Group 1 - The core thesis on Fastenal Company (NASDAQ: FAST) is neutral, acknowledging positive aspects of the 4Q24 earnings while highlighting near-term challenges in the industrial sector, potential margin compression, and slower growth in key segments like fastener sales [1] - The investment approach emphasizes a blend of value investing principles and a focus on long-term growth, advocating for the purchase of quality companies at a discount to their intrinsic value [1]

Financial Data and Key Metrics - Q4 2024 sales grew by 3.7%, with daily sales up 2.1% [7] - EPS for Q4 2024 was $0.46, down 2% year-over-year [8] - Operating margin in Q4 2024 was 18.9%, down 120 basis points year-over-year [60] - Gross margin in Q4 2024 was 44.8%, down 70 basis points from the previous year [62] - Operating cash flow for Q4 2024 was $283 million, representing 108% of net income [64] - Full-year 2024 operating cash flow was $1.2 billion, or 102% of net income [64] - Net capital spending in 2024 was $214 million, below the projected range of $235 million to $265 million [68] Business Line Data and Key Metrics - MRO-oriented products outperformed OEM-oriented products, with safety products up 4.8% and fasteners down 1.4% [55] - National accounts grew by 4.2%, while non-national accounts declined by 1% [55] - Manufacturing end markets grew by 3.3%, while non-manufacturing end markets declined by 0.3% [56] - Industrial services revenue exceeded $100 million for the first time in 2024 [36] - FMI Technology accounted for 44% of revenue in Q4 2024, up from 42% and 39% in the previous two years [42] - E-commerce grew by 28%, with e-procurement growing by 37.6% [43] Market Data and Key Metrics - In December 2024, sales growth was initially trending towards 3%+ but collapsed in the last five days, resulting in flat growth for the month [9][10] - 35% of facilities with vending machines saw activity drop by more than 75% during the holiday shutdown in 2024, up from 30% in 2023 and 25% in 2022 [17][18] - The week after Christmas saw 17% of facilities shut down, compared to 5-6% in previous years [18] - The Southern US regions experienced disruptions due to winter storms, leading to the cancellation of 6% of truck routes through January 10 [59] Company Strategy and Industry Competition - The company plans to shift focus from Onsite signings to customers generating $10,000 or more in monthly sales, emphasizing the importance of customer value over quantity [72] - Fastenal aims to increase its digital footprint, targeting 66-68% of sales through eBusiness and FMI Technology in 2025, up from 62% in 2024 [44] - The company is investing in AI and digital tools to improve service and expand its addressable market [74] - Fastenal is expanding its distribution center network, with new hubs in Utah and Atlanta, and increasing automated picking capabilities [70] Management Commentary on Operating Environment and Future Outlook - Management noted a challenging year with a frustrating finish, citing lost leverage due to slower growth [7] - Post-election customer optimism is growing, with regional leadership citing improved sentiment for 2025 [59] - The company expects incremental margins to strengthen in 2025, driven by revenue growth and effective cost management [45] - Management anticipates a flattish gross margin for 2025, with potential improvements in fastener performance and easing pressures in the warehousing space [141] Other Important Information - Fastenal raised its quarterly dividend by approximately 10%, with an annualized dividend of $1.72 [24] - The company plans to host an Investor Day on March 13, 2025, to discuss strategic initiatives and provide updates on its end-market network [73][74] - CFO Holden Lewis announced his departure effective April 2025, with the company seeking a new CFO to align with its growth trajectory [47][48] Q&A Session Summary Question: How does the company reconcile the intense shutdowns in December with improving customer sentiment? [79] - Management attributed the shutdowns to companies choosing to idle operations over the holidays to prepare for the new year, while post-election optimism has improved sentiment for 2025 [81][84] Question: How concentrated are Fastenal's sales, and what does this mean for the business? [88] - 1% of customer sites generate approximately 50% of sales, with these sites typically being Onsite locations or large customers served through branches [90][93] Question: Is the concentration of sales an opportunity or a limitation? [103] - Management views the concentration as an opportunity, emphasizing the potential to grow wallet share with existing customers and expand into new markets [104][108] Question: How does Fastenal handle tariffs and supply chain disruptions? [117] - The company has developed strong capabilities in managing tariffs and supply chain disruptions, including diverting containers to avoid risks and providing visibility to customers [119][122] Question: What are the company's plans for improving e-commerce and unplanned spend? [129] - Fastenal is focusing on improving product availability, enhancing supplier connections, and providing better tracking visibility to enhance the e-commerce experience [130][136] Question: What is the outlook for gross margins and operating expenses in 2025? [139][147] - Management expects gross margins to be flattish in 2025, with potential improvements in fastener performance, while operating expenses are expected to leverage with mid-single-digit growth [141][148]

