FASTENAL CO
10-Qs and 10-Ks
PROXIES
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM
10-Q
(Mark One)
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Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 | ||||
For the quarterly period ended
March 31, 2024
, or
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Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 | ||||
For the transition period from __________ to __________
Commission file number
0-16125
(Exact name of registrant as specified in its charter)
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| (State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) | |||||||
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Not Applicable
(Former name, former address and former fiscal year, if changed since last report)
Securities registered pursuant to Section 12(b) of the Act:
| Title of each class | Trading Symbol(s) | Name of each exchange on which registered | ||||||
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Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Yes
ý
No
☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files.)
Yes
ý
No
☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of "large accelerated filer", "accelerated filer", "smaller reporting company", and "emerging growth company" in Rule 12b-2 of the Exchange Act.
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ý | Accelerated Filer | ☐ | |||||||||||||||||
| Non-accelerated Filer | ☐ | Smaller Reporting Company |
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| Emerging Growth Company |
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If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
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Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes
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No
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As of April 10, 2024, there were approximately
572,547,449
shares of the registrant's common stock outstanding.
FASTENAL COMPANY
INDEX
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PART I — FINANCIAL INFORMATION
ITEM 1 — FINANCIAL STATEMENTS
FASTENAL COMPANY AND SUBSIDIARIES
Condensed Consolidated Balance Sheets
(Amounts in millions except share information)
| (Unaudited) | |||||||||||
| Assets |
March 31,
2024 |
December 31,
2023 |
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| Current assets: | |||||||||||
| Cash and cash equivalents | $ |
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Trade accounts receivable, net of allowance for credit losses of $
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| Inventories |
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| Prepaid income taxes |
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| Other current assets |
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| Total current assets |
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| Property and equipment, net |
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| Operating lease right-of-use assets |
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| Other assets |
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| Total assets | $ |
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| Liabilities and Stockholders' Equity | |||||||||||
| Current liabilities: | |||||||||||
| Current portion of debt | $ |
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| Accounts payable |
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| Accrued expenses |
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| Current portion of operating lease liabilities |
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| Income taxes payable |
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| Total current liabilities |
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| Long-term debt |
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| Operating lease liabilities |
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| Deferred income taxes |
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| Other long-term liabilities |
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| Stockholders' equity: | |||||||||||
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Preferred stock: $
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Common stock: $
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| Additional paid-in capital |
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| Retained earnings |
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| Accumulated other comprehensive loss |
(
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(
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| Total stockholders' equity |
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| Total liabilities and stockholders' equity | $ |
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See accompanying Notes to Condensed Consolidated Financial Statements.
1
FASTENAL COMPANY AND SUBSIDIARIES
Condensed Consolidated Statements of Income
(Amounts in millions except income per share)
| (Unaudited) | |||||||||||
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Three Months Ended
March 31, |
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| 2024 | 2023 | ||||||||||
| Net sales | $ |
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| Cost of sales |
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| Gross profit |
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| Selling, general, and administrative expenses |
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| Operating income |
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| Interest income |
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| Interest expense |
(
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(
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| Income before income taxes |
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| Income tax expense |
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| Net income | $ |
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| Basic net income per share | $ |
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| Diluted net income per share | $ |
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| Basic weighted average shares outstanding |
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| Diluted weighted average shares outstanding |
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See accompanying Notes to Condensed Consolidated Financial Statements.
2
FASTENAL COMPANY AND SUBSIDIARIES
Condensed Consolidated Statements of Comprehensive Income
(Amounts in millions)
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Three Months Ended
March 31, |
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| 2024 | 2023 | ||||||||||
| Net income | $ |
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| Other comprehensive (loss) income, net of tax: | |||||||||||
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Foreign currency translation adjustments (net of tax of $
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(
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| Comprehensive income | $ |
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See accompanying Notes to Condensed Consolidated Financial Statements.
3
FASTENAL COMPANY AND SUBSIDIARIES
Condensed Consolidated Statements of Stockholders' Equity
(Amounts in millions except per share information)
| (Unaudited) | |||||||||||
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Three Months Ended
March 31, |
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| 2024 | 2023 | ||||||||||
| Common stock | |||||||||||
| Balance at beginning of period | $ |
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| Balance at end of period |
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| Additional paid-in capital | |||||||||||
| Balance at beginning of period |
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| Stock options exercised |
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| Stock-based compensation |
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| Balance at end of period |
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| Retained earnings | |||||||||||
| Balance at beginning of period |
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| Net income |
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| Cash dividends paid |
(
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(
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| Balance at end of period |
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| Accumulated other comprehensive (loss) income | |||||||||||
| Balance at beginning of period |
(
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(
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| Other comprehensive (loss) income |
(
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| Balance at end of period |
(
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(
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| Total stockholders' equity | $ |
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| Cash dividends paid per share of common stock | $ |
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See accompanying Notes to Condensed Consolidated Financial Statements.
4
FASTENAL COMPANY AND SUBSIDIARIES
Condensed Consolidated Statements of Cash Flows
(Amounts in millions)
| (Unaudited) | |||||||||||
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Three Months Ended
March 31, |
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| 2024 | 2023 | ||||||||||
| Cash flows from operating activities: | |||||||||||
| Net income | $ |
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| Adjustments to reconcile net income to net cash provided by operating activities: | |||||||||||
| Depreciation of property and equipment |
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| Gain on sale of property and equipment |
(
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(
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| Bad debt recoveries |
(
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(
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| Deferred income taxes |
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| Stock-based compensation |
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| Amortization of intangible assets |
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| Changes in operating assets and liabilities: | |||||||||||
| Trade accounts receivable |
(
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(
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| Inventories |
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| Other current assets |
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| Accounts payable |
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| Accrued expenses |
(
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(
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| Income taxes |
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| Other |
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| Net cash provided by operating activities |
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| Cash flows from investing activities: | |||||||||||
| Purchases of property and equipment |
(
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(
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| Proceeds from sale of property and equipment |
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| Other |
(
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(
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| Net cash used in investing activities |
(
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(
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| Cash flows from financing activities: | |||||||||||
| Proceeds from debt obligations |
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| Payments against debt obligations |
(
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(
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| Proceeds from exercise of stock options |
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| Cash dividends paid |
(
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(
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| Net cash used in financing activities |
(
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(
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| Effect of exchange rate changes on cash and cash equivalents |
(
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| Net increase in cash and cash equivalents |
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| Cash and cash equivalents at beginning of period |
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| Cash and cash equivalents at end of period | $ |
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| Supplemental information: | |||||||||||
| Cash paid for interest | $ |
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| Net cash paid for income taxes | $ |
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| Leased assets obtained in exchange for new operating lease liabilities | $ |
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See accompanying Notes to Condensed Consolidated Financial Statements.
