10-QPeriod: Q1 FY2021

FASTENAL CO Quarterly Report for Q1 Ended Mar 31, 2021

Filed April 16, 2021For Securities:FAST

Summary

Fastenal Company (FAST) reported its first-quarter 2021 results, showing a 3.7% increase in net sales to $1,417.0 million compared to the prior year, driven by recovering business activity among manufacturing and construction customers. Despite a 1.0% increase in gross profit to $643.4 million, the gross profit margin declined to 45.4% from 46.6% year-over-year, primarily due to a $7.8 million inventory write-down for 3-ply masks and a less favorable product and customer mix. Net earnings saw a modest 3.9% increase to $210.6 million, leading to diluted earnings per share of $0.37, up from $0.35 in the first quarter of 2020. Operating income also grew slightly by 3.3% to $280.3 million. The company highlighted improving performance in its traditional branch and Onsite businesses, alongside moderating but still healthy demand for COVID-related personal protective equipment (PPE). Management anticipates potential pricing actions in the second quarter to mitigate rising product cost inflation.

Financial Highlights

51 data points
Beta

Revenue

$1.42B

45.4% Gross Margin

Net Income

$210.60M

14.9% Net Margin

EPS (Diluted)

$0.18

Total Assets

$4.07B

Cash & Equivalents

$333.90M

Free Cash Flow

$242.10M

Financial Statements
Beta
Revenue$1.42B
Cost of Revenue$773.60M
Gross Profit$643.40M
SG&A Expenses$363.10M
Operating Income$280.30M
Interest Expense$2.40M
Net Income$210.60M
EPS (Basic)$0.18
EPS (Diluted)$0.18
Shares Outstanding (Basic)1.15B
Shares Outstanding (Diluted)1.15B

Key Highlights

  • 1Net sales increased by 3.7% to $1,417.0 million, indicating a recovery in core business activity.
  • 2Diluted EPS grew by 5.7% to $0.37, reflecting improved profitability.
  • 3Gross profit margin declined by 120 basis points to 45.4%, impacted by a $7.8 million mask inventory write-down and unfavorable product/customer mix.
  • 4Operating and administrative expenses as a percentage of net sales improved to 25.6%, demonstrating operational leverage.
  • 5Net cash provided by operating activities increased significantly, demonstrating strong cash generation.
  • 6The company returned $160.8 million to shareholders through dividends, with no share repurchases in the quarter.
  • 7Sales to manufacturing customers increased by 5.6%, while sales to construction customers declined by 7.5%, showing diverging trends in key end markets.

Frequently Asked Questions

The primary driver for the increase in net sales was the recovering business activity among Fastenal's traditional manufacturing and construction customers. This recovery, combined with continued healthy sales of COVID-related personal protective equipment (PPE), contributed to overall sales growth.

The gross profit margin decreased primarily due to two factors: a $7.8 million inventory write-down on 3-ply masks that were oversupplied in the market, and an unfavorable shift in both product and customer mix. Sales of lower-margin safety and non-fastener products grew at a faster rate than higher-margin fastener products, and sales to national account and government customers (which tend to have lower margins) increased relative to smaller, local customers.

While the overall impact of COVID-19 has lessened compared to 2020, it still influenced the business. The reopening and recovery of manufacturing and construction markets improved performance in traditional channels. However, demand for most pandemic-related PPE began to moderate, leading to the mask inventory write-down. Access to customer facilities remained below pre-pandemic levels, affecting sales growth drivers like FMI and Onsites.

Fastenal noted rising product cost inflation and anticipates taking pricing actions in the second quarter of 2021 to mitigate these effects. They also mentioned that foreign exchange favorably impacted sales and that commodity steel and energy prices have been increasing, though the immediate net earnings exposure was not material in Q1 2021.