If anyone requires assistance, please press star then zero on your touchtone. As a reminder, this conference is being recorded. Now I'll turn the conference over to Ellen Trautman of Investor Relations. Please begin.
Welcome to The Fastenal Company 2012 third quarter earnings conference call. Present for today's call are Will Oberton, our Chief Executive Officer, Dan Florness, our Chief Financial Officer, and Lee 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, 2012, 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 these 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 Will Oberton. Go ahead, Mr. Oberton.
Good morning. Thank you, Ellen, and good morning, everybody, and thanks for joining our call. I'm going to spend a few minutes on some brief comments on my view of the quarter. I'm going to turn it over to Dan. Overall, I felt that we did a very good job in the quarter considering a little bit of economic headwind. Sales were slow, but we did see an uptick in September. We're very optimistic about that. Another thing on a positive note is, on a sequential basis from June to September, we're really on track with what our historical numbers are. We also see that as a positive. We had a very weak April/May timeframe, where we lost a lot of ground for the year. Since then, we've really been tracking very consistent. There is a little life underneath all of this.
We've seen very slow growth in both Asia and Europe. That's also been holding us back. If you compare it to last year, in 2011, we actually were getting about a 200 basis point bump in our sales because of our foreign activity. This year, it's about equal to the U.S. business. We're just not getting any tailwind from our Asia and European businesses. Mexico remains very strong, which is very positive. They've just done great over the last three or four years, and we continue to invest. I believe we've opened seven stores in the last year in Mexico, and they continue to perform at a very high level. A little bit on some of the vertical markets.
Construction actually bounced back a little bit in September. If you look at the number, August was the low point. September is more on a normal number or a more traditional number, almost 10% growth on the construction. In manufacturing, we just haven't seen much change. I think it moved about 10 basis points over the three-month period, up 10, down 10. Manufacturing has been very consistent, which we actually look at as a positive because it had been moving down prior to that. We're holding our own in manufacturing, and hopefully things will pick up as time goes on here. On the margin, I'm a little disappointed in the margin. We've been working very hard on improving our margin. We didn't lose any ground. We also didn't make up much ground in the quarter.
One thing to note on that, though, is that steel remains soft. If you follow the steel markets at all, steel continues to decline a little bit. We look at the Asian steel markets because a lot of our fasteners come out of Asia, and a lot of their prices are down 10%-20% from a year ago. That continues to put pressure on our margin, but I think the team is doing a good job of holding the prices up as they can, but it's more difficult to make gains in a deflationary market. With fasteners making up close to 50% of our business, that makes a big difference in our margin opportunities. We'll continue to work on it and believe we will show some improvement as we go forward.
Some of the other projects or initiatives that we're working on, we continue to work hard on metalworking. Our goal going into the year was to grow that business, the metalworking product line, at least 10 points faster than the overall Fastenal growth. We've been able to maintain that, actually exceed that goal, and we continue to make nice wins. Still not a huge business for us, but it's a nice-sized business, and it's growing meaningfully faster than the overall business. We're optimistic, and our margins have maintained at a nice level. We're not giving up a lot of price to get that sales, or we're not getting the sales on price. That's very positive for us. We'll continue to invest heavily in the metalworking business.
On the government side, another one of our new initiatives, our goal was the same in government, grow the business at least 10% faster than Fastenal. We're also exceeding those goals. That business, tremendous upside, and we'll continue to invest, and we continue to make nice wins there. It's like street fighting. It's door-to-door business. You have to go. There are a lot of small entities, county shops, and small hospitals and city shops. Very good, reliable, dependable business, but it's hard to get. It's not one big swing gets it all. We're working very hard on the government business and continue to develop our people and train them on how to go after that business because it is a little different than our traditional industrial and construction business. Vending had a very strong quarter. We had a very strong quarter in Vending. We signed over 5,300 machines.
We installed just under 4,000 machines. We've made nice progress in both areas. Some of the things that I see as positives in that is we've had broader participation at the store level. We're getting more stores to buy into the program. We still have a ways to go there. The stores that have bought in early, the early adopters are signing far more machines than the rest, but it's broadening out. We've also made some very nice customer wins that we picked up over the last three to four months. We're optimistic about what's going on there. We believe it will continue to grow in the future, and as a company, we will continue to invest in the Vending program as we will in the metalworking and government programs. On the Pathway to Profit, again, a little disappointed there.