5
FASTENAL COMPANY AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
(Amounts in millions except share and per share information and where otherwise noted)
March 31, 2024 and 2023
(Unaudited)
(1)
Basis of Presentation
The accompanying unaudited condensed consolidated financial statements of Fastenal Company and subsidiaries (collectively referred to as 'the company', 'Fastenal', or by terms such as 'we', 'our', or 'us') have been prepared in accordance with U.S. generally accepted accounting principles (GAAP) for interim financial information. They do not include all information and footnotes required by U.S. GAAP for complete financial statements. However, except as described herein, there has been no material change in the information disclosed in the Notes to Consolidated Financial Statements included in our consolidated financial statements as of and for the year ended December 31, 2023. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included.
Beginning in the first quarter of 2024, references to 'net earnings','operating and administrative expenses', and 'earnings before income taxes' have been revised in our condensed consolidated financial statements and financial reports, including this quarterly report on Form 10-Q, to 'net income', 'selling, general, and administrative (SG&A) expenses', and 'income before income taxes', respectively.
Recently Issued Accounting Pronouncements
In November 2023, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) 2023-07,
Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures
, which enhances reporting requirements under Topic 280. The enhanced disclosure requirements include: title and position of the Chief Operating Decision Maker (CODM), significant segment expenses provided to the CODM, extending certain annual disclosures to interim periods, clarifying single reportable segment entities must apply ASC 280 in its entirety, and permitting more than one measure of segment profit or loss to be reported under certain circumstances. This change is effective for fiscal years beginning after December 15, 2023 and interim periods beginning after December 15, 2024. This change will apply retrospectively to all periods presented.
(2) Revenue
Revenue Recognition
Net sales include products and shipping and handling charges, net of estimates for product returns and any related sales incentives. Revenue is measured as the amount of consideration we expect to receive in exchange for transferring products. All revenue is recognized when or as we satisfy our performance obligations under the contract. We recognize revenue by transferring control of the promised products to the customer, with the majority of revenue recognized at the point in time the customer obtains control of the products. We recognize revenue for shipping and handling charges at the time the products are delivered to or picked up by the customer. We estimate product returns based on historical return rates. Using probability assessments, we estimate sales incentives expected to be paid over the term of the contract. The majority of our contracts have a single performance obligation and are short term in nature. Sales taxes and value added taxes in foreign jurisdictions that are collected from customers and remitted to governmental authorities are accounted for on a net basis and therefore are excluded from net sales.
6
FASTENAL COMPANY AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
(Amounts in millions except share and per share information and where otherwise noted)
March 31, 2024 and 2023
(Unaudited)
Disaggregation of Revenue
Revenues are attributable to countries based on the selling location from which the sale occurred. Our revenues related to the following geographic areas were as follows for the periods ended March 31:
| Three-month Period | |||||||||||
| 2024 | 2023 | ||||||||||
| United States | $ |
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| % of revenues |
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% |
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% | |||||||
| Canada and Mexico |
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| % of revenues |
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% |
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% | |||||||
| North America |
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| % of revenues |
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% |
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% | |||||||
| All other foreign countries |
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| % of revenues |
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% |
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% | |||||||
| Total revenues | $ |
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The percentages of our sales by end market were as follows for the periods ended March 31:
| Three-month Period | |||||||||||
| 2024 | 2023 | ||||||||||
| Manufacturing |
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% |
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% | |||||||
| Non-residential construction |
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% |
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% | |||||||
| Other |
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% |
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% | |||||||
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% |
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% | ||||||||
The percentages of our sales by product line were as follows for the periods ended March 31:
| Three-month Period | ||||||||||||||
| Type | Introduced | 2024 | 2023 | |||||||||||
|
Fasteners
(1)
|
1967 |
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% |
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% | |||||||||
| Tools | 1993 |
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% |
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% | |||||||||
| Cutting tools | 1996 |
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% |
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% | |||||||||
| Hydraulics & pneumatics | 1996 |
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% |
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% | |||||||||
| Material handling | 1996 |
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% |
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% | |||||||||
| Janitorial supplies | 1996 |
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% |
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% | |||||||||
| Electrical supplies | 1997 |
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% |
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% | |||||||||
| Welding supplies | 1997 |
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% |
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% | |||||||||
| Safety supplies | 1999 |
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% |
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% | |||||||||
| Other |
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% |
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% | ||||||||||
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% |
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% | |||||||||||
(1)
The fastener product line represents fasteners and miscellaneous supplies.
7
FASTENAL COMPANY AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
(Amounts in millions except share and per share information and where otherwise noted)
March 31, 2024 and 2023
(Unaudited)
(3) Stockholders' Equity
Dividends
On April 10, 2024, our board of directors declared a quarterly dividend of $
0.39
per share of common stock to be paid in cash on May 23, 2024 to shareholders of record at the close of business on April 25, 2024.
