We're not trying to back off the number. We're trying to not give so much information that our calls are completely dominated by, as Dan said, five or 10 or 15 basis points in different categories.
Okay. The message you want to leave with investors is that kind of over a period of time, kind of big picture, the targets are kind of roughly as they have been.
Absolutely.
In terms of your ability to raise profitability, yeah, as store size grows.
Yep.
It's easy math. If we don't open many stores, we grow our top line, just say 15%, our average store size goes from here to here. You can look at the chart, put your finger down and get a good idea of what the leverage is.
Yep. The average store in that 100-150 category right now is $123,000. That's the average store size if you actually run the math.
We believe that should be about 20%. We believe that group should be in the low 24% pre-tax, not 23.7%. That's where our head is. We need to move to the next question.
Yep. Okay. Thank you.
Thank you. Our next question comes from the line of Flavio Campos with Credit Suisse. Your line is open. Please go ahead.
Good morning. Thank you for taking my call. My questions.
Morning.
Just focusing on the selling personnel, FTE count. It was flat in September and pretty much flat as well on the quarter, actually a little bit down. I was just wondering if that was a seasonal thing because of the summer months, how do we go back, how do we go up to that 10% growth that you mentioned in the call?
There's always some flattening that occurs in the August-September timeframe. Really August to the first half September timeframe. One of the means in which we recruit is we strive to have a subset of our employee base be full-time students, either in a four-year state college or a two-year technical college. Because we find that if we have some part-timers working for us that fit that type of demographic. It's a great short-term workforce, but probably more importantly, it's a great long-term recruiting force. We recruit from that. There are certain times of the year you get some churn in that group or just some stalling in that group. When they're going back to school in August, you see a little bit of a pause until they get their schedule worked out in early September, you see a little drop-off in some hours typically.
Because when we report numbers, we're reporting FTEs.
Perfect. That's helpful. Just turning to margins for just one quick second. On Q4, generally, we see a little bit of a drop, seasonally. Just wonder if you're going to see that this year, if you're expecting that this year as well, or if this 50.8%, that's kind of your expectation for Q4 as well.
We don't give guidance on the fourth quarter. Dan, anything?
Yep. The only thing is the softness that we do sometimes seasonally get is related to, we have an extensive trucking network, that trucking network loses a little bit of leverage in the November, December timeframe. It can be amplified in a year like 2012 or 2013 or 2008 if there's something that's compounding that softness. It's a little bit of noise, right now, our trends on volume are good.
Perfect. That's helpful. I'm going to jump back in queue. Thank you for taking my questions.
You're welcome.
Thank you. Our next question comes from the line of David Manthey with Robert W. Baird. Sir, please go ahead.
Thanks. Hi, guys. Good morning.
Morning, Dave.
First off, I realize that stores don't drive growth at Fastenal, it's the people. You closed 37 locations. I'm just trying to get a read on that number. Did those closures, do you think, have any impact on September? To back it up and forget about the stores for a second, could you discuss your hiring plans as you look to 2015? Will, I think you mentioned 5%-6% increase in labor cost. Is that kind of a next year thought as well?
I'll take that part, and then I'll hand it to Lee for the store closings. Our thought is 10% more hours, a minimum of 10% more hours, assuming our sales growth stays in the range it is, the mid-teens. If we do that, it will cost us about six percentage points higher labor, and that is the plan for 2015. What will move that up or down is if we grow faster, we'll add to it. If we grow slower, That's kind of the roughly add hours about 5% lower than our sales growth.
Okay.
The other five come through productivity. I'll give it to Lee on the stores.
Hey, David. On the store consolidation piece, it's really, you got to get your arms on the fact that they're small stores. We're highly aggressive as we open stores. Yeah, did we put some stores in markets that were fairly close? We really feel we're going to retain a good portion of the business. We have homes for our people. The markets are great. It was just a great strategic move for us. It's really about consolidation, and we are still committed to the markets in almost every case, and even more so when you really think about going forward, the energy we're going to put into some of these stores where we moved the business. It's just discipline at work at Fastenal, and it's what we do.
The store closing would not have impacted September any more than it would have impacted August, July, June or May, because these things were in the works. I think we cited in the second quarter release, and I apologize if I'm slightly off, but out of the 40 some stores we'd identified, I think there were eight that were more than 10 miles from another store. When I looked at all the data, we assumed less than 10% of the sales from all the stores we were closing was at some risk of being lost.
Got it. Okay. Just final question. You touched on T-HUB, and it's been over a year since you started rolling that out. I'm just wondering if you can talk to us about, are we seeing the benefits today? What kind of tail is on this initiative?
I don't have the stats. I've stayed very close to it, Dave, but I don't have the stats as far as how many parts we're shipping. I don't know if you do, Dan.
I don't, but I have it.