Earnings and Sales Performance - Fastenal reported Q4 2024 EPS of 46 cents, missing the Zacks Consensus Estimate by 4.2% and remaining flat year over year [4] - Net sales totaled $1.82 billion, missing the consensus mark of $1.84 billion by 1.1% but increasing 3.7% from the year-ago level [4] - Daily sales of $29 million increased 2.1% year over year despite one extra selling day, limited by a soft manufacturing environment and sharp year-end production cuts by major customers [5] - Foreign exchange rates negatively impacted sales by 20 bps, compared with a 10-bps positive impact in the year-ago quarter [5] Sales Breakdown by Product and Market - Daily sales of Fasteners (29.9% of net sales) declined 1.4% year over year, while Safety Supplies (23%) grew 4.8% and Other Product Lines (47.1%) increased 4% [7] - Heavy Manufacturing (42.3% of net sales) daily sales rose 1.7% year over year, while Other Manufacturing (32%) grew 5.4% [8] - Non-Residential Construction and Reseller daily sales declined 4.1% and 11.3%, respectively, while Other End-Markets grew 7.6% [8] - Daily sales through weighted FMI devices grew 8.2%, representing 43.9% of net sales [9] - Daily sales to National Account customers (64.2% of total quarterly net sales) increased 4.2%, while Non-National Account customers (35.8%) declined 1% [9] Onsite Locations and Digital Footprint - Fastenal signed 56 new Onsite locations in Q4 2024, bringing the total for 2024 to 358, with 2,031 active sites as of Dec. 31, 2024, up 11.5% year over year [12] - Daily sales through Onsite locations increased at a mid-single-digit rate year over year, driven by strong contributions from locations activated in 2024 and 2023 [13] - The company's Digital Footprint increased to 62.2% of sales from 58.1% in the year-ago period, with expectations of reaching 66% to 68% by 2025 [10] Margins and Expenses - Gross margin was 44.8% in Q4 2024, down 70 bps year over year, due to an unfavorable mix of large customers, non-fastener products with lower margins, higher freight costs, and increased import duties [14] - SG&A expenses as a percentage of net sales increased to 25.9% from 25.3% in the year-ago quarter, driven by seasonally low sales, weak business activity, and continued business investments [15] - Operating margin was 18.9%, down 120 bps from a year ago and lower than the projected 20.2% [15] Full-Year 2024 Highlights - Earnings came in at $2.00 per share, down 0.6% from 2023, while net sales were $7.55 billion, up 2.7% year over year [16] - Daily sales growth rate was 1.9%, with gross margin down 60 bps and operating margin down 80 bps [16] Financial Position and Shareholder Returns - As of Dec. 31, 2024, Fastenal had cash and cash equivalents of $255.8 million, up from $221.3 million as of Dec. 31, 2023 [17] - Long-term debt decreased to $125 million from $200 million at 2023-end [17] - The company returned $223.4 million to shareholders in Q4 2024 and $893.3 million in 2024 through dividends [17] - Net cash provided by operating activities totaled $1.17 million in 2024, down from $1.43 billion in the year-ago period [17] Outlook and Strategic Initiatives - Fastenal expects ongoing investments in technology and infrastructure to enhance operational efficiency and drive growth, with higher capital expenditures planned for 2025 [18] - The company projects that 66% to 68% of its sales will flow through its digital footprint by the end of 2025 [18] - Despite macroeconomic uncertainties, Fastenal's focus on digital transformation and customer-centric services is expected to bolster its long-term market position [18]