We only picked up 50 basis points year-over-year. Our goal was 100 basis points. We really didn't have the sales growth to make it happen. You need probably more of a 15%-16% sales growth to pick up 100 basis points without squeezing the business too hard on other things. On a positive note, though, if you look at a two-year run, we're up 190 basis points. We're still staying pretty close to the goal over a longer period, and that's really what we want to do. We know we're going to have some stronger years and some weaker years. As a project, we're doing nice. The team is doing a great job, I believe, and we believe we can stay on that track going forward.
Expense control, done a nice job considering we didn't have the great sales growth, as good a sales growth as we were expecting. I think the team's doing a nice job looking at the little stuff, and that's how we've been able to maintain the earnings growth that we have. Strong cash flow. Dan and his team do a great job with that, controlling the inventory growth and creating a very positive cash flow for the company. Overall, I believe we had a good quarter. I think there's a lot of work to do, a lot of things we can do better. We're very focused on improving our business and growing into the future. With that, I'm going to turn it over to Dan, because Dan will provide more color on the quarter.
Thanks, Will, and thanks, everybody, for joining on today's conference call. A couple things to make note as we flip through the various pages of the press release. On page one, inserted a paragraph into this quarter, a bit atypical for us, but the calendar had some impacts on the quarter, so I wanted to share a few thoughts on that. In the third quarter, we actually had 63 days versus 64 days a year ago. In some businesses, that might not make much of a difference. But for us, when you're selling a very tangible product, the number of business days really does matter. Our headline number is we grew our sales at 10.5%. If you really peer under the hood a little bit and look at our daily growth, that's over 12.
I think that's the number that's really relevant because that's the number that carries the trend into the future. I added a little comment blurb on that. Looking at that 10%, very pleased, and to build on what Will just mentioned, very pleased with the fact that we were able to obtain leverage in an environment where top-line dollars are only growing at 10%, and we had a little bit of headwind from the gross profit side as well. One item just to make note of when I look into Q4, it's a 63-to-63-day quarter, so there's nothing weird going on from that standpoint. There is a little bit of movement around within the months of the quarter. October will have 23 days this year versus 21 a year ago. That'll give us a nice headline number.
Daily will probably suffer a little bit because of that, just because there's a certain piece of our business that's more centered on the month, and there's a piece of our business that's more centered on the day. Just to make everybody aware that there is two additional days. Those two days we give back in December. If I look at trade-offs in life, October's a big month for us, and if I can get two extra days in October and give them back in December, I'll take that deal anytime. Will touched on the sequential patterns a little bit that we look at on page three of the release. If I look at the last couple of years, 2010 and 2011, we were beating the benchmark pattern that we lay out 50%, 60%, 70% of the time.
When we got up to September, we were 490 basis points ahead of the trend line. Five points ahead of the trend line year-to-date, looking at January to September. This year, we had a setback in February, some weather issues going on. We quickly got it back in March. May came along, and May really changed the year for us and created a more conservative tone within the organization for the balance of the year. At the end of June, we were about 330 basis points behind year-to-date history, and we're basically at that same point. We're about 330 basis points behind now at September. Since June, the business has been treading water as far as how we compare to history. Nice momentum, and it was a nice pickup, as Will mentioned, that we saw in September.
I think that bodes well as we go into October and into 2013, the more important way of looking at it. In that context of the April, May, June timeframe, when we did see the slowdown, it was really in the fastener area. The non-fastener area held up much better. That's also the area that's helped by all the growth drivers, the Vending, the government business, the metalworking. All those things we're doing really demonstrated that we can work through a period of declining economy and maintain very attractive top-line growth rates. One thing in September here, ISM did pop up. Historically, when we've looked at ISM, we've always felt ISM led us by about three months. If ISM drops in June, we'd expect to see a drop in September.
