Fastenal reported its 2021 first quarter financial results on Tuesday, which were led by a significant normalization in the distributor's product mix after a year when the company's namesake fastener sales took a major backseat to sales of safety products needed amid the COVID-19 pandemic.
After gradually normalizing over the previous six months, Fastenal's product mix took a leap forward during the January-March period — especially in the latter portion. The Winona, MN-based distributor's daily sales of fastener products grew 4.0 percent year-over-year in Q1 and represented 32.5 percent of net sales. While that portion was still down from 32.9 percent in Q1 2020, it was a notable improvement from 30.8 percent of net sales in Q4 2020, when daily sales of fasteners were down 2.3 percent year-over-year.
That trend was especially apparent during March, when Fastenal's daily fastener sales soared 14.0 percent year-over-year against March 2020 — when the pandemic first spread across North America and rapidly sunk demand for fasteners amid rampant factory and construction shutdowns.
Meanwhile, Fastenal's sales of safety products were still elevated in Q1 at 14.7 percent year-over-year growth, but that was down nearly half the growth rate of Q4, while its percentage of net sales likewise fell from 23.5 percent in Q4 to 21.5 percent in Q1. Daily sales of Fastenal's other products grew 2.5 percent year-over-year in Q1 and represented 46.0 percent of net sales, compared to 47.3 percent of net sales a year earlier.
That normalization is a positive sign for industrial distributors and suppliers awaiting market recovery in their core fastener and MRO product categories.
"In March 2021 we experienced meaningful acceleration in demand for fastener products and meaningful deceleration in demand for safety products relative to what had been experienced in January and February 2021," Fastenal said. "We believe the shift that was evident in March 2021 may become more pronounced in the second quarter of 2021."
As a whole, Fastenal had Q1 total sales of $1.42 billion, up approximately 3.7 percent year-over-year and up from $1.36 billion in Q4 2020. Daily sales grew 5.3 percent in Q1, which had one less selling day than 2020. The company's gross profit of $643 million at 45.4 percent of sales (down from 46.6 percent in Q4) improved about 1 percent year-over-year, operating profit of $280 million at 19.6 percent of sales (19.7 percent in Q4) improved 3.3 percent and total profit of $211 million improved about 3.9 percent (9.7 percent growth in Q4).
Fastenal said the overall impact of product pricing on its Q1 net sales was 60 to 90 basis points, and the company noted rising pressures related to product cost inflation. Fastenal said it expects to take pricing actions in Q2 to mitigate these effects.
Edward Jones' financial analyst Jeff Windau provided the following opinion to Industrial Distribution on Tuesday:
"Fastenal's quarterly earnings of $0.37 per share met forecasts. Sales were aligned with estimates; however, profitability was below expectations due in part to a write-down on safety masks. Progress on key growth initiatives, such as establishing onsite locations with customers, has been improving. But the number of onsite locations established was below pre-coronavirus quarters, and the target for the year was reduced.
"The company met expectations, although there was some noise in the quarter. The industrial economy has been rebounding from the coronavirus lows earlier in 2020. Improving sales trends have been noted in key manufacturing and construction markets. While sales of safety products helped drive results in the quarter, the growth rates are moderating. Additionally, the pricing in the segment is under pressure due to competition, which led to the write-down of masks. Near-term, we expect rising costs on materials and transportation with increasing commodity prices and supply chain constraints. However, the company is raising prices, which should help to offset some of the pressures on profitability. Overall, we believe the business environment has been stabilizing and that underlying trends are showing improvements. Longer-term, we feel the company will continue to foster relations with key customers and participate in growth in industrial end-markets. In our opinion, shares appropriately capture our growth outlook."
Other notable statistics from Fastenal's Q1 earnings report:
- Fastenal opened two new branches during Q1 and closed or converted 46, ending the quarter with 1,959 total branch locations — down 44 from a year earlier and down 155 (7.3 percent) from the end of 2019.
- The company signed 68 new Onsite locations during Q1, down from 85 in Q1 2020, but its best figure since then. Fastenal had 1,285 active sites on March 31, up 9.0 percent from a year earlier. The company ended Q1 with 3,244 in-market locations (branches + active Onsites), down 24 from the end of 2020.
- Fastenal signed 4,681 weighted Fastenal Managed Inventory devices — comprised of FAST Vend (vending devices), FAST Bin (infrared, RFID and scaled bins) and FAST Stock scanning bins — during Q1, largely in line with the 4,692 signed in Q1 2020. The company's installed weighted FMI device count on March 31 was 85,157, up 7.5 percent from a year earlier.
- Q1 daily sales from e-commerce (not including FMI) grew 35.5 percent year-over-year and comprised 12.2 percent of total revenue
Notable statistics from Fastenal's March report:
- Total sales of $531 million grew 12.4 percent year-over-year, with daily sales up 7.5 percent
- Geographically, Fastenal's March US sales growth was 5.7 percent year-over-year, up from a 0.2 percent decline in February. March sales to Canada/Mexico grew 18.2 percent (6.7 percent in February), while sales to the rest of International grew 16.6 percent (30.1 percent in February).
- By product line, Fastenal's March daily fastener sales were up 14.0 percent year-over-year, compared to a 2.1 percent decline in February and 0.2 percent decline in January. March sales of safety products slowed to 3.2 percent, down from 17.6 percent growth in February and 26.1 percent growth in January. March sales of all other products grew 5.5 percent, compared to a 2.4 percent dip in February and 3.9 percent growth in January.
- March sales to manufacturing customers grew 10.8 percent year-over-year, far above 0.6 percent growth in February and 4.8 percent growth in January. Non-residential construction sales were flat at 0.0 percent growth in March, compared to a 2.4 percent decline in February and 3.9 percent growth in January.
- March daily sales to national account customers grew 7.0 percent in March, up from 3.0 percent in February. Daily sales to non-national accounts grew 8.0 percent in March, up from a 1.0 percent February decline.
- 60.0 percent of Fastenal's top 100 national accounts grew in March, compared to just 40.0 percent in February.
- Fastenal ended March with a total headcount of 20,532, essentially flat compared to January and down 401 employees, or 7.2 percent, year-over-year.