The 2020 Mid-Year Economic Update_long

Can Fastenal Build Relationships with New Transactional Customers?

After seeing a surge in non-traditional business during the pandemic, the Winona, Minnesota-based distributor is looking to create long-term relationships with these newfound customers as normal buying patterns resume.
Fastenal

“Awareness is part of the game for a lot of these customers,” he said on the earnings call. “They didn’t think of us as a supply chain partner in their space and their industry. They thought of us as, ‘Oh! Those guys have some nuts and bolts.’ I think it’s all about becoming aware of what we can bring to their table. Because at the end of the day, it’s not about what Fastenal does. It’s about the value we can bring to the customer.”

The same goes for the supply side, Lewis added. During the pandemic, Fastenal worked with additional suppliers in the PPE and safety categories, and while the company doesn’t expect all of its new vendor relationships to survive post-COVID-19, some are likely to endure.

“If there are suppliers that are worth carrying forward going forward, then I’m sure we’ll do that,” Lewis said. “And we’ll do that in a more traditional relationship.”

Safety Again the Star, but Moderation Coming

Fastenal reported second-quarter sales of $1.5 billion, a 10.3% increase compared with the same period a year ago. Quarterly profit was $238.9 million, up 16.7% from the year-ago quarter.

Meanwhile, safety sales, including PPE, increased 116.3% in 2Q and accounted for 34% of total sales while other products’ daily sales declined 7.5% in the period and accounted for 40% of total sales. Fastenal expects safety sales to moderate in the third quarter, Lewis said, although the resurgence in coronavirus cases around means it will be only a gradual decline.

“While we do not expect a second-quarter style surge in PPE and sanitizer products because the marketplace today is much better supplied, the recent increase in COVID-19 infections and expanded customer list in key industries should sustain some degree of safety growth,” he said.

Manufacturing and non-residential construction end markets were down 9.4% and 10.3% on a daily basis, respectively, when compared to the second quarter of 2019, while government business was up 266.7% on a daily basis with sales to health care organizations.

Fastenal July 15 Image 1

Also read: Fastenal’s Sales Up 10.3% in 2Q

What’s more, the company’s shares (Nasdaq: FAST) have soared around 50% in the last four months, up to $43.09 per share at market close Tuesday from this year’s nadir of $28.18 on March 20.

Baird analyst Dave Manthey noted the company’s gross-margin and cost-control achievements as especially notable in light of the soft demand environment.

“FAST’s second-quarter results demonstrated strong execution despite a challenging environment, with better-than feared ross margin and good cost control,” Manthey wrote Tuesday in a note to clients. “Recent FAST metrics suggest the second derivative may have flattened since June, while the third-quarter Industrial outlook from our 2Q20 survey suggests continued recession-like demand. However, our estimates were already incorporating industrial recession into 2021, and we note distributors historically outperform during recession/several years of recovery. Net, we expect continued high-level execution by FAST and the shares to continue to outperform.”

The distributor wasn’t without its issues. In 2Q Fastenal saw its total “absolute” headcount decrease 7% to 20,667 from 2Q 2019. Full-time equivalent employment declined 9.4%. The company had 69 fewer branches at the end of 2Q, down 4.8% to 2,091.

Fastenal July 15 Image 2

Fastenal withdrew 2020 guidance in April when the company reported its first-quarter earnings, as did all publicly traded distributors in light of the coronavirus.

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