Fastenal Sales Growth Slides, Indicating Weakness in the Manufacturing Economy
Factory owners may be becoming more cautious with their spending, a trend that could continue for what remains of 2023, earnings from Fastenal Co. suggest.
The leaders of Minnesota-based Fastenal, which distributes fasteners, safety supplies and various tools to factory floors and construction sites, said July 13 that their teams’ daily sales grew 5.9% in the three months ended June 30 compared to the same period of 2022—which was down significantly from the 9.1% growth they posted in the first quarter (and the 10.7% growth rate of late last year) as well as a larger drop than executives had expected.
On top of that, customers’ average order size—which was $258 in 2022—shrank to $222 during the second quarter. CFO Holden Lewis said on a conference call that regional Fastenal executives see clients being tighter with their operating and capital budgets and see some slowing their orders or deferring them. The immediate outlook, Lewis added, remains for soft demand.
President and CEO Dan Florness told analysts that, given that Fastenal handles roughly 300,000 orders per month, the pullback in spending is “probably more a tone of the economy than anything else” and that the trend is showing itself primarily in the industrial market.
“There might be an element between January and June of a little bit of deflation because there’s some fasteners in there but it’s mostly about activity,” Florness added.
Fastenal’s network of service sites inside or near customer facilities has grown 15% from the middle of 2022 to more than 1,700, which will serve the company well when demand strengthens again. But Q2’s signing of 86 new on-site contracts was below leaders’ stated target of 100 per quarter and has led them to lower their full-year forecast to about 350 sites from a range of 375 to 400.
“That’s a great number,” Florness said of the 15% year-over-year growth. “We’re just not building the pipeline the way we need to.”
One interesting nugget to note from Fastenal’s numbers: Daily sales to the company’s multi-site national accounts rose rose more than 10% from mid-2022 but sales to smaller clients were essentially flat.
Fastenal reported a second-quarter net profit of $298 million, an increase of nearly 4% from the same period in 2022, as sales rose about 6% to almost $1.9 billion. Florness and Lewis told analysts that the surprisingly weaker-than-expected demand had caught them off guard in terms of being able to manage variable expenses during the quarter.
Shares of Fastenal (Ticker: FAST) were down about 3% to $57 in afternoon trading July 13. Year to date, however, they are still up roughly 20%, a move that has grown the company’s market capitalization to more than $32 billion.