What we've been seeing in really the last year and a half, is that we tend to coincide with ISM. I'm not quite sure what caused the change, when we dropped off in May, the ISM dropped off in June. I'll be interested to see if the ISM over 51 in September is a blip or if it has some legs. At this juncture, the jury is still out for us, and we're still maintaining a conservative tone as we go into the tail end of the year and into the first part of 2013. As Will mentioned on the growth drivers, talk about on page six. All I can say on the FAST Solutions is really nice quarter. Great signings. I attribute that to great focus on it at the field level. Our stores, our districts, our regionals are really running with this.
Russ Ruby and his team does a great job and very pleased with that. To me, I guess the piece that jumped out the most is the fact that, obviously this is wrapping up quickly, but we have a fair number of machines that have been out there for 12, 18, 24 months. That's not an inconsequential number. The fact that that entire group of customers that have Vending, who were lapping numbers, is still growing faster than 30%, I think is a staggering figure and demonstrates the power of what Vending can mean for our business. It's really about customer engagement. Vending is just the way we measure it. It's about we're engaged with that group of customers, and we're growing because we're providing great service and a great value for them. In that same section of growth drivers, did touch on a bit on 2013.
We set out some expectations for store openings for next year, indicated a range of 50 to 100, which is about 2%-4%. I think our focus really is continuing the growth drivers we have in 2011 and 2012. They're demonstrating great results. We invigorate the fasteners. We have some things that we're working on to really drive our OEM fastener growth. In July, we mentioned the elevation of Lee Hein to President. I think we announced that right after our call last quarter, so I want to congratulate Lee on that promotion. I think the final thing we touched on that paragraph was talking about fixing our underperforming stores.
When I think of people and their strengths that they bring to the table, one of the strengths that I think of when I think of Lee, he's great at assessing people and talent, and he's great at raising the bar. If you're driving down the road in your car and the brake is stuck on one of your tires, it's going to slow you down. We have a subset of stores that any given month just aren't growing, that aren't performing, and we need to raise the bar and get that brake off because it damages the rest of the engine. I'm brutally excited about that looking into 2013. Profit drivers of the business on page seven. Continue to be pleased with the progress of Pathway to Profit. We took a step back a little bit in some of the smaller groups.
I think there's really two things that are driving that. One, we're working on, and the other one is probably a good problem. One is the gross margin that Will touched on. We're down in gross margin as a percent year-over-year. That creates drag in all those groups of stores. The other thing is with the Vending we're rolling out, in the smaller stores, the expense of that Vending does put a little drag on their pretax. I think that's a good problem from the standpoint it really is driving our growth. If you look at the stores that do more than $150,000 a month, where there is no Vending impact, negative Vending impact, because the dollars of expense isn't big enough, well, that group is impressive. We saw nice profit growth on a year-over-year basis.
The other thing that I think to think about, I touched on this in last quarter's call as well. If you look at since we started the Pathway to Profit back in 2007, we have increased the size of Fastenal by about 65%. We improved our gross margin from 51%-51.6%, and our profits have doubled. That's just talking the power of growth, leverage it with improving gross profit and managing our fixed operating expenses and leveraging quite effectively. Looking at our expenses in the organization, we've always talked about our biggest operating expenses is the people side of the equation. If I look at what we've done since 2007, we've added around 3,800 people to our organization since the first quarter of 2007. 87% of those adds are in roles that directly contact, that interact with customers every day.
6% are involved in our distribution centers, 6% are involved in our manufacturing. If I add those three up, 99% of our headcount growth since 2007 is in those three areas. That's how you leverage overhead in an organization. I'm very pleased with the fact that we had 21.9. I'm just going to round up and say 22. It just feels better. Again, those are two highly profitable quarters for us, despite the fact that we didn't have great sales growth in the quarter. Continue to make progress on our exclusive brands. We're essentially at 10% of sales today. Vending really is helping move that number. Finally, on touching on some working capital, Will mentioned continued improvement in our working capital.