Market Performance - U S stocks traded higher with the S&P 500 gaining around 1% the Dow up 0 86% to 43 524 83 and the NASDAQ rising 1 46% to 19 620 72 [1] - Information technology shares surged by 1 8% while health care shares rose by just 0 1% [1] - European shares were higher with the eurozone's STOXX 600 surging 0 74% Germany's DAX 40 gaining 1 15% and France's CAC 40 gaining 1 06% [6] - Asian markets closed mixed with Japan's Nikkei 225 falling 0 31% China's Shanghai Composite Index gaining 0 18% and Hong Kong's Hang Seng Index climbing 0 31% [7] Company Earnings and Performance - Fastenal Company reported weaker-than-expected fourth-quarter earnings with sales growth of 3 7% year-over-year to $1 825 billion missing the consensus of $1 844 billion and EPS of 46 cents missing the estimate of 48 cents [2] - Nukkleus Inc shares shot up 62% to $33 26 after resolving its Nasdaq delisting notice [9] - Versus Systems Inc shares surged 49% to $2 86 after announcing expansion into the Brazilian market [9] - Qorvo Inc shares gained 13% to $83 31 following a WSJ report indicating activist investor Starboard Value acquired a 7 7% stake [9] - Scorpius Holdings Inc shares dropped 27% to $0 27 after announcing a 1-for-20 reverse stock split [9] - BioLineRx Ltd shares were down 21% to $0 096 after announcing a dilutive change in the ratio of American depositary shares to ordinary shares [9] - J B Hunt Transport Services Inc shares fell 7% to $173 60 after reporting fourth-quarter EPS below estimates [9] Commodities - Oil traded down 0 5% to $78 28 while gold traded down 0 1% at $2 748 00 [5] - Silver traded down 1 8% to $31 160 and copper fell 1 4% to $4 3780 [5] Economic Indicators - U S industrial production rose by 0 9% in December topping market estimates of a 0 3% increase [8] - Housing starts rose by 15 8% from the previous month to an annualized rate of 1 499 million units in December [10] - Building permits declined by 0 7% to an annualized rate of 1 483 million in December [10]

Financial Performance - The company's Q4 2024 earnings per share (EPS) was $0.46, a decrease of 1.9% compared to Q4 2023[8] - The daily sales rate (DSR) growth for Q4 2024 was 2.1%[8,21] - The gross profit margin decreased to 44.8% in Q4 2024 from 45.5% in Q4 2023[26] - The operating margin decreased to 18.9% in Q4 2024 from 20.1% in Q4 2023[26] - Operating cash flow (OCF) in Q4 2024 was $282.8 million, representing 107.9% of net income[30] Growth Drivers - Onsite signings in Q4 2024 numbered 56, with active sites reaching 2,031, a 11.5% increase from Q4 2023[15] - The company signed 6,790 weighted FMI (Fastenal Managed Inventory) devices in Q4 2024, compared to 5,462 in Q4 2023[16] - The installed base of weighted FMI devices reached 126,957, a 12.2% increase from Q4 2023[16] - Sales through the company's digital footprint (FMI technology plus non-FMI-related eBusiness) accounted for 62.2% of total sales in Q4 2024, compared to 58.1% in Q4 2023[17]

Company Performance - Fastenal Co's shares declined by 1.9% to $73.38 following disappointing Q4 results, with earnings, revenue, and sales growth missing estimates [1] - The company attributed the weak performance to a "soft manufacturing environment" and higher-than-expected production cuts during the holiday season [1] - Despite recent declines, Fastenal's stock is up 9.5% year-over-year [2] Stock Market Activity - Fastenal has experienced only two negative trading sessions since the start of 2025, with a potential third decline today [2] - The $72 price level, previously a resistance point in July and September, is now acting as support alongside the 200-day moving average [2] Options Trading - Fastenal's options trading volume has surged, with 4,348 calls and 3,201 puts exchanged, representing 9 times the average daily options volume [3] - The January 74.62 call is the most popular contract and holds the top open interest position [3] - Over the past 10 weeks, options traders have shown increased bullishness, with a 50-day call/put volume ratio of 3.50 at major exchanges, ranking higher than 96% of readings from the past year [4]

