Fastenal(FAST) - 2024 Q2 - Quarterly Results

Performance Summary For the second quarter of 2024, Fastenal reported a 1.8% year-over-year increase in both net sales and daily sales However, profitability metrics declined, with operating income decreasing by 2.0% and diluted net income per share falling by 2.0% to $0.51 Gross margin contracted from 45.5% to 45.1% | | Six-month Period 2024 | Six-month Period 2023 | Change | Three-month Period 2024 | Three-month Period 2023 | Change | | :--- | :--- | :--- | :--- | :--- | :--- | :--- | | Net sales | $3,811.3 M | $3,742.2 M | 1.8% | $1,916.2 M | $1,883.1 M | 1.8% | | Gross profit | $1,725.1 M | $1,707.5 M | 1.0% | $863.5 M | $857.5 M | 0.7% | | % of net sales | 45.3% | 45.6% | | 45.1% | 45.5% | | | Operating income | $777.1 M | $788.1 M | -1.4% | $386.9 M | $394.9 M | -2.0% | | % of net sales | 20.4% | 21.1% | | 20.2% | 21.0% | | | Net income | $590.4 M | $593.1 M | -0.5% | $292.7 M | $298.0 M | -1.8% | | Diluted net income per share | $1.03 | $1.04 | -0.7% | $0.51 | $0.52 | -2.0% | Quarterly Results of Operations This section details the operational performance for Q2 2024 While sales saw modest growth driven by large customers and Onsite locations, profitability was compressed A lower gross margin, combined with SG&A expenses growing faster than sales, led to a decrease in both operating and net income compared to the prior-year period Sales Q2 2024 net sales rose 1.8% to $1,916.2 million, driven by higher unit sales to large customers and new Onsite locations This growth was tempered by a 30-60 basis points decline from product pricing, particularly in fasteners Performance diverged across segments, with manufacturing, non-fastener products, and national accounts showing relative strength compared to non-manufacturing, fasteners, and non-national accounts - Net sales increased $33.1 million, or 1.8%, in Q2 2024, primarily due to unit growth with larger customers and Onsite locations opened in the last two years[1] - Product pricing negatively impacted net sales by 30-60 basis points, a reversal from the prior year's 190-220 basis point increase, reflecting lower fastener and transportation costs[1] | End Market | DSR Change Q2 2024 vs Q2 2023 | % of Sales Q2 2024 | | :--- | :--- | :--- | | Total manufacturing | 2.7% | 75.5% | | Total non-manufacturing | -1.0% | 24.5% | | Product Line | DSR Change Q2 2024 vs Q2 2023 | % of Sales Q2 2024 | | :--- | :--- | :--- | | Total fasteners | -3.0% | 31.0% | | Total non-fasteners | 4.2% | 69.0% | | Customer Type | DSR Change Q2 2024 vs Q2 2023 | % of Sales Q2 2024 | | :--- | :--- | :--- | | National accounts | 5.8% | 62.4% | | Non-national accounts | -4.3% | 37.6% | Gross Profit The gross profit margin for Q2 2024 decreased to 45.1% from 45.5% in Q2 2023 The decline was primarily caused by an unfavorable customer and product mix (stronger growth in lower-margin large accounts and non-fastener products) and short-term supply chain inefficiencies related to warehousing customers - Gross profit margin fell by 40 basis points to 45.1% YoY[6] - Key negative impacts were an unfavorable mix from stronger growth of large customers and non-fastener products, and temporary supply chain inefficiencies Price-cost impact was not meaningful[6] SG&A Expenses SG&A expenses increased 3.0% in Q2 2024, representing 24.9% of net sales compared to 24.6% in the prior year, indicating cost deleveraging The increase was driven by higher employee base pay, vehicle lease costs, and significant expenses related to a larger-than-expected Customer Expo - SG&A as a percentage of sales increased to 24.9% from 24.6% YoY as expense growth outpaced sales