I do want to mention that Scott Camp and his team really did a nice job, I think, year-to-date on managing the distribution side of the inventory. We've lost a little traction on the accounts receivable side. Part of that was a short September. It takes X number of days to collect cash, and there's enough of August business that's coming in here the first week of October. That's more of a calendar issue. When I look at cash flow, year-to-date, we've taken 90% of our earnings and turned it into operating cash. We spent about 27% of earnings on CapEx. A big piece of that relates to the success we're seeing in Vending. We've thrown off 63% of our earnings in free cash flow year-to-date.
Great number, because of that, we did announce last night an increase to our dividend and are paying out a $0.21 dividend in the fourth quarter. With that, I'll turn it over to what questions might come up.
Thank you. Ladies and gentlemen, if you have a question, please press star then one on your touch-tone phone. If your question has been answered and you wish to remove yourself from the queue, you may do so by pressing the pound key. Again, if you have a question, please press star then one on your touch-tone phone.
Looks like we got it, Dan.
We have a question from Hamzah Mazari of Credit Suisse. Your line is open.
Good morning. Thank you. The first question is just on store growth. You talked about 2%-4% growth next year. How should investors think about that number? Is that more of a normalized growth rate for you guys on stores, or do you plan on increasing store growth if you get more comfortable on the economy? Just curious to see how we should think about store growth given where Fastenal is right now.
Hamzah, to be perfectly honest, I don't know that we know. I'll say that in a couple ways. We still don't know yet from our non-North American business what that means for store openings into the future. We just don't know. If I center the answer on North America, what we know about the market is it's big. It's $140 billion, it's $150 billion, it's $160 billion a year, depending on whose math you're looking at. We have somewhere between 2% and 3% market share. Historically, a lot of our eggs were in the store opening basket. With Pathway to Profit, we really took a step away from that and said, there's a whole bunch of ways for us to go out and go after this market share, and we have this network that's out there that has unbelievable capabilities.
Let's balance our total growth drivers across more channels. We put tools in the hand, not just of an area where we're more sparse, but area where we're more dense. When I look at the growth we continue to see in the upper Midwest, in a business that we've been in for 40-plus years, and we're doing it with a combination of store openings, Vending, government, the whole gamut as far as growth drivers. We think two to four is a good number for 2013. 2014 and 2015, we'll see when we get there. A long way of really not answering questions, but saying the opportunity is so big, that we don't want to paint ourselves into the corner of saying it has to come from this one thing. It comes from a variety.
When I think of, for example, the government business, and I don't know in our products how big the government is, but if you read the headline, government is 20% of our economy. If we have 2,500 locations, I'm using that because I can do the math in my head, and we add a 20% potential to that's like opening 500 stores. Is that a better route to go down in the short term or to go with store openings? I think it's a combination of the two, but I'll take that government business.
That's very helpful. Appreciate it. Just one last follow-up question. On Vending, could you maybe talk about how your Vending offering is different from some of your larger competitors? Specifically, is your machine different? What are you stocking in there relative to what others are stocking? Do you own the inventory? Does the customer own the inventory? I know there's a bit of difference between your offering and some of your competition. Maybe if you could touch on that. Thank you.
This is Will. I think a lot of it is quite similar. Our machines are internet-based appliances, which we think is an advantage because they're more dependable. Some of the other companies offer a machine that has a PC built into it. Same system that we used to offer four or five years ago, and we find ours are far more dependable. Because it's a PC-based appliance, it's also a lower cost system, and so we're able to provide them at somewhat lower cost. The inventory in some customers, it's consigned inventory, and other customers, the customers choose to own it, but the majority is consigned. Some of our competition does consigned inventory and some of them have the customers own it.
I think one of our biggest advantages compared to the big public companies that we all know of is our local branch network, because this is a physical business. If you think about the person who's supplying your soda machines or pop machines in the office, those people aren't driving from three or four hours away in many cases. Our local branch adds a service element that's going to be very hard to duplicate for some of our competitors. I know some of our competitors, their strategy is to ship it into the factory and then have the factory workers put the product away. I would guess if your person providing the Vending machines at your office said that they'll just ship the product to the dock and you guys can put it away in the morning, probably you'd find a new, or you may find a new supplier.
We have that local advantage that really gives us some leverage. We have this distribution network to move the product more efficiently. Machine to machine, product to product, it's not that dissimilar.