Financial Performance - Revenue for the quarter ended December 2024 was $1.82 billion, up 3.8% year-over-year [1] - EPS remained flat at $0.46 compared to the same period last year [1] - Revenue missed the Zacks Consensus Estimate of $1.84 billion by -1.08% [1] - EPS missed the consensus estimate of $0.48 by -4.17% [1] Stock Performance - Shares of Fastenal returned +1% over the past month [3] - The Zacks S&P 500 composite saw a -2.1% change during the same period [3] - The stock currently has a Zacks Rank 3 (Hold), indicating potential performance in line with the broader market [3] Key Operational Metrics - Business days: 63 Days, matching the six-analyst average estimate [4] - Daily sales: $29, slightly below the four-analyst average estimate of $29.37 [4] - Number of in-market locations: 3,628, slightly above the three-analyst average estimate of 3,620 [4] - Weighted FASTBin/FASTVend installations: 126,957, exceeding the two-analyst average estimate of 125,874 [4] - Number of active Onsite locations: 2,031, slightly above the two-analyst average estimate of 2,023 [4] - Number of branch locations: 1,597, slightly below the two-analyst average estimate of 1,598 [4] - Weighted FASTBin/FASTVend signings: 6,790, exceeding the two-analyst average estimate of 6,407 [4]

Earnings Performance - Fastenal reported Q4 net income of $262.1 million, or $0.46 per share, on $1.82 billion in sales, missing analysts' consensus estimates [2] - Sales increased 3.7% YoY, but net daily sales rose only 2.1% after adjusting for an extra selling day compared to 2023 [2][4] - Profit declined 1.6% YoY [2][4] Market Reaction - Fastenal shares dropped nearly 5% in premarket trading following the earnings miss [4] - Despite the drop, shares were up about 18% over the past 12 months through Thursday's close [4] Sales Challenges - Sales growth was impacted by a "soft manufacturing environment" throughout much of 2024 [3] - Unusually sharp production cuts by customers in late December due to holiday factory closures negatively affected sales [3] - Foreign exchange rates had a negative impact on sales compared to a positive impact in the prior year [3]

Earnings Performance - Fastenal reported quarterly earnings of $0 46 per share, missing the Zacks Consensus Estimate of $0 48 per share, representing a -4 17% earnings surprise [1] - The company posted revenues of $1 82 billion for the quarter ended December 2024, missing the Zacks Consensus Estimate by 1 08% [2] - Over the last four quarters, Fastenal has not surpassed consensus EPS or revenue estimates [2] Stock Performance and Market Comparison - Fastenal shares have gained about 4% since the beginning of the year, outperforming the S&P 500's 1% gain [3] - The stock's immediate price movement will depend on management's commentary during the earnings call [3] Earnings Outlook and Estimate Revisions - The current consensus EPS estimate for the coming quarter is $0 53 on $1 97 billion in revenues, and $2 19 on $8 09 billion in revenues for the current fiscal year [7] - The estimate revisions trend for Fastenal is mixed, resulting in a Zacks Rank 3 (Hold), indicating expected market-aligned performance [6] Industry Context - Fastenal belongs to the Zacks Building Products - Retail industry, which is currently in the bottom 24% of the 250 plus Zacks industries [8] - The top 50% of Zacks-ranked industries outperform the bottom 50% by more than 2 to 1 [8] Peer Comparison - Yum Brands, another company in the Zacks Retail-Wholesale sector, is expected to report quarterly earnings of $1 59 per share, a 26 2% year-over-year increase, with revenues expected to be $2 32 billion, up 14 1% from the year-ago quarter [9][10] - The consensus EPS estimate for Yum Brands has been revised 0 5% lower over the last 30 days [9]