growth[52] - Employee-related expenses, representing 70-75% of total SG&A, rose 2.4% due to higher average FTE and wages, partly offset by lower bonuses[52] - Other SG&A expenses rose 10.1%, driven by higher vehicle lease costs, Customer Expo expenses, and general insurance[52] Operating Income Operating income margin contracted to 20.2% in Q2 2024 from 21.0% in Q2 2023 This decrease was a direct result of the combined impact of lower gross margins and the deleveraging of SG&A expenses | Metric | Q2 2024 | Q2 2023 | Change | | :--- | :--- | :--- | :--- | | Operating Income | $386.9 M | $394.9 M | -2.0% | | % of net sales | 20.2% | 21.0% | -80 bps | Net Interest, Taxes, and Net Income Net interest expense fell sharply to $0.5 million from $2.3 million YoY, due to higher interest income on cash balances and lower average borrowings The effective tax rate was stable at 24.2% Consequently, net income decreased by 1.8% to $292.7 million, with diluted EPS at $0.51 versus $0.52 in the prior year - Net interest expense decreased to $0.5M in Q2 2024 from $2.3M in Q2 2023, due to higher interest income and lower interest expense[12] - The effective tax rate was 24.2% in Q2 2024, compared to 24.1% in Q2 2023 The company anticipates an ongoing tax rate of approximately 24.5%[13] | Metric | Q2 2024 | Q2 2023 | Change | | :--- | :--- | :--- | :--- | | Net Income | $292.7 M | $298.0 M | -1.8% | | Diluted EPS | $0.51 | $0.52 | -2.0% | Growth Drivers The company's growth is propelled by its digital initiatives and Onsite expansion The Digital Footprint, which includes FMI technology and eBusiness, now constitutes 59.4% of sales, up from 55.3% YoY eBusiness sales grew 25.5%, while Onsite locations increased by 11.9% to 1,934 active sites The company remains on track with its 2024 signing goals for both Onsites and FMI devices - The Digital Footprint (FMI sales + non-FMI eBusiness sales) represented 59.4% of sales in Q2 2024, an increase from 55.3% in Q2 2023[5] - Daily sales through eBusiness grew 25.5% in Q2 2024 and represented 28.7% of total sales eProcurement grew 30.9% and eCommerce grew 11.6%[5] - The company signed 107 new Onsite locations in Q2 2024, reaching a total of 1,934 active sites, an 11.9% YoY increase The 2024 goal remains 375-400 signings[50] | FMI Technology | Three-month Period 2024 | Three-month Period 2023 | Change | | :--- | :--- | :--- | :--- | | Weighted FASTBin/FASTVend signings (MEUs) | 7,188 | 6,794 | 5.8% | | FMI daily sales | $12.7 M | $11.8 M | 7.0% | | FMI as % of sales | 41.8% | 39.8% | | Balance Sheet and Cash Flow The company maintained a strong balance sheet, reducing total debt by 32.9% year-over-year to $235.0 million Q2 operating cash flow decreased 14.6% to $258.0 million, primarily due to changes in working capital, specifically inventory becoming a use of cash The full-year 2024 capital expenditure forecast was raised to a range of $235.0M to $255.0M to support strong FMI device signings | Working Capital (as of June 30) | 2024 | 2023 | Dollar Change | % Change | | :--- | :--- | :--- | :--- | :--- | | Accounts receivable, net | $1,204.8 M | $1,171.6 M | $33.2 M | 2.8% | | Inventories | $1,504.6 M | $1,565.4 M | ($60.8 M) | -3.9% | | Accounts payable | $292.6 M | $262.0 M | $30.6 M | 11.7% | - Total debt was reduced to $235.0M at Q2 2024 end (6.3% of total capital), compared to $350.0M (9.4% of total capital) a year prior[11] - Q2 net cash from operating activities was $258.0M, a 14.6% decrease from Q2 2023, mainly because inventory was a modest use of cash versus a significant source of cash in the prior year[33][55] - The full-year 2024 capex forecast was increased to a range of $235.0M