What Hurt Fastenal's Margins in the 3Q - Modern Distribution Management

Log In

What Hurt Fastenal’s Margins in the 3Q

Fastenal says margin was one of biggest challenges.
Author
Date

In its third-quarter call with investors, industrial and construction supplies distributor Fastenal (Nasdaq: FAST) said its biggest challenge in this period was gross margin. President and CEO Will Oberton said: "The margin was probably the only tough spot for us. … We knew going into the third quarter that it would be tough on margins, but we believe we hit bottom in August." (Read about Fastenal’s third-quarter results.)

He broke down the distributor’s margin pressures:

Deflation, which Oberton said cost Fastenal 100 basis points year-over-year. "It is really that last year was so good because things were moving up, and this year it was moving down so rapidly," he said. On the bright side, he noted that the CRU steel index for low carbon bottomed out in April and May. Stainless steel also bottomed out, and is now up 10%. "Deflation … is pretty much over as we see it," he said.\

Volume incentives/product rebates. "Our purchasing people did a really good job of renegotiating the deals going in, and I was confident that this wouldn’t be a problem earlier in the year. But that was before I realized that our sales would be down as far as they were. So we worked hard to minimize the reduction in rebates, but it is still going to affect us. And a lot of that has to do with our decision to lower our inventories," Oberton said. He said that in late August, the distributor "made a decision to not chase the volume incentives," and decided to "not be aggressive." The decrease in incentives cost Fastenal "20 to 30 basis points more in margin."

And thirdly, market pressures. "Earlier in the year, we were seeing just crazy pricing, and it was mainly in the fastener areas, not so much in the non-fasteners, but prices that we just were not willing to go down to. In some cases we lowered our prices, but not as far as we were getting pushed to do," Oberton said. Fastenal blamed the decrease in prices on suppliers’ and competitors’ need to create cash from excess inventory.

 

Share this article

About the Author
Recommended Reading
Leave a Reply

Leave a Comment

Sign Up for the MDM Update Newsletter

The MDM update newsletter is your best source for news and trends in the wholesale distribution industry.

Get the MDM Update Newsletter

Wholesale distribution news and trends delivered right to your inbox.

Sign-up for our free newsletter and get:

  • Up-to-date news in a quick-to-read format
  • Free access to webcasts, podcasts and live events
  • Exclusive whitepapers, research and reports
  • And more!

2

articles left

Want more Premium content from MDM?

Subscribe today and get:

  • New issues twice each month
  • Unlimited access to mdm.com, including 10+ years of archived data
  • Current trends analysis, market data and economic updates
  • Discounts on select store products and events

Subscribe to continue reading

MDM Premium Subscribers get:

  • Unlimited access to MDM.com
  • 1 year digital subscription, with new issues twice a month
  • Trends analysis, market data and quarterly economic updates
  • Deals on select store products and events

1

article
left

You have one free article remaining

Subscribe to MDM Premium to get unlimited access. Your subscription includes:

  • Two new issues a month
  • Access to 10+ years of archived data on mdm.com
  • Quarterly economic updates, trends analysis and market data
  • Store and event discounts

To continue reading, you must be an MDM Premium subscriber.

Join other distribution executives who use MDM Premium to optimize their business. Our insights and analysis help you enter the right new markets, turbocharge your sales and marketing efforts, identify business partners that help you scale, and stay ahead of your competitors.

Register for full access

By providing your email, you agree to receive announcements from us and our partners for our newsletter, events, surveys, and partner resources per MDM Terms & Conditions. You can withdraw consent at any time.

Learn More about Custom Reports

Request a Market Prospector Demo

  • This field is for validation purposes and should be left unchanged.