Fastenal CEO: Decline in Pandemic-Related Sales a ‘Good Thing’

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Fastenal CEO: Decline in Pandemic-Related Sales a ‘Good Thing’

The distributor’s revenue was flat in 2Q as safety sales dipped, but it beat analysts’ EPS expectations behind solid construction activity and increased digital sales.
Fastenal 2021 october sales

Fastenal Co. CEO Dan Florness had a surprising assessment of the sizable dip his company saw in safety sales last quarter.

“Frankly, it’s a good thing,” Florness told analysts on Tuesday morning’s conference call to discuss 2Q results.

Even though Fastenal’s 38.6% decline in safety sales “resulted in overall flat sales performance from a year-over-year basis,” Florness said, that is indeed a good thing because it means Fastenal’s product mix is returning to its pre-pandemic balance and the marketplace is returning to normal.

As MDM reported Tuesday morning, Fastenal said its second-quarter sales were $1.5 billion, down 0.1% compared with the same period a year ago. Quarterly profit was $239.7 million, a 0.4% increase compared to the year-ago period.

The Winona, Minnesota-based fasteners distributor — No. 6 on MDM’s most recent Top Distributors list for Industrial & Construction — had a better quarter than its companywide top and bottom lines might indicate.

Fastenal reported daily sales of fasteners grew 28.4% in 2Q 2021 compared to the year-ago quarter and represented 33.6% of net sales. The improvement from last year reflected higher manufacturing and construction demand, a key leading indicator as pandemic-related sales compose less and less of Fastenal’s overall revenue mix.

Meanwhile, safety product daily sales represented 21% of net sales in 2Q, down from 34% and 17.5% of net sales in the second quarter of 2020 and the second quarter of 2019, respectively. The decline reflected the absence of surge-related PPE sales, only partly offset by improvements in manufacturing and construction demand, and it helped Fastenal boost its gross margin 200 basis points to 46.5%.

“Product mix, specifically growth of fasteners versus non-fasteners was also a significant contributor to the growth and was a significant factor in gross margin outperforming our expectations for the period,” CFO Holden Lewis said on the earnings call. “Our pricing actions largely matched inflation we are seeing in the marketplace then price costs did not meaningfully affect gross margin in the second quarter of 2021. The increase in gross margin was partly offset by operating expenses growing faster than sales.”

Fastenal’s growing digital footprint

In addition to the uptick in construction resulting in stronger fastener sales, Fastenal saw its digital fortunes grow in the second quarter.

Fastenal reported that daily sales of its e-commerce business — which includes sales made through an electronic data interface (EDI) with customers or through the web — grew 44.5% in the first six months of 2021 and grew 53.3% in the second quarter of 2021. Revenues attributable to e-commerce represented 13.2% of Fastenal’s total revenues in 2Q.

Fastenal Managed Inventory (FMI) — which is composed of FASTVend (vending devices), FASTBin (infrared, RFID, and scaled bins) and FASTStock (scanned stocking locations) offering — grew 61.4% to $879.7 million in the second quarter.

Florness attributed that growth to two factors — pandemic-driven changes in the economy but also Fastenal’s ability to meet customers’ changing demands for how they shop and purchase from the distributor.

“That’s about the economy,” he said. “That’s about the strengthening of our existing customer base, and we’re seeing it happen to play out right there. When I look at web sales being up 61%, that’s about habits changing, that’s about how our customers are engaging with us. So two dynamics going on both very positive, from the standpoint of how our customers engaging with us, and how is our underlying customer doing as far as business.”

The overall assessment: The quarterly performance might have been flat, but revenue was in line with analysts’ expectations, and Fastenal’s earnings per share of 42 cents beat projections by a penny. Not a blowout quarter by any means but certainly solid — especially when considering that fastener sales are on the upswing.

In a Tuesday afternoon note to investors, Baird analyst Dave Manthey said there were plenty of positives to emerge from Fastenal’s latest financial report card.

“2Q21 results beat expectations on better June trends and higher gross margin, with higher SG&A amid normalizing expenses only a partial offset,” he wrote. “FAST traded -2% today after touching all-time highs yesterday. Pricing continues to accelerate, and we expect further inflation tailwinds ahead. Additionally, growth driver signings/branch changes are picking up steam. Net, we see a good outlook as growth inflects positively against easing safety comps, pricing is biased higher, and FAST takes share in a supply-chain disrupted environment, while the cycle remains favorable.”

Shares of Fastenal (Nasdaq: FAST) were down 87 cents, or 1.6%, to $53.16 at market close on Tuesday.

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