The following table presents the cash dividends either paid previously or declared by our board of directors for future payment on a per share basis:
| 2024 | 2023 | ||||||||||
| First quarter | $ |
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$ |
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| Second quarter |
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| Third quarter |
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| Fourth quarter |
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| Fourth quarter (special) |
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| Total | $ |
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$ |
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Stock Options
The following tables summarize the details of options granted under our stock option plans that were outstanding as of March 31, 2024, and the assumptions used to value those grants. All such grants were effective at the close of business on the date of grant.
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Options
Granted |
Option Exercise
Price |
Closing Stock Price on Date
of Grant |
March 31, 2024 | ||||||||||||||||||||||||||
| Date of Grant |
Options
Outstanding |
Options
Exercisable |
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| January 2, 2024 |
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$ |
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$ |
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| January 3, 2023 |
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$ |
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$ |
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| January 3, 2022 |
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$ |
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$ |
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| January 4, 2021 |
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$ |
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$ |
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| January 2, 2020 |
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$ |
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$ |
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| January 2, 2019 |
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$ |
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$ |
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| January 2, 2018 |
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$ |
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$ |
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| January 3, 2017 |
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$ |
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$ |
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| April 19, 2016 |
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$ |
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$ |
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| April 21, 2015 |
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$ |
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$ |
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| Total |
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8
FASTENAL COMPANY AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
(Amounts in millions except share and per share information and where otherwise noted)
March 31, 2024 and 2023
(Unaudited)
| Date of Grant |
Risk-free
Interest Rate |
Expected Life of
Option in Years |
Expected
Dividend Yield |
Expected
Stock Volatility |
Estimated Fair
Value of Stock Option |
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| January 2, 2024 |
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% |
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% |
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% | $ |
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| January 3, 2023 |
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% |
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% |
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% | $ |
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| January 3, 2022 |
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% |
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% |
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% | $ |
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| January 4, 2021 |
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% |
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% |
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% | $ |
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| January 2, 2020 |
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% |
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% |
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% | $ |
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| January 2, 2019 |
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% |
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% |
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% | $ |
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| January 2, 2018 |
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% |
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% |
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% | $ |
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| January 3, 2017 |
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% |
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% |
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% | $ |
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| April 19, 2016 |
|
% |
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% |
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% | $ |
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| April 21, 2015 |
|
% |
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% |
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% | $ |
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All of the options in the tables above vest and become exercisable over a period of up to
eight years
. Generally, each option will terminate approximately
10
years after the grant date.
The fair value of each share-based option is estimated on the date of grant using a Black-Scholes valuation method that uses the assumptions listed above. The risk-free interest rate is based on the U.S. Treasury rate over the expected life of the option at the time of grant. The expected life is the average length of time over which we expect the employee groups will exercise their options, net of forfeitures, which is based on historical experience with similar grants. The dividend yield is estimated over the expected life of the option based on our current dividend payout, historical dividends paid, and expected future cash dividends. Expected stock volatilities are based on the movement of our stock price over the most recent historical period equivalent to the expected life of the option.
Compensation expense equal to the grant date fair value is recognized for all of these awards over the vesting period. The stock-based compensation expense for the three-month periods ended March 31, 2024 and 2023 was $
2.0
and $
1.9
, respectively. Unrecognized stock-based compensation expense related to outstanding unvested stock options as of March 31, 2024 was $
24.8
and is expected to be recognized over a weighted average period of
4.62
years. Any future changes in estimated forfeitures will impact this amount.
Income Per Share
The following tables present a reconciliation of the denominators used in the computation of basic and diluted income per share and a summary of the options to purchase shares of common stock which were excluded from the diluted income per share calculation because they were anti-dilutive:
| Three-month Period | |||||||||||
| Reconciliation | 2024 | 2023 | |||||||||
| Basic weighted average shares outstanding |
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| Weighted shares assumed upon exercise of stock options |
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| Diluted weighted average shares outstanding |
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| Three-month Period | |||||||||||
| Summary of Anti-dilutive Options Excluded | 2024 | 2023 | |||||||||
| Options to purchase shares of common stock |
|
|
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| Weighted average exercise prices of options | $ |
|
|
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9
FASTENAL COMPANY AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
(Amounts in millions except share and per share information and where otherwise noted)
March 31, 2024 and 2023
(Unaudited)
(4) Income Taxes
We file income tax returns in the United States federal jurisdiction, all states, and various local and foreign jurisdictions. We are no longer subject to income tax examinations by taxing authorities for taxable years before 2020 in the case of United States federal examinations, and with limited exception, before 2018 in the case of foreign, state, and local examinations. During the first quarter of 2024, there were
no
material changes in unrecognized tax benefits.
(5) Operating Leases
Certain operating leases for pick-up trucks contain residual value guarantee provisions which would generally become due at the expiration of the operating lease agreement if the fair value of the leased vehicles is less than the guaranteed residual value. The aggregate residual value guarantee related to these leases was approximately $
125.8
. We believe the likelihood of funding the guarantee obligation under any provision of the operating lease agreements is remote.