Thank you. Again, if you have a question, please press star then one on your touchtone phone. Ladies and gentlemen, in the interest of time, we ask that you please limit yourself to one question and a follow-up. Our next question is from David Manthey of Robert W. Baird. Your line's open.
Hi, guys. Morning.
Good morning.
First off, Dan, back in the third quarter of last year, you said that you could take your leverage point down to maybe 12% or 13% growth with energy, you said lower if you hit the wall. It seems like you've taken the leverage point down to that level or lower. I'm just wondering about the strike you saw here in September relative to an uncertain economy. Are you happy with where the set point is right now, that you'll maintain that unless things change one way or the other into 2013? That's the first question, then I'll just sneak the second one in here, too. In terms of Vending placements, the number of vending machines by my math is up over 300% in the past year, and revenues to customers with vending machines looks like it's up a little bit less than 100%.
I'm trying to understand that dynamic. Does that mean you're now getting into smaller customers? Are you placing more of the FAST 3000 machines? Is there less yield per customer, or what is the implication from that math?
Okay. First off, a couple of different questions there. The first one on the break point. My comment a year ago, 12 and 13, I'm glad to say I was wrong. I think part of it is maybe, I'm Midwestern and I'm an accountant, that makes me probably too conservative and not willing to put my neck out and say we can do it at ten, because I didn't think we could. That's just, I think, good execution, especially in the face of the gross profit dynamic going on, which made it more challenging. On the vending machine, I'm not sure if I'm following your math on the 100% pieces, I think I'll kind of restate it back the way we have it, I think out loud a second, then I'll give you a third question to follow up on my answer.
The way I think about it is the customers that are coming into that group when we introduce Vending, that overall business is growing at 30%, and that includes the weight, if you will, of the customers that have anniversaried, the customers that had Vending a year ago and two years ago, because we're looking at that combined group. I think if you're talking about Vending being up over 100 because you're looking at the new machines and the dollars going through it, and you're taking the math of saying, okay, 24% of your sales are with customers with Vending, and that number is X% bigger than it was a year ago, you're comparing apples and oranges. Because we have customers that we had a year ago that didn't have Vending that have Vending today.
When we talk about the percentage of our sales that is Vending, that includes customers that have been buying from us for years. We're just now looking at it and saying, how big is that pool growing? And how big was that customer base a year ago? Which I think is the best way to look at it, because it's really how much is it impacting your business, not what is the dollar growth of what's going through a machine, because that's really not a meaningful number. I'm not sure if I answered your question. The other thing, I guess, I would look at it and say, if I look at our dollars per machine, and I try to understand that dynamic, is it improving or getting worse? It's at or a little bit better than it was a year ago.
From that standpoint, I don't think there's any dilution going on because of the different models of machines. There is some impact when we report our machine count. We're reporting just our absolute count. Here's how many machines we have out there. In that mix, there's the traditional FAST 5000, there's the locker systems, there's some hydration machines, I think that's what we call it, and there's some cutting tool machines. There's a variety of machines, and they have different potentials as far as throughput. The way we measure it is we look at lockers and we say we think they have about a half of potential. When we're looking at dollars per machine, we look at that as a half. I don't know if I just thought out loud and did a brain dump and didn't answer the question.
Maybe Will has a better answer.
The way I look at it, Dave, is I look at the incremental growth off this group of customers. This group of customers represented almost 60%. If you take roughly 25% of your business grew 20 points faster than the overall company, that represents the majority of our incremental growth. We weigh that against the expense of the Vending program. From the Vending program, we can also look at it a different way and say we're putting the expense of all these machines into our occupancy because we really think it's just off-site storage, and our occupancy is not outgrowing our revenue because Dan's group is doing such a great job. We're really building this into our old P&L looking model, it's very accretive business when you look at it that way. It's a great growth driver.
We can talk more and try and clear up. I'm a little confused, too, with the question.
That's great. I appreciate the color on that. Just to follow up on that first question, though, Dan, in terms of how you feel about it as you're looking at the business for next year, I'm just trying to get a read. I know you don't have a tremendous amount of visibility, but there's a lot of cross currents here in terms of the data that we're seeing out there in the marketplace, some of the economic data, then relative to what you're saying for your June through September. I'm just trying to get a relative read on your feeling as you look to 2013. Are you feeling pretty good, or are you still fairly cautious about this industrial environment just as a company?