Sales Performance - Net sales increased by 2.7% to $7,546.0 million in 2024 compared to $7,346.7 million in 2023, with a 3.7% increase in the fourth quarter to $1,824.5 million[3] - Daily sales grew by 2.1% in Q4 2024 to $29.0 million, driven by growth at Onsite locations and larger customers[4][5] - Safety supplies sales grew by 4.8% in Q4 2024, contributing 23.0% of total sales, while fastener sales contracted by 1.4%[6] - National accounts sales grew by 4.2% in Q4 2024, representing 64.2% of total sales, compared to non-national accounts which declined by 1.0%[6] - FASTBin/FASTVend sales increased by 12.6% in Q4 2024 to $584.8 million, contributing 31.6% of total sales[8] - eBusiness sales grew by 27.6% in Q4 2024, representing 30.9% of total sales, with eProcurement growing 37.6% and eCommerce growing 2.0%[9] - The Digital Footprint represented 62.2% of sales in Q4 2024, up from 58.1% in Q4 2023, with expectations to reach 66% to 68% of sales volume in 2025[11] - Net sales for the year ended December 31, 2024, increased to $7,546.0 million from $7,346.7 million in 2023, representing a growth of 2.7%[42] Operational Metrics - The company signed 6,790 weighted FASTBin and FASTVend devices in Q4 2024, totaling 27,984 signings for the year, meeting the 2024 goal[10] - Onsite locations increased by 11.5% to 2,031 active sites by December 31, 2024, with 358 new signings in 2024[10] - Number of active Onsite locations increased by 11.5% to 2,031 in 2024, contributing to a 6.1% growth in total in-market locations[33] Financial Performance - Gross profit as a percentage of net sales decreased to 44.8% in Q4 2024 from 45.5% in Q4 2023, impacted by unfavorable customer and product mix, higher freight costs, and increased import duties[12] - SG&A expenses as a percentage of net sales increased to 25.9% in Q4 2024 from 25.3% in Q4 2023, driven by low sales volume and continued business investments[13] - Employee-related expenses, representing 70%-75% of total SG&A, increased by 3.1% in Q4 2024 due to higher average FTE and wages, partially offset by lower bonus payments[14] - Operating income as a percentage of net sales decreased to 18.9% in Q4 2024 from 20.1% in Q4 2023[17] - Net income in Q4 2024 was $262.1, a 1.6% decrease compared to Q4 2023, with diluted net income per share remaining flat at $0.46[20] - Gross profit for the year ended December 31, 2024, was $3,401.9 million, up from $3,354.5 million in 2023, reflecting a 1.4% increase[42] - Net income for the year ended December 31, 2024, was $1,150.6 million, slightly down from $1,155.0 million in 2023[42] - Basic net income per share for the year ended December 31, 2024, was $2.01, slightly down from $2.02 in 2023[42] Cash Flow and Investments - Net cash provided by operating activities in Q4 2024 was $282.8, a 20.1% decrease from Q4 2023, primarily due to increased inventory investment[21] - Inventories increased by 8.0% to $1,645.0 in 2024, driven by sales growth, stock additions for in-market locations, and supplier year-end opportunities[25] - Investment in property and equipment in 2024 was $214.1, below the anticipated range of $235.0-$255.0, due to lower demand for picking modules and FMI bins[27] - Cash and cash equivalents increased to $255.8 million at the end of 2024 from $221.3 million at the end of 2023, a 15.6% increase[40] - Net cash provided by operating activities for the year ended December 31, 2024, was $1,173.3 million, down from $1,432.7 million in 2023[45] - Purchases of property and equipment increased to $226.5 million in 2024 from $172.8 million in 2023, a 31.1% rise[45] - Cash dividends paid in 2024 were $893.3 million, down from $1,016.8 million in 2023, a 12.1% decrease[45] Debt and Capital Structure - Total debt decreased to $200.0 at the end of 2024, representing 5.2% of total capital, compared to $260.0 (7.2% of total capital) at the end of 2023[31] - Long-term debt decreased to $125.0 million in 2024 from $200.0 million in 2023, a 37.5% reduction[40] - Total assets grew to $4,698.0 million in 2024 from $4,462.9 million in 2023, a 5.3% increase[40] Foreign Exchange Impact - Foreign exchange rates negatively impacted Q4 2024 sales by approximately 20 basis points, compared to a positive impact of 10 basis points in Q4 2023[4]