The 2020 Mid-Year Economic Update_long

Fastenal Plows through Port Dispute, Poor Weather, Oil Slump

Company weathers multitude of disruptions in first quarter to grow revenue, earnings.

As 2014 turned to 2015, economic conditions changed quickly for Fastenal. The distributor entered the new year aided by significant tailwinds but found itself facing a host of headwinds throughout the first quarter. Like other companies, Fastenal confronted disruptions ranging from the West Coast port slowdown to the slumping oil and gas market to poor weather.

However, the Winona, MN, company managed to grow 1Q sales and profit 8.8 percent and 14 percent, respectively. Fastenal also grew its FAST Solutions machines 15.2 percent to 48,545 vending machines and its employee count 8 percent year-over-year to 19,218, all while stabilizing gross margin, something analysts had been hounding company executives about since last fall.

"When we see single-digit revenue growth, we are not satisfied nor are we happy," CEO Lee Hein said on an earnings call with analysts. But, he added, that the company performed admirably despite a long list of roadblocks. For example, when the labor dispute at West Coast ports delayed cargo containers and sent distributors' supply chains awry, Fastenal was well-suited for the disruption.

"One thing that helps us in situations like this is the fact that we have … inventory turns roughly two times a year," said CFO Dan Florness. "So we have more resiliency than our peers really do when it comes to this matter because we have 2,600 to 2,700 store locations and 14 distribution centers. We have a lot of inventory stored around the country."

In addition to port congestion, the company faced difficult weather conditions and a challenging oil and gas market, all of which took a toll on revenue, especially its fasteners business.

"Our business did weaken as we went through the quarter. You really see it showing up in the industrial, the production side of our business," Florness said, noting that fasteners grew about 6 percent for the quarter after they had been "growing 10 percent and 11 percent in the third and fourth quarter of last year, so that business really slowed down."

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