We're cautious. We're investing aggressively. We're putting Vending machines out there. We're adding sales potential into our organization every day, we are cautious when we're looking at how we manage our expenses.
One thing that we didn't mention on the call is that we've introduced a lot of new technologies and efficiencies into our business that have helped us lower that break even down to somewhere below 10, I guess, if you look at the numbers. Those are things that will continue to benefit us for years, and it's throughout our organization, electronic billing and accounting, the automation in our warehouses. We've introduced two or three major things to the stores from point of sale, simplifying the pricing, simplifying the process of processing of orders, with the goal of being the most efficient distributor in the industry. These are things that have a long tail on them. We'll continue to benefit. Where that break even is at any given time will depend on our view. If we're very bullish, we'll invest heavier, and that will slide up.
If we're very conservative, which we're not right now, we're cautiously conservative, we'll pull that down and be able to lower that number. We have better levers on that than we've ever had because we're not adding the cost of the fixed overhead of the stores. That was a big thing that you couldn't do much about once you had it. Thanks, Dave.
Thank you. Our next question is from Sam Darkatsh of Raymond James. The line is open.
How are you?
Hey, Sam.
A couple questions on Vending again. Specifically looking at your Vending customers, what's the growth that you're seeing from the SKUs that they're buying that don't come from the machines? I'm trying to figure out, parse out the actual impacts of the machines themselves on those customers versus what they're doing outside of the machines.
I'm going to answer it by talking about, if I look at the subset of the business that goes through the Vending machine, that number is if we have a $10,000 customer, $2,200-$2,300 of that, so about 22%, is actually physically going through a machine. The products that are going through the machine, Sam, could be products that we've been there's 40 slots in the machine. 10 of those slots could be items that we've been selling to that customer for years. It's just now we're selling it using the Vending machine as the vehicle. The other 30 slots or 20 slots or 10 slots are now new products. The discussion we have with the customer is really one of economics.
We're bringing this machine that we believe will help your business, and what we need is a couple thousand dollars of incremental business with you. Let's use the worst case now. Let's use a scenario where the customer is spending $3,000 a month of business, but now 100% of it is going to go through the Vending machine. I know based on the value that Vending machine brings, that $3,000 of spend that customer had with us, it's probably going to go down to $1,800 or $2,000 because when it goes through a Vending machine, there's more accountability to the products. Our discussion with that customer is, we need, in total, to take your business from $10,000-$12,000.
Three. You said $3,000.
Three is going through the machine.
Got it.
We're doing $10,000 for that customer.
Two incremental.
I need $2,000 of incremental. The discussion might be, the customer says, "Well, you know what? I spend $3,000 a month in welding supplies." They turn over their welding supplies to us. We're not led to the machine dynamic. We're led to the growth of the business. Lee?
Yeah, Sam, the other thing that happens just from a branch standpoint, again, back to that local branch, is because our people are there daily or every other day, we're capturing sales because we're there. We're having customers go, seeing the employee walk in in a blue shirt with our blue machine going, "That's our supplier. Hey, while you're here, could you get me whatever?" We're seeing growth because of that also, back to the local store.
Okay. Let me ask you a second question. You've talked in the past about the average size of a customer that uses a Vending solution. What is that average size now? How many more customers do you have of that size that have not yet signed up with Vending solutions, and how many customers of that size do you tend to add on an annual basis?
Okay. When we started Vending and we looked at the opportunity, and I think this is the best way to answer it. We looked at it and said, we have 230,000, 240,000 active customers a month. We think about 10% of that number, 25,000 to 30,000, based on our initial definition of the Vending, the FAST 5000 could have a vending machine. We looked at it and said, if we could have two machines per customer in that environment, there's an opportunity here for us to put out 50,000 machines. That was what we thought about it three years ago. If I think of the, I don't have the exact number in front of me, but we have, what, 17,000 machines out there now?
Yeah, 17 and some.
