Recovering industrial sector helped lift Fastenal's results

Industrial markets have been improving, increasing underlying demand for Winona, Minn.-based Fastenal Co.'s industrial and construction supplies and providing a lift for the company's fourth quarter results.

The distributor of industrial and construction supplies and equipment exceeded analysts' expectations, posting earnings of $231.2 million, or 40 cents a share, an increase of about 18% over the same quarter a year ago. Revenue was up 13% to $1.53 billion. Revenue for the full fiscal year exceeded $6 billion for the first time.

More companies than expected worked through traditionally slow holiday periods in order to reduce persistent backlogs, which helped Fastenal's overall results for the quarter.

Analysts covering Fastenal expected the company to earn 37 cents a share in the fourth quarter on revenue of $1.5 billion.

Fastenal experienced some big swings in product-category sales due to the pandemic, including a surge in purchases of personal protective equipment in 2020 while traditional fastener sale declined. So company officials offered two-year comparisons and noted two-year net sales growth accelerated each quarter in 2021 from 8.2% in the first quarter to 20% in the fourth.

Fastenal's annual revenue of $6.01 billion grew 6.4% over 2020's total of $5.65 billion and 12.7% over 2019's annual revenue of $5.33 billion.

Similar to the third quarter, sales of safety supplies, including personal protective equipment to protect against COVID-19, saw slower sales compared with 2020. For example, daily sales of safety supplies for regular industrial use were up 3.5%, but sales to government and warehousing customers declined 35.7% and 3.5%.

"Customers were asking us to do something different, which was to get COVID materials in 2020, and in 2021, get any materials," Lewis said.

Higher product prices helped increase revenue in the fourth quarter and dampened the impact of cost inflation particularly for fasteners and transportation services, the company said. Looking ahead, Fastenal said it expects to take more pricing actions in the first quarter and remainder of 2022 "as the need arises."

One of Fastenal's key growth initiatives is signing more Onsite locations, which are Fastenal sales and service locations that are in or near key customer facilities. For the year, Fastenal signed 274 new Onsite locations. But 44 signings in the fourth quarter were below projections.

Fastenal also saw fourth-quarter signings below expectations for its FMI Technology which includes: FASTStock, scanned stocking locations; FASTBin, infrared, RFID and scaled bins; and FASTVend, vending devices.

Fastenal expects Onsite signings to rebound in 2022 and is expecting to sign 375 to 400 new Onsite locations during the year and add 23,000 to 25,000 new FASTBin and FASTVend devices in 2022.

"Our future is untainted by this. And if anything, it's strengthened because the definition of who is the potential customer has expanded dramatically during this time frame," Florness said.

Edward Jones analyst Jeff Windau concurred, writing in a note to investors: "Fastenal should be able to gain traction with its growth initiatives as the industrial economy grows and pandemic restrictions ease."

Analysts on the call were eager to ask about wage increases and its potential effects on Fastenal's prospects. Lewis said wage inflation hasn't changed much from earlier in the year, with some increases for full-time workers and more for part-time workers.

"However, they've been relatively stable in terms of order of magnitude over the course of the year," Lewis said.