Fastenal’s 1Q Sales Growth Slowed as Pricing Impact Weakened - Modern Distribution Management

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Fastenal’s 1Q Sales Growth Slowed as Pricing Impact Weakened

The distributor said pricing's impact on 1Q sales was roughly half what it was in 2022's third quarter.
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Fastenal shared its 2023 first quarter financial results on April 13, and it showed what is likely to be a common theme for fellow industrial distributors in the current earnings reporting period: slower sales and margin growth alongside a smaller pricing impact.

The Winona, Minnesota-based distributor of fastening, industrial and construction supplies posted total January-March sales of $1.86 billion, up 9.1% year-over-year and up 9.6% from 4Q 2022. 

The 1Q year-over-year growth rate was a deceleration from the 10.7% seen in 4Q22. Likewise, Fastenal’s March daily sales growth of 6.8% year-over-year was a considerable slowdown from February’s 9.6% and January’s 11.2%.

The company reported a 1Q gross margin of 45.7%, which trailed 4Q’s 46.1% and 1Q22’s 45.7%. 1Q23 operating profit of $392 million increased 9.8% year-over-year (10.7% in 4Q22), while operating margin of 21.2% topped 4Q22’s 20.6% and trailed 1Q22’s 21.0%.

Fastenal’s 1Q23 net profit of $295 million was up 9.5% year-over-year (6.2% in 4Q22).

“We experienced higher unit sales in the first quarter of 2023 that contributed to the increase in net sales in the period,” the company stated in its 1Q23 earnings release. “This was due to further growth in underlying demand in markets tied to industrial capital goods and commodities, which more than offset a modest contraction for construction supplies.”

Fastenal noted that foreign exchange negatively impacted 1Q sales by about 70 basis points, while adverse weather also negatively impacted sales by 20 to 40 bps.

The company said the impact of product pricing on net sales in 1Q23 was 290 to 320 basis points vs. a year earlier, continuing a downward pricing impact trend that followed an impact of  350 to 380 bps in 4Q22; 550 to 580 bps in 3Q22; and 660 to 690 bps in 2Q22.

Fastenal said the 1Q pricing impact on sales reflecting carryover from broad pricing actions taken in 2022 to mitigate marketplace inflation, and to a lesser degree, “targeted actions” in 1Q23 aimed to address gross margin pressure for the company’s non-fastener and non-safety products.

“Spot prices in the marketplace for many inputs remained below prior year levels, though in many cases they were at or above levels experienced in the fourth quarter of 2022,” the company stated. “The combination of good demand, more stable cost trends and our long supply chain for imported fasteners and certain non-fastener products produced stable price levels for our products.”

Fastenal noted that it experienced relatively strong growth from Onsite customers and on-fastener products — each which tend to have a lower gross margin percentage than the business average, and that impact widened slightly compared to 4Q22.

The company that factors of lower product margins on certain other product categories and higher organizational/overhead costs contributing to the lower gross profit percentage, both sequentially and year-over-year.

Other notes from Fastenal’s 1Q23 report:

  • By product line:
    • Fastener daily sales grew 7.0% year-over-year in 1Q23, compared to 9.1% in 4Q23 and 24.6% in 1Q22
    • Safety supplies sales grew 5.7% year-over-year in 1Q23, compared to 10.7% in 4Q23 and 15.3% in 1Q22
    • All other product sales grew 12.4% year-over-year in 1Q23, compared to 12.1% in 4Q23 and 14.8% in 1Q22
  • By customer end market:
    • 1Q23 sales to manufacturing customers grew 14.4% year-over-year, compared to 16.0% in 4Q22 and 23.9% in 1Q22
    • 1Q23 sales to non-residential construction customers declined 2.4% year-over-year, compared to a 0.6% decline in 4Q22 and a 14.4% increase in 1Q22
    • 1Q23 sales to all other customers declined 4.4% year-over-year, compared to a 0.9% decline in 4Q22 and a 3.2% increase in 1Q22.
  • By customer category:
    • National accounts customers saw 1Q23 sales grow by 13.6% year-over-year, compared to 15.0% in 4Q22 and 22.8% in 1Q22
    • Non-national accounts customers saw 1Q23 sales grow by 3.4% year-over-year, compared to 5.6% in 4Q22 and 13.0% in 1Q22
  • Fastenal signed 89 new Onsite locations during 1Q23, bringing its total number of active Onsite locations to 1,674 as of March 31. That figure is up 16.3% from a year earlier.
    • Daily sales through Onsite locations grew approximately 20% year-over-year
    • Fastenal’s goal for 2023 total Onsite signings remains between 375 to 400
  • Sales from Fatenal’s FMI Technology — comprised of FASTStock (scanned stocking locations), FASTBin (infrared, RFID and scaled bins) and FASTVend (vending devices) totaled $740 million in 1Q23, or 40.0% of the company’s total sales.
  • Fastenal ended 1Q23 with a total employee headcount of 22,820 — up 1.7% from 4Q22 and up 7.8% from 1Q22
  • Fastenal ended 1Q23 with a total branch locations count of 1,660 — down 23 from 4Q22 and down 100 from 1Q22. It opened two branches in 1Q23 and closed 23. It activated 84 Onsite locations and closed 33.

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