(6) Debt Commitments
Credit Facility, Notes Payable, and Commitments
Debt obligations and letters of credit outstanding at the end of each period consisted of the following:
|
Average Interest Rate at March 31, 2024
|
Debt Outstanding | ||||||||||||||||||||||
|
Maturity
Date |
March 31,
2024 |
December 31,
2023 |
|||||||||||||||||||||
| Unsecured revolving credit facility |
|
% | September 28, 2027 | $ |
|
|
|||||||||||||||||
| Senior unsecured promissory notes payable, Series C |
|
% | March 1, 2024 |
|
|
||||||||||||||||||
| Senior unsecured promissory notes payable, Series D |
|
% | May 15, 2025 |
|
|
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| Senior unsecured promissory notes payable, Series E |
|
% | May 15, 2027 |
|
|
||||||||||||||||||
| Senior unsecured promissory notes payable, Series G |
|
% | June 24, 2026 |
|
|
||||||||||||||||||
| Senior unsecured promissory notes payable, Series H |
|
% | June 24, 2030 |
|
|
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| Total |
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| Less: Current portion of debt |
|
(
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|||||||||||||||||||||
| Long-term debt | $ |
|
|
||||||||||||||||||||
| Outstanding letters of credit under unsecured revolving credit facility - contingent obligation | $ |
|
|
||||||||||||||||||||
Unsecured Revolving Credit Facility
We have an $
835.0
committed unsecured revolving credit facility (Credit Facility) with an uncommitted accordion option to increase the aggregate revolving commitment by an additional $
365.0
for a total amount of $
1,200.0
. The Credit Facility includes a committed letter of credit subfacility of $
55.0
. Any borrowings outstanding under the Credit Facility for which we have the ability and intent to pay using cash within the next 12 months will be classified as a current liability. The Credit Facility contains certain financial and other covenants, and our right to borrow under the Credit Facility is conditioned upon, among other things, our compliance with these covenants. We are currently in compliance with these covenants.
Borrowings under the Credit Facility generally bear interest at a rate per annum equal to Daily Simple SOFR plus a
0.10
% spread adjustment plus
0.95
%. We pay a commitment fee for the unused portion of the Credit Facility. This fee is either
0.10
% or
0.125
% per annum based on our usage of the Credit Facility.
10
FASTENAL COMPANY AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
(Amounts in millions except share and per share information and where otherwise noted)
March 31, 2024 and 2023
(Unaudited)
Senior Unsecured Promissory Notes Payable
We have issued senior unsecured promissory notes under our master note agreement (the Master Note Agreement) in the aggregate principal amount of $
200.0
as of March 31, 2024. Our aggregate borrowing capacity under the Master Note Agreement is $
900.0
; however, none of the institutional investors party to that agreement are committed to purchase notes thereunder. There is no amortization of these notes prior to their maturity date and interest is payable quarterly. The notes currently issued under our Master Note Agreement, including the maturity date and fixed interest rate per annum of each series of note, are contained in the table above. The Master Note Agreement contains certain financial and other covenants and we are currently in compliance with these covenants.
(7) Legal Contingencies
The nature of our potential exposure to legal contingencies is described in our 2023 annual report on Form 10-K in Note 10 of the Notes to Consolidated Financial Statements. As of March 31, 2024, there were no litigation matters that we consider to be probable or reasonably possible to have a material adverse outcome.
(8) Subsequent Events
We evaluated all subsequent event activity and concluded that no subsequent events have occurred that would require recognition in the condensed consolidated financial statements or disclosure in the Notes to Condensed Consolidated Financial Statements, with the exception of the dividend declaration disclosed in Note 3
'Stockholders' Equity'.
11
ITEM 2 — MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following is management's discussion and analysis of certain significant factors which have affected our financial position and operating results during the periods included in the accompanying condensed consolidated financial statements and should be read in conjunction with the condensed consolidated financial statements. Dollar amounts are stated in millions except for share and per share amounts and where otherwise noted. Throughout this document, percentage and dollar change calculations, which are based on non-rounded dollar values, may not be able to be recalculated using the dollar values in this document due to the rounding of those dollar values. References to daily sales rate (DSR) change may reflect either growth (positive) or contraction (negative) for the applicable period.
Business
Fastenal is a North American leader in the wholesale distribution of industrial and construction supplies. We distribute these supplies through a network of more than 3,400 in-market locations. Our largest end market is manufacturing. Sales to these customers includes products for both original equipment manufacturing (OEM), where our products are consumed in the final products of our customers, and manufacturing, repair, and operations (MRO), where our products are consumed to support the facilities and ongoing operations of our customers. We also service general and commercial contractors in non-residential end markets as well as farmers, truckers, railroads, oil exploration companies, oil production and refinement companies, mining companies, federal, state, and local governmental entities, schools, and certain retail trades. Geographically, our branches, Onsite locations, and customers are primarily located in North America, though we continue to grow our non-North American presence as well.
Our motto is
Growth Through Customer Service
®
and our tagline is
Where Industry Meets Innovation
™
.
We are a customer- and growth-centric organization focused on identifying unique technologies, capabilities, and supply chain solutions that get us closer to our customers and reduce the total cost of their global supply chain. We believe this close-to-the-customer, 'high-touch, high-tech' partnership approach is differentiated in the marketplace and allows us to gain market share in what remains a fragmented industrial distribution market.
Executive Overview
The following table presents a performance summary of our results of operations for the three-month periods ended
March 31, 2024
and
2023
.
| Three-month Period | |||||||||||||||||
| 2024 | 2023 | Change | |||||||||||||||
| Net sales | $ | 1,895.1 | 1,859.1 | 1.9 | % | ||||||||||||
| Business days | 64 | 64 | |||||||||||||||
| Daily sales | $ | 29.6 | 29.0 | 1.9 | % | ||||||||||||
| Gross profit | $ | 861.6 | 850.0 | 1.4 | % | ||||||||||||
| % of net sales | 45.5 | % | 45.7 | % | |||||||||||||
| Selling, general, and administrative expenses | $ | 471.4 | 456.8 | 3.2 | % | ||||||||||||
| % of net sales | 24.9 | % | 24.6 | % | |||||||||||||
| Operating income | $ | 390.2 | 393.2 | -0.8 | % | ||||||||||||
| % of net sales | 20.6 | % | 21.2 | % | |||||||||||||
| Income before income taxes | $ | 389.8 | 389.7 | 0.0 | % | ||||||||||||
| % of net sales | 20.6 | % | 21.0 | % | |||||||||||||
| Net income | $ | 297.7 | 295.1 | 0.9 | % | ||||||||||||
| Diluted net income per share | $ | 0.52 | 0.52 | 0.6 | % | ||||||||||||
| Note – Daily sales are defined as the total net sales for the period divided by the number of business days (in the United States) in the period. | |||||||||||||||||
12
The table below summarizes our absolute and full time equivalent (FTE; based on 40 hours per week) employee headcount, our investments related to in-market locations (defined as the sum of the total number of branch locations and the total number of active Onsite locations), and weighted Fastenal Managed Inventory (FMI) devices at the end of the periods presented and the percentage change compared to the end of the prior periods.
