Fastenal(FAST) - 2023 Q2 - Quarterly Report

PART I - FINANCIAL INFORMATION Financial Statements Fastenal Company's unaudited condensed consolidated financial statements for Q2 and H1 2023, including balance sheets, earnings, and cash flows, are presented with accompanying notes Condensed Consolidated Balance Sheets As of June 30, 2023, total assets increased to $4,576.8 million, driven by receivables and offset by inventories, with stockholders' equity at $3,380.8 million | (In millions) | June 30, 2023 (Unaudited) | December 31, 2022 | | :--- | :--- | :--- | | Total current assets | $3,137.0 | $3,124.8 | | Total assets | $4,576.8 | $4,548.6 | | Total current liabilities | $736.6 | $789.8 | | Total liabilities | $1,196.0 | $1,385.4 | | Total stockholders' equity | $3,380.8 | $3,163.2 | Condensed Consolidated Statements of Earnings Q2 2023 net sales increased to $1,883.1 million, with net earnings at $298.0 million and diluted EPS of $0.52; H1 sales grew to $3,742.2 million with EPS of $1.04 | (In millions, except per share data) | Three Months Ended June 30, 2023 | Three Months Ended June 30, 2022 | | :--- | :--- | :--- | | Net sales | $1,883.1 | $1,778.6 | | Gross profit | $857.5 | $827.6 | | Operating income | $394.9 | $383.4 | | Net earnings | $298.0 | $287.1 | | Diluted net earnings per share | $0.52 | $0.50 | | (In millions, except per share data) | Six Months Ended June 30, 2023 | Six Months Ended June 30, 2022 | | :--- | :--- | :--- | | Net sales | $3,742.2 | $3,482.6 | | Gross profit | $1,707.5 | $1,620.9 | | Operating income | $788.1 | $741.4 | | Net earnings | $593.1 | $556.7 | | Diluted net earnings per share | $1.04 | $0.96 | Condensed Consolidated Statements of Comprehensive Income Comprehensive income for Q2 2023 was $301.6 million, and $601.0 million for H1, primarily due to higher net earnings and positive foreign currency translation adjustments | (In millions) | Three Months Ended June 30, 2023 | Three Months Ended June 30, 2022 | | :--- | :--- | :--- | | Net earnings | $298.0 | $287.1 | | Other comprehensive income (loss) | $3.6 | $(26.0) | | Comprehensive income | $301.6 | $261.1 | Condensed Consolidated Statements of Stockholders' Equity Total stockholders' equity increased to $3,380.8 million as of June 30, 2023, driven by $593.1 million in net earnings, partially offset by $399.7 million in cash dividends - For the six months ended June 30, 2023, net earnings of $593.1 million were partially offset by $399.7 million in cash dividends paid[17] - Cash dividends paid per share of common stock increased to $0.35 for the second quarter of 2023, compared to $0.31 for the same period in 2022[17] Condensed Consolidated Statements of Cash Flows Net cash from operating activities significantly increased to $690.6 million for H1 2023, mainly due to inventory changes, with financing activities using $592.2 million for debt and dividends | (In millions) | Six Months Ended June 30, 2023 | Six Months Ended June 30, 2022 | | :--- | :--- | :--- | | Net cash provided by operating activities | $690.6 | $381.2 | | Net cash used in investing activities | $(85.2) | $(77.1) | | Net cash used in financing activities | $(592.2) | $(285.4) | | Net increase in cash and cash equivalents | $13.5 | $11.7 | Notes to Condensed Consolidated Financial Statements Notes detail accounting policies, revenue disaggregation (U.S. 83.5% of Q2 revenue, Manufacturing 74.8%), stockholders' equity, and debt, with total debt decreasing to $350.0 million | Revenue by Geography (Q2 2023) | % of Revenues | | :--- | :--- | | United States | 83.5% | | Canada and Mexico | 13.5% | | All other foreign countries | 3.0% | | Revenue by End Market (Q2 2023) | % of Sales | | :--- | :--- | | Manufacturing | 74.8% | | Non-residential construction | 9.2% | | Other | 16.0% | - On July 12, 2023, the board of directors declared a quarterly dividend of $0.35 per share[27] - Total debt outstanding decreased from $555.0 million at the end of 2022 to $350.0 million as of June 30, 2023[36] Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses Q2 and H1 2023 financial results, highlighting net sales growth, gross margin decline, improved operating cash flow, and strong Digital Footprint growth - The company is a North American leader in wholesale distribution of industrial and construction supplies, serving manufacturing and non-residential construction markets through a network of over 3,300 in-market locations[43] - The number of active Onsite locations grew 15.1% YoY to 1,728, and weighted FMI devices increased 10.6% YoY to 107,115[49] Second Quarter 2023 