As a distributor of a wide range of industrial products, including fasteners, bolts, nuts, screws, and washers, Fastenal (FAST, Financial) is often seen as a barometer for the U.S. manufacturing economy. The sector has struggled with high interest rates, macroeconomic uncertainties, and geopolitical tensions, leading to low expectations ahead of Fastenal’s Q2 earnings report.
- Despite these challenges, Fastenal (FAST, Financial) delivered better-than-expected Q2 results, with both EPS and revenue meeting analysts' estimates. This sparked a sharp rally in the stock, which had declined by 14% since the last earnings report on April 10.
- A significant factor in Fastenal’s ability to navigate the tough market was the addition of 107 new Onsite locations during Q2, bringing the total to 1,934 active sites as of June 30, 2024. These Onsite locations, set up within or near customers' worksites, generated low-single-digit growth in daily sales.
- From a product perspective, the safety product line stood out with a daily sales rate (DSR) increase of 7.1%, driven by market share gains in the warehousing sector, favorable product mix, and easier year-over-year comparisons.
- The core fastener product line did not fare as well, with a 3.0% decline in DSR for total fasteners, compared to a 4.2% increase for non-fasteners. Fasteners are more sensitive to changes in industrial production activity, and lower transportation costs led to faster deceleration in fastener pricing compared to non-fastener products.
- Price declines and an unfavorable product mix contributed to a modest 40 basis point year-over-year drop in gross margin to 45.1%. Additionally, stronger growth from large customers, including Onsite customers, relative to non-national accounts, put downward pressure on gross margin. The company's EPS remained essentially flat at $0.51 compared to $0.52 in Q2 2023.
Overall, Fastenal’s results exceeded investors' modest expectations, but the company’s business remains subdued as U.S. manufacturing activity continues to struggle.
