Fastenal(FAST) - 2024 Q1 - Quarterly Report

PART I — FINANCIAL INFORMATION This section provides detailed financial statements and management's analysis of the company's financial condition and operational results for the period Financial Statements This section presents the unaudited condensed consolidated financial statements for the three months ended March 31, 2024. It includes the Balance Sheets, Statements of Income, Comprehensive Income, Stockholders' Equity, and Cash Flows, along with accompanying notes. The statements show a slight increase in total assets, stable net income and earnings per share year-over-year, and a decrease in cash from operations Condensed Consolidated Balance Sheets Presents the company's financial position, detailing assets, liabilities, and equity as of March 31, 2024 and December 31, 2023 | Assets & Liabilities (in millions) | March 31, 2024 | December 31, 2023 | | :--- | :--- | :--- | | Total current assets | $3,083.5 | $3,020.9 | | Total assets | $4,532.7 | $4,462.9 | | Total current liabilities | $637.9 | $661.3 | | Long-term debt | $200.0 | $200.0 | | Total stockholders' equity | $3,429.2 | $3,348.8 | | Total liabilities and stockholders' equity | $4,532.7 | $4,462.9 | Condensed Consolidated Statements of Income Details the company's revenues, expenses, and net income for the three months ended March 31, 2024 and 2023 | Income Statement (in millions, except per share) | Three Months Ended March 31, 2024 | Three Months Ended March 31, 2023 | | :--- | :--- | :--- | | Net sales | $1,895.1 | $1,859.1 | | Gross profit | $861.6 | $850.0 | | Operating income | $390.2 | $393.2 | | Net income | $297.7 | $295.1 | | Diluted net income per share | $0.52 | $0.52 | Condensed Consolidated Statements of Comprehensive Income Reports comprehensive income, including net income and other comprehensive income items, for the three months ended March 31, 2024 and 2023 - Comprehensive income for Q1 2024 was $285.8 million, a decrease from $299.4 million in Q1 2023 The decline was primarily due to a negative foreign currency translation adjustment of $11.9 million in 2024 compared to a positive adjustment of $4.3 million in the prior year[14] Condensed Consolidated Statements of Stockholders' Equity Outlines changes in stockholders' equity, including net income and dividends, for the three months ended March 31, 2024 and 2023 - Total stockholders' equity increased to $3,429.2 million at the end of Q1 2024 from $3,270.6 million in Q1 2023 The company paid cash dividends of $0.39 per share in Q1 2024, an increase from $0.35 per share in Q1 2023[17] Condensed Consolidated Statements of Cash Flows Summarizes cash inflows and outflows from operating, investing, and financing activities for the three months ended March 31, 2024 and 2023 | Cash Flow Activity (in millions) | Three Months Ended March 31, 2024 | Three Months Ended March 31, 2023 | | :--- | :--- | :--- | | Net cash provided by operating activities | $335.6 | $388.5 | | Net cash used in investing activities | ($48.4) | ($31.0) | | Net cash used in financing activities | ($267.4) | ($348.9) | | Net increase in cash and cash equivalents | $15.8 | $9.7 | Notes to Condensed Consolidated Financial Statements Provides additional details and explanations for the financial statements, including revenue breakdowns and debt information Revenue by Geography (Q1 2024) | Geography | Revenue (in millions) | % of Total | | :--- | :--- | :--- | | United States | $1,578.9 | 83.3% | | Canada and Mexico | $255.6 | 13.5% | | All other foreign | $60.6 | 3.2% | Revenue by End Market (Q1 2024) | End Market | % of Sales | | :--- | :--- | | Manufacturing | 75.0% | | Non-residential construction | 8.5% | | Other | 16.5% | - On April 10, 2024, the board of directors declared a quarterly dividend of $0.39 per share, payable on May 23, 2024[28] - As of March 31, 2024, the company had $200.0 million in aggregate principal amount of senior unsecured promissory notes outstanding[39][42] Management's Discussion and Analysis of Financial Condition and Results of Operations (MD&A) Management discusses the financial results for Q1 2024, highlighting a 1.9% increase in net sales driven by higher unit sales, particularly with larger customers and Onsite locations. The report details performance by product line and end market, noting a divergence between fastener and non-fastener products. Gross margin slightly decreased to 45.5% due to customer and product mix, while SG&A expenses increased as a percentage of sales. The discussion also covers growth drivers like FMI and eCommerce, and provides an analysis of liquidity and capital resources Executive Overview Summarizes key financial and operational highlights for Q1 2024, including sales growth, profit margins, and operational footprint expansion Q1 2024 Performance Summary | Metric | Q1 2024 | Q1 2023 | % Change | | :--- | :--- | :--- | :--- | | Net Sales (in millions) | $1,895.1 | $1,859.1 | 1.9% | | Gross Profit % | 45.5% | 45.7% | -20 bps | | Operating Income (in millions) | $390.2 | $393.2 | -0.8% | | Operating Income % | 20.6% | 21.2% | -60 bps | | Diluted Net Income per Share | $0.52 | $0.52 | 0.6% | - The company's operational footprint continued to expand, with active Onsite locations increasing by 11.8% year-over-year to 1,872, and weighted FMI (Fastenal Managed Inventory) devices growing by 10.5% to 115,653[52] Results of Operations Analyzes the drivers of net sales, gross profit, and operating expenses for Q1 2024 compared to the prior year - Net sales increased 1.9% in Q1 2024, driven by higher unit sales, as the impact from product pricing was not material This compares to a pricing impact of 290 to 320 basis points in Q1 2023[57][58] Daily Sales Rate (DSR) Change by Product Line (Q1 2024 vs Q1 2023) | Product Line | DSR Change | | :--- | :--- | | Total fasteners | -4.4% | | Safety supplies | 8.3% | | Other product lines | 3.9% | - Gross profit margin decreased slightly to 45.5% from 45.7% in Q1 2023, primarily due to a negative customer and product mix, as sales grew faster with large customers and in non-fastener categories which carry lower margins[65] - SG&A expenses as a percentage of net sales increased to 24.9% from 24.6% year-over-year, as slower sales growth led to deleveraging of employee-related expenses[66] Growth Drivers Highlights the company's strategic initiatives and their impact on sales growth, including digital footprint and Onsite locations - The company's Digital Footprint (FMI and eCommerce sales) accounted for 59.2% of total sales in Q1 2024, up from 54.1% in Q1 2023[64] - Daily sales through eCommerce grew 33.6% in Q1 2024 and represented 28.6% of total sales[63] - In Q1 2024, the company signed 102 new Onsite locations, bringing the total active sites to 1,872, an 11.8% increase from the prior year[64] Liquidity and Capital Resources Assesses the company's cash flow, debt levels, and capital expenditure plans, indicating financial flexibility - Net cash provided by operating activities decreased by 13.6% to $335.6 million in Q1 2024 compared to Q1 2023, partly because inventory reduction slowed as rightsizing efforts are now substantially complete[79][80] - Inventories decreased by 9.4% year-over-year to $1,496.3 million, reflecting progress in reducing stock after the supply chain normalization[82][84] - Total debt was $200.0 million at the end of Q1 2024, representing 5.5% of total capital, down from $400.0 million (10.9% of total capital) a year prior[91] - The company expects net capital expenditures for the full year 2024 to be between $225.0 million and $245.0 million, an increase from $160.6 million in 2023[88] Quantitative and Qualitative Disclosures About Market Risk The company is exposed to market risks from foreign currency exchange rates, commodity prices (steel, energy), import shipping costs, and interest rates. In Q1 2024, the impact from commodity prices, foreign exchange, and interest rates was immaterial. However, a favorable impact of $5.0M to $10.0M was estimated from lower import shipping costs - The company's primary market risks include import shipping costs, commodity steel and energy prices, foreign currency exchange rates, and interest rates[98] - The estimated effect on net income from import shipping costs was a favorable $5.0 to $10.0 million in Q1 2024[98] - The impact on net income from commodity steel prices, energy prices, foreign currency fluctuations, and interest rate changes was considered immaterial for Q1 2024[99][100][102] Controls and Procedures Based on an evaluation as of March 31, 2024, the principal executive and financial officers concluded that the company's disclosure controls and procedures are effective. There were no material changes in internal control over financial reporting during the quarter - Management, including the principal executive officer and principal financial officer, concluded that the company's disclosure controls and procedures were effective as of the end of the reporting period[104] - There were no changes in internal control over financial reporting during the first quarter of 2024 that have materially affected, or are reasonably likely to materially affect, the company's internal control over financial reporting[105] PART II — OTHER INFORMATION This section covers legal proceedings, risk factors, equity security sales, and other required disclosures Legal Proceedings The company reports no litigation matters that are considered probable or reasonably possible to have a material adverse outcome as of March 31, 2024 - As of March 31, 2024, there were no litigation matters that the company considered to be probable or reasonably possible to have a material adverse outcome[43][107] Risk Factors There have been no material changes from the risk factors previously disclosed in the company's most recent annual report on Form 10-K - There have been no material changes from the risk factors described in the company's most recently filed annual report on Form 10-K[108] Unregistered Sales of Equity Securities and Use of Proceeds The company did not repurchase any of its common stock during the first quarter of 2024. As of March 31, 2024, it had remaining authority to repurchase 6.2 million shares under its current authorization Issuer Purchases of Equity Securities (Q1 2024) | Period | Total Number of Shares Purchased | Average Price Paid per Share | | :--- | :--- | :--- | | January 2024 | 0 | $0.00 | | February 2024 | 0 | $0.00 | | March 2024 | 0 | $0.00 | | Total | 0 | $0.00 | - As of March 31, 2024, the company had remaining authority to repurchase 6,200,000 shares under the July 12, 2022 authorization, which has no expiration date[109] Other Information No directors or officers adopted, modified, or terminated any Rule 10b5-1 trading plans or other non-Rule 10b5-1 trading arrangements during the first quarter of 2024 - During the fiscal quarter ended March 31, 2024, none of the company's directors or officers adopted, modified, or terminated any contract, instruction, or written plan for the purchase or sale of securities intended to satisfy the conditions of Rule 10b5-1(c)[110] Exhibits This section lists the exhibits filed with the Form 10-Q, including certifications under the Sarbanes-Oxley Act and financial statements formatted in Inline XBRL - The exhibits filed with this report include Certifications under Section 302 and 906 of the Sarbanes-Oxley Act, and financial statements formatted in Inline XBRL[112]