|
Change
Since: |
Change
Since: |
||||||||||||||||||||||
|
Q1
2024 |
Q4
2023 |
Q4
2023 |
Q1
2023 |
Q1
2023 |
|||||||||||||||||||
| Selling personnel - absolute employee headcount | 16,764 | 16,512 | 1.5 | % | 16,178 | 3.6 | % | ||||||||||||||||
| Selling personnel - FTE employee headcount | 15,102 | 15,070 | 0.2 | % | 14,704 | 2.7 | % | ||||||||||||||||
| Total personnel - absolute employee headcount | 23,695 | 23,201 | 2.1 | % | 22,820 | 3.8 | % | ||||||||||||||||
| Total personnel - FTE employee headcount | 20,935 | 20,721 | 1.0 | % | 20,262 | 3.3 | % | ||||||||||||||||
| Number of branch locations | 1,592 | 1,597 | -0.3 | % | 1,660 | -4.1 | % | ||||||||||||||||
| Number of active Onsite locations | 1,872 | 1,822 | 2.7 | % | 1,674 | 11.8 | % | ||||||||||||||||
| Number of in-market locations | 3,464 | 3,419 | 1.3 | % | 3,334 | 3.9 | % | ||||||||||||||||
| Weighted FMI devices (MEU installed count) | 115,653 | 113,138 | 2.2 | % | 104,673 | 10.5 | % | ||||||||||||||||
During the last twelve months, we increased our total FTE employee headcount by 673. This reflects an increase in our total FTE selling personnel of 398 to support growth in the marketplace and sales initiatives targeting customer acquisition. We had an increase in our distribution and transportation FTE personnel of 158 to support increased product throughput at our facilities and to expand our local inventory fulfillment terminals (LIFTs). We had an increase in our remaining FTE personnel of 117 that relates primarily to personnel investments in information technology, manufacturing, and operational support, such as purchasing and product development.
The table below summarizes the number of branches opened and closed, net of conversions, as well as the number of Onsites activated and closed, net of conversions during the periods presented.
| Three-month Period | ||||||||
| 2024 | 2023 | |||||||
| Branch openings | — | 2 | ||||||
| Branch closures, net of conversions | (5) | (25) | ||||||
| Onsite activations | 79 | 84 | ||||||
| Onsite closures, net of conversions | (29) | (33) | ||||||
Our in-market network forms the foundation of our business strategy. In recent years, we have seen a gradual increase in our in-market locations. This has reflected significant growth in Onsites and, to a lesser degree, international branches, which has more than overcome a meaningful decline in our traditional branch network from a strategic rationalization that aligned our physical footprint with changes in our business strategies. Branch closures may occur in the future to reflect normal churn in our business, but the strategic rationalization has concluded. As a result, we expect to see an increase in the rate of in-market location growth as Onsites continue to increase while our traditional branch network remains stable or grows moderately to sustain and improve our network and support our growth drivers.
13
FIRST QUARTER OF 2024 VERSUS FIRST QUARTER OF 2023
Results of Operations
The following table sets forth condensed consolidated statements of income information (as a percentage of net sales) for the periods ended March 31:
| Three-month Period | |||||||||||
| 2024 | 2023 | ||||||||||
| Net sales | 100.0 | % | 100.0 | % | |||||||
| Gross profit | 45.5 | % | 45.7 | % | |||||||
| Selling, general, and administrative expenses | 24.9 | % | 24.6 | % | |||||||
| Operating income | 20.6 | % | 21.2 | % | |||||||
| Net interest expense | 0.0 | % | -0.2 | % | |||||||
| Income before income taxes | 20.6 | % | 21.0 | % | |||||||
| Note – Amounts may not foot due to rounding difference. | |||||||||||
Sales
The table below sets forth net sales and daily sales for the periods ended March 31, and changes in such sales from the prior period to the more recent period:
| Three-month Period | |||||||||||
| 2024 | 2023 | ||||||||||
| Net sales | $ | 1,895.1 | 1,859.1 | ||||||||
| Percentage change | 1.9 | % | 9.1 | % | |||||||
| Business days | 64 | 64 | |||||||||
| Daily sales | $ | 29.6 | 29.0 | ||||||||
| Percentage change | 1.9 | % | 9.1 | % | |||||||
| Daily sales impact of currency fluctuations | 0.0 | % | -0.7 | % | |||||||
Net sales increased $36.1, or 1.9%, in the first quarter of 2024 when compared to the first quarter of 2023. The effect of adverse weather in the first quarter of 2024 was a reduction in sales by 35 to 55 basis points as compared to a reduction in sales in the first quarter of 2023 by 20 to 40 basis points, resulting in a net negative impact from adverse weather in the first quarter of 2024 of 10 to 30 basis points. The effect of foreign exchange on sales was not material in the first quarter of 2024 as compared to negatively affecting sales in the first quarter of 2023 by approximately 70 basis points.
We experienc
ed higher unit sales in the first quarter of 2024 primarily due to growth with larger customers and Onsite locations opened in the last two years
. The impact of product pricing was not material to net sales in the first quarter of 2024, as compared to the impact of product pricing on net sales in the first quarter of 2023 of 290 to 320 basis points. Incremental pricing actions over the past twelve months have been modest in scope, resulting in mostly stable price levels through the first quarter of 2024.
