01—Abstract
Summary
Summary of the 10-K filed February 8, 2021. Cited figures are marked; the original filing is the authoritative source.
Fastenal (FAST) closed 2020 with sales of $5.65 billiona, up 5.9%, and net earnings of $859.1 million, up 8.6%, with diluted EPS of $1.49.
The year was split sharply. Traditional manufacturing and construction demand fell, with fastener sales down 7.2%b, while pandemic-driven demand for personal protective equipment (PPE) lifted safety supplies to 25.5% of sales from 17.9% in 2019. Gross margin compressed 170 basis points to 45.5%, reflecting lower-margin PPE mix and pandemic-era sourcing costs.
Operating and administrative expense discipline (down 7.2%c for the 'all other' bucket and roughly 2% in employee costs) kept operating margin roughly flat to up at 20.2%, versus 19.8% in 2019. The company's growth drivers did not contribute meaningfully. Onsite signings fell to 223 from 362, industrial vending signings fell 24.9% to 16,417, and sales through both channels declined at a low-single-digit rate.
Branch count dropped again, by 111 net, to 2,003 public branches, while Onsite locations rose 13.6% to 1,265. Headcount fell 7.2% to 20,365 as management reduced costs. Cash generation was strong, with operating cash flow up 30.7% to $1.10 billiond and free cash flow up 36.0% to $820.1 million.
Management returned $855.4 million to shareholders, including a $0.40 special dividend, and funded the $125 million Apex vending-technology acquisition. For investors, the central question is durability. The 2020 earnings lift came from temporary PPE demand, while the company's structural growth engines (Onsite, vending, FMI) stalled under pandemic access restrictions.
The 2021 outlook calls for net capex of $170-200 million, a 2021 Onsite signing goal of 375-400, and a new weighted FMI unit metric (23,000-25,000 MEUs). The balance sheet remains conservative, with $405 million of debt against a $700 million revolver and $245.7 million of cash, leaving ample flexibility.
02—Key points
Key Highlights
- Net sales rose 5.9% to $5,647.3 million, driven primarily by pandemic-related PPE sales, while fastener sales fell 7.2% on a daily basis.
- Gross profit margin declined 170 basis points to 45.5% (from 47.2%) due to lower-margin safety mix, unfamiliar supply chains used to source PPE in Q2 2020, and oversupply of masks.
- Operating income grew 8.0% to $1,141.8 million, and operating margin improved to 20.2% as operating and administrative expenses fell to 25.3% of sales from 27.4%.
- Operating cash flow rose 30.7% to $1,101.8 million, and free cash flow grew 36.0% to $820.1 million, with 2020 capex trimmed to $157.5 million (2.8% of sales).
- Growth drivers slowed sharply: Onsite signings fell to 223 (from 362) and industrial vending signings fell 24.9% to 16,417, though installed vending devices rose 6.4% to 95,733 and Onsite locations rose 13.6% to 1,265.
- Shareholder returns totaled $855.4 million in 2020 ($803.4 million in dividends, including a $0.40 special dividend, plus $52.0 million of buybacks), and a $0.28 quarterly dividend was declared for 2021.
- Management guides to 2021 weighted FMI signings of 23,000-25,000 machine-equivalent units and an Onsite signing goal of 375-400, but acknowledges that COVID-19 access restrictions will make both challenging.
03—One dollar
Follow one dollar
Of each $1.00 of revenue in FY2020, Fastenal Co kept $0.15.
- Revenue$5.65B100.0%
- Cost of revenue−$3.08B54.5%
- Gross profit$2.57B45.5%
- Operating costs−$1.43B25.3%
- Operating income$1.14B20.2%
- Interest, other & tax−$282.7M5.0%
- Net income$859.1M15.2%
Where FY2020 revenue went
$5.65B- Cost of revenue: $3.08B, 55% of revenue
- SG&A: $1.43B, 25% of revenue
- Net income: $859.1M, 15% of revenue
- Interest, other & tax: $282.7M, 5.0% of revenue
Kept 15% as net income
Full revenue history →04—Financials
Financial Highlights
Figures from 10-KFY2020filed February 8, 2021Financial Statements
FY2020 against FY2019
| Line item | FY2020FY2019 | Change |
|---|---|---|
| Revenue | $5.65B$5.33B | +5.9% |
| Cost of Revenue | $3.08B$2.82B | +9.3% |
| Gross Profit | $2.57B$2.52B | +2.1% |
| SG&A Expenses | $1.43B$1.46B | −2.2% |
| Operating Income | $1.14B$1.06B | +8.0% |
| Interest Expense | $9.70M$13.90M | −30.2% |
| Net Income | $859.10M$790.90M | +8.6% |
| EPS (Basic) | $0.75$0.69 | +8.7% |
| EPS (Diluted) | $0.74$0.69 | +8.0% |
| Shares Outstanding (Basic) | 1.15B1.15B | +0.1% |
| Shares Outstanding (Diluted) | 1.15B1.15B | +0.2% |
05—Questions
Frequently Asked Questions
How much of Fastenal's 2020 growth came from pandemic-related products?
Safety supplies, mainly PPE, rose to 25.5% of sales in 2020 from 17.9% in 2019, and safety daily sales grew 51.0%. Government and healthcare daily sales grew 129.7%. Management indicates this demand more than offset weakness in traditional manufacturing and construction, so the revenue lift is largely tied to temporary demand, with uncertainty about how many of the new customers will remain regular buyers.
Why did gross margin decline, and will it recover?
Gross margin fell 170 basis points to 45.5% due to three factors: lower margins on PPE and safety products, a shift away from higher-margin fasteners (now 29.9% of sales), and deleverage in overhead and fleet costs. Management says the mix impact may persist into 2021 and beyond if pandemic-driven purchasing patterns are sustained, so margin recovery depends on how fast the mix normalizes.
Is Fastenal's branch network shrinking, and what is the strategy?
Public branches fell by 111 net in 2020 to 2,003, continuing a decline since 2013 that totals 684 branches. Onsite locations rose to 1,265, and management expects total in-market locations to grow over time as Onsite expands. Branches remain the foundation of the network, but the company is shifting resources toward Onsite, vending, and FMI as growth drivers.
What are the key risks to the investment case?
Key risks include the reversal of PPE-driven demand, continued weakness in fasteners and manufacturing, pressure on gross margin from customer and product mix, and the slowdown in growth drivers under pandemic access restrictions. Trade policy and China sourcing exposure, a single 5% customer, and reliance on one vending equipment supplier are additional concerns, along with a valuation that relies on a premium P/E multiple.
06—Continue