Fastenal CEO leads with Minnesota modesty and so far is hitting the mark

Fastenal’s revenue in 2022 was growing at 16%. Most CEOs would be satisfied, especially after the pandemic, but something didn’t feel right to Dan Florness.

Florness said in a recent interview he felt there were too many competing voices amid the chaos of the pandemic, supply chain disruptions and increasing interest rates.

“There were a few things that popped out that didn’t feel Fastenal-like,” Florness said.

The organization seemed misaligned. And that, he said, could lead to issues he wanted to identify before they became problems.

Florness knows Fastenal inside and out. An accountant by training, he joined the Winona-based industrial supplier in 1996 as chief financial officer before becoming CEO in 2016.

He tries to live by a code that his predecessor Bob Kierlin, who died in February, taught him. He strives to treat everyone as an equal, lead with empathy and stay out of the spotlight.

Florness, who understands all the analytics and budget lines, also tries to be honest, whether it’s about finances or a gut feeling, and also feels a loyalty and civic responsibility to southeast Minnesota.

It also came after a big investment, as the company expanded into a new office building in Winona.

On paper, things seemed right.

He asked another long-time Fastenal employee, Jeff Watts, to address the problem, promoting him to chief sales officer and giving him latitude to make structural changes and move people around as needed.

Watts looked at every department and process, from sales and IT to the supply chain, and made changes that has them all working toward common goals.

“We’re more aligned now than we’ve probably ever been as an organization,” Watts said.

Now, the model is realigned to better serve all customers, from its distribution centers to its trucking fleet and e-commerce platform.

As it solidified the changes, Fastenal continued to shift away from being a distributor to being a customers’ supply chain partner, the officials said.

Fastenal works with suppliers and customers on quality control.

“We were started by a mechanical engineer, and that quality aspect of our product is embedded deep in our DNA,” Florness said.

The shift to on-site and vending options have allowed Fastenal to gradually reduce the number of physical stores, reducing costs.

That data comes through Fastenal inventory management devices, which can tell how many of each item customers have and when to order more.

As Watts led the changes during the past few years, he got another promotion, this time to president. He is now a leading candidate to succeed Florness as CEO some day.

“I’m a big believer that an organization of this size needs a really good succession plan,“ Florness said.

Integrity and approachability are hallmarks of Florness’ communication style, whether it’s in the community or on a call with financial analysts.

Fastenal is typically among the first companies to report quarterly earnings results. And analysts and market watchers follow closely because Fastenal is a leading indicator of how healthy other industrial companies’ results might be.

Most quarterly earnings calls of large public companies are highly produced affairs. The companies script out the CEO’s remarks. Some pre-record the presentation and hit play before opening up the call to analyst questions.

Florness makes notes in the margins of the company’s flip book of core results and the press release for the quarterly earnings.

Then he’ll begin a call with a personal anecdote that might mention his family, a lesson he learned from Kierlin, or something gleaned from the Fastenal district managers.

And then he simply describes how the quarter played out and where the strengths and weaknesses were, before opening up the call to questions.

“Dan has an honest and pragmatic approach to discussing results on the conference calls,” said Ryan Merkel, a partner and analyst with William Blair. “Fastenal does not hide poor performance but rather addresses issues head on and moves quickly to improve results.”

Meanwhile, revenue has grown from $3.9 billion to $7.5 billion, and in 2021 it became a Fortune 500 company. Profits more than doubled during his tenure, finishing 2024 with $1.15 billion in net income, or $1 a share.

“We think pivoting the business model to prioritizing national account customers that value innovative supply chain solutions has led to accelerating share gains,” Merkel said.

Becoming more of a supply chain partner than a retail vendor further accelerated growth, Florness said. Revenue and earnings both increased 12% in the company’s third quarter, despite a slowdown in the core manufacturing and construction markets.

Sales were $2.1 billion in the third quarter. On the earnings call, Watts noted it was the second straight $2 billion sales quarter.

“This demonstrates the effectiveness of our plan and Fastenal’s growing partnership with our customers,” Watts said.

Stock splits were once a common practice when retail investors held more shares, and shares generally traded in lots of 100 shares. To keep shares in a more affordable price range, companies would issue 2-for-1 or 3-for-2 stock splits.

Today, it is easier to buy odd lots or even individual shares through discount online brokers like Charles Schwab and Robinhood.

And it has become somewhat fashionable to let a company’s share price climb to triple digits.

Shares for companies like Ameriprise Financial, Costco, Eli Lilly, Intuit and Goldman Sachs trade around and above $500 a share. Shares of Netflix trade above $1,000 a share.

But in April, Fastenal issued its ninth stock split since it went public in 1987, a 2-for-1 split effective May 21 that reset the stock price around $40 a share.

It is recognition of the achievements the employees have accomplished and an opportunity to reset goals, he said.

“We’re going to split the stock, and we’re going to start our climb over again,” Florness said.

The philosophy matches the values that form the foundation for Fastenal.

Florness attributes a lot of his leadership style and success to his predecessor, Kierlin, who summed up the company’s culture into 10 principles of leadership and published it in “The Power of Fastenal People.”

Kierlin, who died in February, was famous for modest living, evident by his thrift store suits and the budget hotels he stayed in on business travel.

“Part of it was a tribute to Bob,” Florness said. “It’s one way to ensure our special culture continues to thrive at Fastenal.”

The principles are designed for the greater good of Fastenal rather than the individual, Florness said, and are still relevant today.

Some of the tenets include listening, sharing rewards, letting people learn and remembering how little you know.

Kierlin’s values extend to Fastenal’s relationship with Winona.

Few Fortune 500 companies are based in cities as small as Winona, population 26,173. Minnesota has two with Fastenal and Hormel in Austin. Hershey and its Pennsylvania namesake is another example.

Florness grew up in western Wisconsin and graduated from the University of Wisconsin-River Falls.

In other words, he understands small-town living. And people say he has become part of the fabric of Winona as well as Fastenal.

For example, Florness led the development of the new office building in Winona that houses 400 employees.

Christie Ransom, CEO of the Winona Area Chamber of Commerce, said Florness’ contribution to Winona over his 30-year career has been profound.

“He’s just not the figurehead of a company, he’s really an advocate for Winona,” she said.

Florness, she said, is approachable, helping with projects in Winona.