14
From a product standpoint, we have three categories: fasteners (including fasteners used in original equipment manufacturing (OEM) and maintenance, repair, and operations (MRO), safety supplies, and other product lines, the latter of which includes eight smaller product categories, such as tools, janitorial supplies, and cutting tools. We continued to experience a divergence in the performance of our fastener versus our non-fastener product lines in the first quarter of 2024, which we believe relates to three factors. First, fasteners are more heavily oriented toward production of final goods than maintenance, which results in greater susceptibility to periods of weaker industrial production
. Second, pricing for fasteners has decelerated at a faster pace than non-fastener products. Third, while the rate of outgrowth has slowed relative to what we experienced during the final two months of 2023, we continued to experience relatively faster growth with our retailer-oriented customers due to market share gains, product mix, and easier comparisons. This factor primarily benefited our safety product line.
The DSR change when compared to the same period in the prior year and the percent of sales in the period were as follows:
|
DSR Change
Three-month Period |
% of Sales
Three-month Period |
||||||||||||||||
| 2024 | 2023 | 2024 | 2023 | ||||||||||||||
| OEM fasteners | -4.0 | % | 12.6 | % | 19.6 | % | 20.8 | % | |||||||||
| MRO fasteners | -5.1 | % | -1.1 | % | 11.9 | % | 12.8 | % | |||||||||
| Total fasteners | -4.4 | % | 7.0 | % | 31.5 | % | 33.6 | % | |||||||||
| Safety supplies | 8.3 | % | 5.7 | % | 21.6 | % | 20.4 | % | |||||||||
| Other product lines | 3.9 | % | 12.4 | % | 46.9 | % | 46.0 | % | |||||||||
From an end market standpoint, we have five categories: heavy manufacturing, other manufacturing, non-residential construction, reseller, and other, the latter of which includes government/education and transportation/warehousing
. We continued to experience a divergence in the performance of our manufacturing end market versus our non-manufacturing end markets in the first quarter of 2024, although the scale of that divergence has continued to narrow. These trends reflect a number of factors. First, we are growing relatively faster with key account customers with significant managed spend where our service model and technology is particularly impactful, which disproportionately benefits manufacturing customers. At the same time, this benefit has been increasingly offset by weakening end markets. Second, while our non-residential and reseller end markets remain relatively weak, they are beginning to come across easier comparisons in the preceding periods. Third, while the rate of outgrowth has slowed relative to what we experienced during the final two months of 2023, we continued to experience relatively faster growth with our retailer-oriented customers due to market share gains, product mix, and easier comparisons. This factor primarily benefited our other product lines.
The DSR change when compared to the same period in the prior year and the percent of sales in the period were as follows:
|
DSR Change
Three-month Period |
% of Sales
Three-month Period |
||||||||||||||||
| 2024 | 2023 | 2024 | 2023 | ||||||||||||||
| Heavy manufacturing | 2.7 | % | 17.6 | % | 43.4 | % | 43.1 | % | |||||||||
| Other manufacturing | 2.5 | % | 10.2 | % | 31.6 | % | 31.5 | % | |||||||||
| Total manufacturing | 2.6 | % | 14.4 | % | 75.0 | % | 74.6 | % | |||||||||
| Non-residential construction | -6.6 | % | -2.4 | % | 8.5 | % | 9.3 | % | |||||||||
| Reseller | -2.5 | % | -5.7 | % | 5.7 | % | 6.0 | % | |||||||||
| Other end markets | 7.7 | % | -3.6 | % | 10.8 | % | 10.1 | % | |||||||||
We report our customers in two categories: national accounts, which are customers with significant revenue potential and a national, multi-site contract, and non-national accounts, which include large regional customers, small local customers, and government custome
rs. We continued to experience a significant divergence in the performance of our national account customers versus our non-national account customers, which relates to the relative growth of our sa
les through Onsite locations and larger, key accounts. T
he DSR
change when compared to the same period in the prior year and the percent of sales in the period were as follows:
|
DSR Change
Three-month Period |
% of Sales
Three-month Period |
||||||||||||||||
| 2024 | 2023 | 2024 | 2023 | ||||||||||||||
| National accounts | 6.3 | % | 13.6 | % | 62.0 | % | 59.2 | % | |||||||||
| Non-national accounts | -4.5 | % | 3.4 | % | 38.0 | % | 40.8 | % | |||||||||
15
Growth Drivers
•
We signed 102 new Onsite locations (defined as dedicated sales and service provided from within, or in proximity to, the customer's facility) in the first quarter of 2024. We had 1,872 active sites on March 31, 2024, which represented an increase of 11.8% from March 31, 2023. Daily sales through our Onsite locations, excluding sales transferred from branches to new Onsites, grew at a low single-digit rate in the first quarter of 2024 over the first quarter of 2023. This growth is due to contributions from Onsites activated and implemented in 2024 and 2023, as well as an increase in revenues per location among our more mature locations. These factors were only partly offset by Onsite closures. Our goal for Onsite signings in 2024 remains between 375 to 400.
•
FMI Technology is comprised of our FASTStock
℠
(scanned stocking locations), FASTBin
®
(infrared, RFID, and scaled bins), and FASTVend
®
(vending devices) offering. FASTStock's fulfillment processing technology is not embedded, is relatively less expensive and highly flexible in application, and delivered using our proprietary mobility technology. FASTBin and FASTVend incorporate highly efficient and powerful embedded data tracking and fulfillment processing technologies. The first statistic is a
weighted FMI
®
measure
which combines the signings and installations of FASTBin and FASTVend in a standardized machine equivalent unit (MEU) based on the expected output of each type of device. We do not include FASTStock in this measurement because scanned stocking locations can take many forms, such as bins, shelves, cabinets, pallets, etc., that cannot be converted into a standardized MEU. The second statistic is
sales through FMI Technology
which combines the sales through FASTStock, FASTBin, and FASTVend. A portion of the growth in sales experienced by FMI, particularly FASTStock and FASTBin, reflects the migration of products from less efficient non-digital stocking locations to more efficient, digital stocking locations.