to $255.0M, up from the original range, driven by higher expected investment in vending devices[10] - Returned $223.3M to shareholders via dividends in Q2 2024 No stock was repurchased in the first half of 2024[11] Additional Information (Headcount & Locations) Total FTE headcount grew 3.0% year-over-year to 21,249, with increases focused on supporting Onsite expansion, distribution, and IT The network of in-market locations grew 5.1% to 3,533 This growth reflects the company's strategic shift towards Onsite locations (up 11.9% YoY) while the traditional branch network has stabilized after a period of rationalization (down 2.2% YoY) | Metric (as of Q2 end) | 2024 Q2 | 2023 Q2 | Change Since Q2 2023 | | :--- | :--- | :--- | :--- | | Total personnel - FTE headcount | 21,249 | 20,631 | 3.0% | | Number of branch locations | 1,599 | 1,635 | -2.2% | | Number of active Onsite locations | 1,934 | 1,728 | 11.9% | | Number of in-market locations | 3,533 | 3,363 | 5.1% | - The strategic rationalization of the branch network has concluded Future growth in in-market locations is expected to accelerate, driven by continued Onsite openings and a stable or moderately growing branch network[16] | Activity (Three-month Period) | Q2 2024 | Q2 2023 | | :--- | :--- | :--- | | Branch openings | 3 | 3 | | Branch closures, net | 4 | (28) | | Onsite activations | 96 | 89 | | Onsite closures, net | (34) | (35) | Condensed Consolidated Financial Statements This section provides the unaudited condensed consolidated balance sheets, statements of income, and statements of cash flows for the three and six-month periods ended June 30, 2024, and 2023 Condensed Consolidated Balance Sheets As of June 30, 2024, the company reported total assets of $4.60 billion, supported by $3.50 billion in total stockholders' equity Key current assets include $1.20 billion in net trade accounts receivable and $1.50 billion in inventories | Assets | June 30, 2024 | December 31, 2023 | | :--- | :--- | :--- | | Total current assets | $3,146.7 M | $3,020.9 M | | Total assets | $4,603.5 M | $4,462.9 M | | Liabilities and Stockholders' Equity | | | | Total current liabilities | $717.0 M | $661.3 M | | Total liabilities | $1,107.9 M | $1,114.1 M | | Total stockholders' equity | $3,495.6 M | $3,348.8 M | | Total liabilities and stockholders' equity | $4,603.5 M | $4,462.9 M | Condensed Consolidated Statements of Income For the three months ended June 30, 2024, the company reported net sales of $1,916.2 million and net income of $292.7 million For the six-month period, net sales were $3,811.3 million and net income was $590.4 million | (Amounts in millions) | Three Months Ended June 30, 2024 | Three Months Ended June 30, 2023 | | :--- | :--- | :--- | | Net sales | $1,916.2 | $1,883.1 | | Gross profit | $863.5 | $857.5 | | Operating income | $386.9 | $394.9 | | Net income | $292.7 | $298.0 | Condensed Consolidated Statements of Cash Flows For the six months ended June 30, 2024, net cash provided by operating activities was $593.6 million Net cash used in investing activities was $101.1 million, primarily for property and equipment purchases Net cash used in financing activities was $452.9 million, dominated by $446.5 million in dividend payments | (Amounts in millions) | Six Months Ended June 30, 2024 | Six Months Ended June 30, 2023 | | :--- | :--- | :--- | | Net cash provided by operating activities | $593.6 | $690.6 | | Net cash used in investing activities | ($101.1) | ($85.2) | | Net cash used in financing activities | ($452.9) | ($592.2) | | Net increase in cash and cash equivalents | $34.2 | $13.5 | | Cash and cash equivalents at end of period | $255.5 | $243.6 |