I said in the second quarter call, it is not ramped up as quickly as we thought it would, but it continues to grow. We have a long tail on it from an. Probably the two biggest areas that we'll pick up benefit is gross margin, because the product in T-HUB, we're buying at very, very good prices, and the other is inventory turns, because if we're buying it centrally, the stores do not have to buy as much, because if the stores are buying a product on their own, they might buy two or three months supply to get the pricing. The big advantage is right now, as we see it, our gross margin and inventory turns. There's also efficiency, but that is probably not as big a saving. We're still very optimistic on moving that project forward.
Yeah. Just a couple thoughts on it. End of July, we had all of our stores that are going to be serviced by T-HUB. Their point-of-sale system was converted over such that they could turn parts on and off from being serviced out of T-HUB. That ramp up really occurred in the June, July timeframe. The steps that occur before and after that is aligning the parts that are being vended in the machines and optimizing the turning parts so that you have an efficient redistribution plan.
I always use the analogy, if we have a soda machine in the warehouse and nine out of 10 people want Mountain Dew, and Mountain Dew is one of the six options, they're going to fill the Mountain Dew slot every day, as opposed to maybe you need five out of the 60 Mountain Dew or Diet Coke or whatever the case might be. One tangible thing that I can point to that comes with T-HUB, Will touched on the gross margin, is we measure different pieces of our business, and one thing that did change is the percent of our sales going through vending that are Fastenal Brands went up by one percentage point from Q2 to Q3. We are seeing some tangible things there.
For the suppliers of branded product that are in our T-HUB facility, I would expect to see their business, and we have seen their business grow commensurate because there's more of that activity going on.
Got it. Great. Thanks a lot, guys.
Thank you. Our next question comes from the line of Adam Uhlman with Cleveland Research. Your line is open. Please go ahead.
Hi, guys. Good morning.
Adam.
I guess just to start with the fastener sales, you touched on it a little bit here, but we saw good acceleration in that. Could you talk about the visibility that you have into growing that chunk of the business? What are you hearing from customers on their production schedules versus new business that you've brought into the fold? Combined with that, heavy manufacturing, there's a good deal of worry from investors, I guess, from the impact from farm equipment demand and oil and gas. Maybe you could help us understand your exposure to that as well.
It's hard for us to break down exactly where the fastener growth is coming from. The biggest part of it is machinery manufacturers. We've also had a very strong push with small customers. It's really about incentive programs at the stores, different programs for bin stocks, and just raising the awareness of fasteners, because the other stuff is more fun to sell. Branded products are just more to it. I think it's about putting the energy in and continuing to work hard on just talking about the fasteners. As far as the exposure, yeah, I've been reading that, too. Some of the large farm equipment manufacturers are slowing down. I guess, fortunately, we don't have a lot of that business right now. We'd like to have it, but the timing's probably good that we don't.
I guess our exposure really trends more with the overall manufacturing than any specific area of manufacture. Whether it be ag, we're light in ag on a big scale, the Deeres and the Case IH and New Holland. We're light in automotive, so there's less exposure in those areas. It's broad manufacturing base. I think it's the same exposure we see in all manufacturing. Does that help? It's a little bit difficult.
Yeah. That's helpful. Thank you. Then just somewhat related to that, if you think about your longer term growth drivers, could you talk about what you're seeing with metalworking, government, e-commerce, overall, the growth rates and maybe how big they are now?
Government continues to grow well, represents about 4% of our business. Metalworking has slowed a little bit, still outgrowing the company, but slowed some. That's about just under 10% of our business, so it's about a $300 million business. We're working hard on that, trying to think of We talked about the vending earlier, fasteners, you know those numbers. Safety is one that continues to do well. It's a great product through vending. We continue to see very good growth in the safety product line. Some of them, trying to think ones that aren't doing as well. Fasteners, I guess, is still doing well, but it's still not keeping up with the company, so the other ones are outgrowing it.
Yep.
One tidbit I'll throw in, though, on trends is year-to-date. The last couple years, if I look at what our business was doing, in 2012 and 2013, if I looked at January to September, we were up about 12% on average. 12.5% in 2012 and 11.5% in 2013. We're up about 18% this year. Fasteners aren't far behind that 18%. They're up about 17%. Last two years, they were up eight and six, respectively. Our non-fasteners are up about 19% to get our average of 18%, and they were up about 16% the last two years. Our vending business continues to help support our non-fasteners. More hours in the store support our non-fasteners. The marketplace, as well as more energy in the stores, is getting our fasteners going.
Okay. Thank you.
Thanks, Adam.
Thank-
I think we're at 9:44. Sorry, Michelle.
That's okay.
I think we're at 9:44. We're going to wrap up the call. We're very conscious of the fact that the folks on this call, we're in earnings season, you have busy schedules, and we like to hold to our 45 minutes. Thank you for participating in the call this morning. One shout-out I'll give is my son's soccer team, Winona High School, won their second game last night in the state tournament, or in the sectional tournament. I wish them good luck on Saturday. Thank you.
Ladies and gentlemen, thank you for participating in today's conference. This does conclude the program. You may all disconnect. Everyone, have a great day.