Industrial supplier Fastenal had a better-than-expected first quarter thanks in part to protective equipment to health care and government customers.
However, Chief Executive Dan Florness said "we just don't know" what's to come for the Winona-based company because of the economic disruption from the coronavirus pandemic.
Half of Fastenal's revenue comes from selling fasteners and safety equipment. Fastener sales were down 10% on a daily basis in March. But safety equipment, which includes personal protective equipment (PPE), grew 31% on a daily basis.
Overall in the first quarter, sales were up 4.4% to $1.34 billion.
The late surge of PPE and other safety sales helped Fastenal earn $202.6 million in the quarter, or 35 cents per share, a 4% increase over the same period a year ago.
Analysts who cover Fastenal expected first-quarter EPS of 34 cents per share on revenue of $1.36 billion, but the consensus estimates had been moving down in recent weeks.
Fastenal had been seeing some slowdown in business in the final quarter of 2019 due to slowing of the global economy and trade-war disruptions in certain of its end markets. Those trends continued in the first two months of the quarter and the first half of March.
Company margins have gradually shifted downward due to increasing sales of lower-margin nonfastener products. The company also has been slowly raising prices, but not enough to offset the increased costs of resetting some of its supply chain in response to trade-war pressures.
The last two weeks of March reflected the economic effects of the coronavirus. Product mix shifted dramatically and general activity weakened.
By March 31, about 120 of Fastenal's 1,136 North American Onsite locations, which are within its customers' facilities, were closed because the plants themselves were closed. Fastenal expects more Onsite locations to close in April.
Florness said on a conference call with analysts that while the company closed its front doors to walk-in traffic for its public branch locations, those stores were still filling orders through the back door.
A big push for Fastenal has been to open more Onsite locations and to increase the number of installed industrial vending machines.
Despite the economic conditions Florness said the company did have a good amount of Onsite and vending signings at least through the first two months of the quarter. But given the uncertainty it is now not giving its forecast of how many total new signings they will have for Onsite in 2020.
The company lost a good amount of visibility into those numbers when it canceled an annual customer event in March that usually draws 6,000 people and helps them set the range of new Onsite and vending signings it can expect for the year.
Florness has told Fastenal teams to at least prepare for certain elements of the economy turning back on in May, while admitting he's not sure when that will be.
The company is also not sure how much it can lean on its sale of safety products to such critical infrastructure such as state and local governments, first responders, food processors and others.
Holden Lewis, Fastenal's chief financial officer and executive vice president, told analysts that while there isn't enough supply of PPE in the world right now, there could come a point when there is too much of it.
Lewis did give an update on the first few weeks of April with field reports suggesting that second quarter 2020 sales might be down 20% but cautioned they don't have clear visibility on those projections.
Ryan Merkel, an analyst with William Blair, raised his 2020 EPS estimate on Fastenal after the analyst call from $1.18 to $1.28 per share. "If April is the worst sales month, then 2020 EPS could hold up much better than most thought," he wrote.
"Fastenal is a best-of-breed distributor with a strong balance sheet. It is also a creative and flexible company that will find ways to serve customers better during this period of social distancing and supply chain disruption," Merkel added.
Separately, the company completed its acquisition on March 30 of certain assets of Apex Industrial Technologies. Fastenal and Apex have been partners since 2008 working on the software, design and supply chain for Fastenal industrial vending machines.
Florness said the acquisition would benefit the long-term growth of Fastenal's vending business. But otherwise, the company slowed capital expenditures in the quarter by more than 10%, suspended additional share repurchases, but also committed to maintaining its dividend payments.
Fastenal will still hold its annual meeting on April 25, but like many other companies, has changed it to an online-only event.
Shares of Fastenal closed at $34.54 per share, up 7% Tuesday. Shares have traded between $26.72 and $$39.31 over the last 52-weeks.