vs. Second Quarter 2022 Analysis Q2 2023 net sales rose 5.9% to $1,883.1 million, with gross margin falling to 45.5% and operating income margin to 21.0%, while diluted EPS increased to $0.52 | Metric | Q2 2023 | Q2 2022 | % Change | | :--- | :--- | :--- | :--- | | Net Sales | $1,883.1M | $1,778.6M | 5.9% | | Gross Profit % | 45.5% | 46.5% | -1.0 ppt | | Operating Income % | 21.0% | 21.6% | -0.6 ppt | | Diluted EPS | $0.52 | $0.50 | 4.6% | - Daily sales through Onsite locations grew at a high-teens rate, and eCommerce daily sales grew 44.7%, representing 23.3% of total sales[59][61] - The company's Digital Footprint (FMI and eCommerce sales) represented 55.3% of sales in Q2 2023, up from 47.9% in Q2 2022[62] - Operating cash flow increased 99.8% to $302.1 million, reflecting improved working capital management as global supply chains normalized[77][78] Six Months Ended June 30, 2023 vs. 2022 Analysis H1 2023 net sales increased 7.5% to $3,742.2 million, with gross margin at 45.6% and operating income margin at 21.1%, resulting in net earnings of $593.1 million and diluted EPS of $1.04 | Metric | H1 2023 | H1 2022 | % Change | | :--- | :--- | :--- | :--- | | Net Sales | $3,742.2M | $3,482.6M | 7.5% | | Gross Profit % | 45.6% | 46.5% | -0.9 ppt | | Operating Income % | 21.1% | 21.3% | -0.2 ppt | | Diluted EPS | $1.04 | $0.96 | 7.4% | - The Digital Footprint represented 54.7% of sales in H1 2023, an increase from 47.5% in H1 2022[98] - Net cash provided by operating activities increased 81.2% to $690.6 million, as working capital was a reduced use of cash compared to the prior year[110][111] - In H1 2023, the company returned $399.7 million to shareholders via dividends and did not repurchase any stock, compared to returning $406.2 million (dividends and buybacks) in H1 2022[115] Quantitative and Qualitative Disclosures About Market Risk The company faces market risks from foreign currency, commodity prices, and interest rates, with immaterial impact on H1 2023 net earnings, and no historical use of hedging instruments - The primary market risks are foreign currency exchange rates (mainly Canadian dollar), commodity steel and energy pricing, and interest rates on floating-rate debt[118][119][120][122] - In the first six months of 2023, the estimated effect on net earnings from foreign currency, commodity pricing, and energy prices was immaterial[118][119][120] - A one percentage point increase to the company's floating rate debt in H1 2023 would have resulted in approximately $0.5 million of additional interest expense[122] Controls and Procedures Management concluded the company's disclosure controls and procedures were effective as of June 30, 2023, with no material changes in internal control over financial reporting during Q2 - Based on an evaluation as of the end of the reporting period, the principal executive and financial officers concluded that the company's disclosure controls and procedures are effective[123] - There were no changes in internal control over financial reporting during the most recently completed fiscal quarter that materially affected, or are reasonably likely to materially affect, internal controls[124] PART II - OTHER INFORMATION Legal Proceedings As of June 30, 2023, the company reported no litigation matters considered probable or reasonably possible to have a material adverse outcome - As of June 30, 2023, there were no litigation matters that the company considers to be probable or reasonably possible to have a material adverse outcome[40][126] Risk Factors The company states no material changes to risk factors from its most recent Annual Report on Form 10-K, referring readers to that report for full details - The company's significant risk factors are described in its most recently filed annual report on Form 10-K and in Item 2 of this quarterly report[127] Unregistered Sales of Equity Securities and Use of Proceeds The company did not repurchase common stock in Q2 2023, retaining authority to repurchase an additional 6,200,000 shares under its current authorization - No shares of common stock were repurchased during the second quarter of 2023[128] - As of June 30, 2023, the company has authority to repurchase an additional 6,200,000 shares under its July 12, 2022 authorization[128] Exhibits This section lists the exhibits filed with the Form 10-Q, including Sarbanes-Oxley Act certifications and financial statements in Inline XBRL format - The exhibits filed with the report include Sarbanes-Oxley Act certifications (Sections 302 and 906) and financial data in Inline XBRL format[130]