The table below summarizes the signings and installations of, and sales through, our FMI devices.
| Three-month Period | |||||||||||||||||
| 2024 | 2023 | Change | |||||||||||||||
| Weighted FASTBin/FASTVend signings (MEUs) | 6,726 | 5,902 | 14.0 | % | |||||||||||||
| Signings per day | 105 | 92 | |||||||||||||||
| Weighted FASTBin/FASTVend installations (MEUs; end of period) | 115,653 | 104,673 | 10.5 | % | |||||||||||||
| FASTStock sales | $ | 239.8 | 236.7 | 1.3 | % | ||||||||||||
| % of sales | 12.5 | % | 12.6 | % | |||||||||||||
| FASTBin/FASTVend sales | $ | 556.9 | 503.7 | 10.6 | % | ||||||||||||
| % of sales | 29.0 | % | 26.8 | % | |||||||||||||
| FMI sales | $ | 796.7 | 740.4 | 7.6 | % | ||||||||||||
| FMI daily sales | $ | 12.4 | 11.6 | 7.6 | % | ||||||||||||
| % of sales | 41.5 | % | 39.4 | % | |||||||||||||
Our goal for weighted FASTBin and FASTVend device signings in 2024 remains between 26,000 to 28,000 MEUs.
•
Our eCommerce business includes sales made through EDI, or other types of technical integrations, and through our web verticals.
Daily sales through eCommerce grew 33.6% in the first quarter of 2024 and represented 28.6% of our total sales in the period.
Our d
igital products and services are comprised of sales through FMI (FASTStock, FASTBin, and FASTVend) plus that proportion of our eCommerce sales that do not represent billings of FMI services (collectively, our Digital Footprint). We believe the data that is created through our digital capabilities enhances product visibility, traceability, and control that reduces risk in operations and creates ordering and fulfillment efficiencies for both ourselves and our customers. As a result, we believe our opportunity to grow our business will be enhanced through the continued development and expansion of our digital capabilities.
Our Digital Footprint in the first quarter of 2024
represented 59.2% of our sales, an increase from 54.1% of sales in
the first quarter of 2023.
16
Gross Profit
Our gross prof
it, as a percentage of net sales, decreased to 45.5% in the first qu
arter of 2024
from 45.7% in the fi
rst quarter of 2023.
Our gross profit percentage was negatively affected by customer and product mix. This reflects relatively stronger growth from large customers, including Onsite customers, and non-fastener products, each of which tend to have a lower gross profit percentage than our business as a who
le.
The negative impact of mix was partly offset by a couple of trends. First, we continue to experience modestly positive price-cost, reflecting easing product cost, the absence of meaningful pricing actions by us in the period, and an easy comparison versus the price-cost deficit experienced in the first quarter of 2023. Second, we had favorable leverage of organizational/overhead costs, primarily due to greater utilization of domestic transportation resources as we move more product to support current stocking levels.
SG&A Expenses
Our SG&A expenses, as a percentage of net sales, increased to 24.9% in the first quarter of 2024 from 24.6% in the first quarter of 2023. We continue to focus on limiting growth in our headcount and improving the balance of full-time and part-time employees in our workforce. We still deleveraged our employee-related expenses as a result of slower growth in sales in the first quarter of 2024.
Th
e percentage change in employee-
related, occupancy-related, and all other SG&A expenses compared to the same periods in the preceding year, is outlined in the table below.
| Approximate Percentage of Total SG&A Expenses | Three-month Period | |||||||
| 2024 | ||||||||
| Employee-related expenses | 70% to 75% | 3.9 | % | |||||
| Occupancy-related expenses | 15% to 20% | 0.0 | % | |||||
| All other SG&A expenses | 10% to 15% | 3.5 | % | |||||
Employee-related expenses include: (1) payroll (which includes cash compensation, stock option expense, and profit sharing), (2) health care, (3) personnel development, and (4) social taxes.
In the
first
quarter of 2024, our employee-relate
d expenses increased when com
pared to the
first
quarter of 2023.
We experienced an increase in employee base pay due to higher average FTE and higher average wages during the period, as well as an increase in employee health care costs. This was only partly offset by lower bonus and commission payments reflecting slower sales and profit growth versus the first quarter of 2023.
The table below summarizes our FTE headcount at the end of the periods presented and
the percentage change compared to the end of the prior periods:
|
Change
Since: |
Change
Since: |
|||||||||||||||||||
|
Q1
2024 |
Q4
2023 |
Q4
2023 |
Q1
2023 |
Q1
2023 |
||||||||||||||||
|
Selling personnel
(1)
|
15,102 | 15,070 | 0.2 | % | 14,704 | 2.7 | % | |||||||||||||
| Distribution/Transportation personnel | 3,187 | 3,095 | 3.0 | % | 3,029 | 5.2 | % | |||||||||||||
| Manufacturing personnel | 715 | 697 | 2.6 | % | 714 | 0.1 | % | |||||||||||||
|
Organizational support personnel
(2)
|
1,931 | 1,859 | 3.9 | % | 1,815 | 6.4 | % | |||||||||||||
| Total personnel | 20,935 | 20,721 | 1.0 | % | 20,262 | 3.3 | % | |||||||||||||
|
(1)
|
Of our Selling Personnel, 80%-85% are attached to a specific in-market location.
|
||||
|
(2)
|
Organizational support personnel consists of: (1) Sales & Growth Driver Support personnel (35% to 40% of category), which includes sourcing, purchasing, supply chain, product development, etc.; (2) Information Technology personnel (35% to 40% of category); and (3) Administrative Support personnel (20% to 25% of category), which includes human resources, Fastenal School of Business, accounting and finance, senior management, etc.
|
||||
Occupancy-related expenses include: (1) building rent and depreciation, (2) building utility costs, (3) equipment related to our branches and distribution locations, and (4) industrial vending equipment and bins utilized as part of FMI services (we consider this hardware to be a logical extension of our in-market operations and classify the depreciation and repair costs as occupancy expenses).