The last data I looked at, I think the relationship is about two or 2.2 machines per customer. There's 8,000 customers right now that have Vending. Rough numbers, and Billy might have a better number. There's a big universe of customers out there that we have today that we put Vending into. Even based on our definition of three years ago, look at that 5,000 is. We've added a whole fleet of machines now. We've broadened the audience of customers that could have Vending. We've decreased the size that we need to run through the machine and decreased the size of the customer. I don't think there's a market limitation for us, unless you want to start talking out to 2020.
Well, anecdotally, Sam, when you talk to store managers that have not bought into this, they'll tell you that they see three or four customers in the market that may be a potential. You visit stores that have done very well, stores that have 20 or 30 machines, and we have several of those now, and you ask them what their market potential is. The lowest numbers I hear are 50, and most of the people say, "Oh, I'll get well over 100 in my store." Once the store managers start to see this, the numbers become so much larger, I'm almost shaking my head going, "Wow." These are the guys in the field, these are the guys that understand it.
It's really about opening the eyes and numbers will continue to grow, as Dan said, as we get different machines for smaller customers and larger customers. It's simply a better way to deliver product.
Thank you. Our next question is from Ryan Merkel of William Blair. Your line is open.
Thanks. First, I want to start with September, which was a very good month, and you mentioned you saw an uptick. Can you just speak to how the month played out and if there were any surprises from your viewpoint by end market or geography?
There really weren't. One thing I noticed about September, Ryan, is the consistency throughout the U.S. If you looked at the growth region by region, it was probably the narrowest group, Dan, that you've seen in a long time. Nobody had a real bad month, and there was really no one that had a great month, which consistency is good for us. We did see a nice uptick, though, in our international business. Part of that was driven by currency, but overall, even the unit growth was up internationally. It was consistent. It was, for the most part, consistent through the month. We had a little bit of a stronger finish, but we do our daily analysis when we bring the sales in, and we ended up about 200 basis points ahead of where we had estimated, even before halfway through the month.
Seven or eight days into the month, we were estimating in that high 12s, and that's where we ended up just a little bit above 12.9. Very consistent pattern, consistent across the United States and steady as the month went. That was all positive.
Yeah, that sounds actually very positive. Okay, second question, I want to ask about Vending, but I'll ask it a different way. If I just look at the number of Vending installations, and of course, signings as well, it seems to me that the impact from Vending should start to accelerate starting as early as the fourth quarter. Is that the right way to think about it? Is that how you're thinking about it?
I'm not sure why it would.
In terms of impact.
The impact is going to continue to grow because the number of machines is growing so fast. It adds in layers of potential.
I think the other thing, and we don't know how to measure this, is there's a lot of energy going into this project today, but it's really delayed because it takes us about 90 days to install a machine after we sign it. It really takes, based on Dan's analysis, another 60 to 90 days to get everything flowing, because what happens in most cases is the customers we sign up have a lot of inventory, whether we sold it to them or the other guys did, they have a stock that we have to burn through. Many times, we'll actually put that in our machines and burn the inventory through, whether it's ours or theirs. The reality is, if I sign a machine today, it's probably March before I see much gain.
We have a lot of energy in selling that has a delayed positive effect, which is actually a great thing because it will come through. You have that. The other is with all that energy, we're probably not working as hard on some other things we should, because we only have so many hours in the day, so it's where you put your time. As Dan mentioned, fasteners, they're probably suffering because of some of this. Lee has a comment.
What I'd add also, Ryan, is it's really you got to focus in on the participation. What's going to accelerate Vending or the Vending sales is more stores participating. Every time you look at Fastenal, whether it's government, any of our industry specialists, you always have to hold that against how many stores are participating in this growth driver today. That's really where we come in to drive that. Once the stores latch on to Vending, we get the majority of stores participating. That is what will accelerate that.
Thank you. This is the Q&A portion of today's conference. I'd like to turn the call over to management for any closing remarks.
Once again, as we mentioned at the start of the call, we would like to thank everybody for participating in this quarter's call. We look forward to discussions in the future. Have a good day, everybody.
Thanks.
Ladies and gentlemen, thank you for your participation in today's conference. This concludes the program. You may now disconnect.