Fastenal kicks off third-quarter earnings season; profits up 17%

Fastenal kicked off the third-quarter earnings season for manufacturing with results that were slightly better than analysts' expectations.

Profits were up 17% to $284.6 million, or 50 cents a share, on sales that rose 16% to $1.8 billion.

The company said increases over the past 12 months allowed it to keep prices steady during the quarter. Those past increases contributed 550 to 580 basis points to sales increases over the same period last year.

Hurricane Ian, which swept through the Southeast at the end of September, had a small negative impact on results, even though it occurred at the very end of the quarter.

As pricing and sourcing improves, investors were eager to learn if Fastenal's sales growth is coming from gains produced by volume increases or from the price increases.

The company had higher unit sales in the third quarter, which it attributed to strength in the industrial goods and commodities markets, but it said there was relatively lower growth in the construction market.

Fastenal Chief Executive Dan Florness told analysts on the company's earnings call that after reviewing industrial production forecasts and feedback from their regional and district leaders, the company is expecting a softer 2023.

Some analysts still expect volatility in some of Fastenal's end markets to continue.

"Fastenal delivered solid results, as sales increased across most of the business, especially in key manufacturing and nonresidential construction markets," wrote Jeff Windau, an analyst with Edward Jones, in a note to investors Thursday. "However, the sales growth rate has trended lower through the quarter, as some signs of slowing appear in consumer-related areas and construction."

Analysts at UBS Securities, which hosted company officials for an investor day presentation in September, believe the pandemic has accelerated long-term trends in companies using digital procurement for source materials. Plus with the supply chain struggles of the past two years, companies are also more willing to outsource their logistics.

Fastenal's long-term strategies have been preparing for increased adoption of both trends. One is by building out its network of Onsite locations (dedicated sales and service locations inside or close to a customer's facility) and vending machines and by increasing the amount of online sales.

During the third quarter, Fastenal signed 86 new Onsite locations bringing new Onsite signings for 2022 to 294. Sales at Onsite locations grew at a 20% clip in the quarter, better than the overall sales growth.