Fastenal (FAST, Financial), a distributor of industrial products like fasteners, bolts, and screws, achieved notable gains today following a modest earnings beat in Q3 with steady revenue growth. Given its extensive reach in the U.S. manufacturing sector, Fastenal's quarterly results serve as an indicator of broader economic trends.
Throughout the year, Fastenal faced challenges with sluggish business activity, leading to layoffs, shift reductions, and extended shutdowns. Last quarter, management highlighted the declining industrial production, particularly in non-residential construction and reseller markets.
- In Q3, economic challenges persisted, resulting in muted growth. Revenue increased by 3.5% year-over-year to $1.91 billion, remaining flat sequentially. Earnings rose slightly by a penny from Q2 but stayed flat compared to the previous year at $0.52 per share.
- The daily sales rate (DSR) for fasteners contracted by 4.0% year-over-year, following an 8.5% decline in Q3 2023, largely due to weakness in non-residential construction and reseller markets, which saw declines of 5.5% and 6.4%, respectively.
- There was a notable divergence between national accounts (large customers) and non-national accounts (smaller customers). In Q3, the DSR for national accounts grew by 5.6%, while non-national accounts decreased by 4.1%, putting pressure on margins, with a 65 basis points year-over-year decline in operating margins.
- Silver linings included a 4.7% increase in DSR for non-fasteners, driven by strong performance with warehousing customers. Fastenal's Onsite locations added 93 new customers in Q3, totaling 302 year-to-date, with nearly 2,000 active sites, an 11.7% year-over-year increase. Onsite locations are crucial for Fastenal's competitive advantage, as they reduce customer reliance on competitors, evidenced by a slight increase in Onsite DSR in Q3.
Fastenal's Q3 results echo last quarter's trends, with subdued U.S. manufacturing activity causing investor concern. Nonetheless, Fastenal's performance exceeded expectations, supporting its positive market gains today.