In the first quarter of 2024, our occupancy-related expenses were flat when compared to the first quarter of 2023. We had lower depreciation expense as we have had a large number of vending machines and certain of our hub automation equipment reach the end of their depreciable lives relative to the first quarter of 2023. This was offset by slightly higher facility expense.
17
All other SG&A expenses include: (1) selling-related transportation, (2) information technology (IT) expenses, (3) general corporate expenses, which consists of legal expenses, general insurance expenses, travel and marketing expenses, etc., and (4) sales of property and equipment.
Combined, all other SG&A expenses increased in the
first quarter of 2024 when compared to the first quarter of 2023. The increase in other SG&A expenses is primarily a result of modest increases in spending on information technology and higher lease costs in our selling-related vehicle fleet due to an increase in the mix of larger truck types and higher prices on newer vehicles.
Operating Income
Our operating income, as a percentage of net sales, decreased to 20.6% in the first quarter of 2024 from 21.2% in the first quarter of 2023.
Net Interest
We had net interest expense of $0.4 in the first quarter of 2024, compared to net interest expense of $3.5 in the fi
rst quarter of 2023.
We had higher interest income, reflecting higher average cash balances through the period, particularly in January and February, and higher rates earned on those balances. We had lower interest expense, reflecting lower average borrowings through the period.
Income Taxes
We recorded income tax expense of $92.1 in the first quarter of 2024, or 23.6% of income before income taxes. Income tax expense was $94.6 in the first quarter of 2023, or 24.3% of income before income taxes. We believe our ongoing tax rate, absent any discrete tax items or broader changes to tax law, will be approximately 24.5%. Our tax rate in the first quarter of 2024 was below our expected ongoing tax rate due to the tax benefits associated with the exercise of stock options during the quarter.
Net Income
Our net income during the first quarter of 2024 was $297.7, an increase of 0.9% compared to the first quarter of 2023. Our diluted net income per share was $0.52 during the first quarter of 2024, which was unchanged from $0.52 during the first quarter of 2023.
Liquidity and Capital Resources
Cash flow activity was as follows for the periods ended March 31:
| Three-month Period | |||||||||||||||||
| 2024 | 2023 | Change | |||||||||||||||
| Net cash provided by operating activities | $ | 335.6 | 388.5 | -13.6 | % | ||||||||||||
| Percentage of net income | 112.7 | % | 131.7 | % | |||||||||||||
| Net cash used in investing activities | $ | 48.4 | 31.0 | 56.1 | % | ||||||||||||
| Percentage of net income | 16.3 | % | 10.5 | % | |||||||||||||
| Net cash used in financing activities | $ | 267.4 | 348.9 | -23.4 | % | ||||||||||||
Net Cash Provided by Operating Activities
Net cash provided by operating activities decreased $52.9 in the first quarter of 2024 when compared to the first quarter of 2023.
The decrease in operating cash flow, as a percent of net income, reflects our operating assets and liabilities
being a modest use of cash in the first quarter of 2024 versus a source of cash in the first quarter of 2023. Inventory was a smaller source of cash in the first quarter of 2024 relative to the preceding period as the pace of inventory reduction slowed as the proc
ess of rightsizing stocking levels to reflect smoother supply chains is substantially complete. We also had relatively less favorable accruals for wages, reflecting the softer growth and earnings environment.
Our rate of conversion of net income into operating cash flow in the first quarter of 2024 is broadly consistent with what we have achieved on average in the first quarter over the last five years.
18
The dollar and percentage change in accounts receivable, net, inventories, and accounts payable as of March 31, 2024 when compared to March 31, 2023 were as follows:
| March 31 | Twelve-month Dollar Change | Twelve-month Percentage Change | ||||||||||||||||||||||||
| 2024 | 2023 | 2024 | 2024 | |||||||||||||||||||||||
| Accounts receivable, net | $ | 1,213.2 | 1,149.8 | $ | 63.4 | 5.5 | % | |||||||||||||||||||
| Inventories | 1,496.3 | 1,651.9 | (155.6) | -9.4 | % | |||||||||||||||||||||
| Trade working capital | $ | 2,709.5 | 2,801.7 | $ | (92.2) | -3.3 | % | |||||||||||||||||||
| Accounts payable | $ | 276.0 | 266.8 | $ | 9.2 | 3.4 | % | |||||||||||||||||||
| Trade working capital, net | $ | 2,433.5 | 2,534.9 | $ | (101.4) | -4.0 | % | |||||||||||||||||||
| Net sales in last three months | $ | 1,895.1 | 1,859.1 | $ | 36.1 | 1.9 | % | |||||||||||||||||||
Note - Amounts may not foot due to rounding difference.
The increase in our accounts receivable balance in the first quarter of 2024 was primarily attributable to two factors. First, our receivables increased as a result of growth in sales to our customers. Second, we continue to experience a shift in our mix due to relatively stronger growth from national account customers, which tend to carry longer payment terms than our non-national account customers.
The decrease in our inventory balance in the first quarter of 2024 primarily reflects progress made over the last twelve months to reduce inventory following the normalization of the supply chain after the disruptions experienced in 2022. We responded to that event by deepening inventory to support customer growth, and the process of rightsizing our stock can be protracted given the quantity of imported product we source. We have also experienced modest deflation in our inventory.
The increase in our accounts payable balance in the first quarter of 2024 was primarily attributable to our product purchases increasing to support the growth in our business. The growth in our accounts payable balance is above the growth in our sales reflecting re-stocking of certain products that were depleted to support certain customer needs during the fourth quarter of 2023. It also reflects the timing of the Good Friday holiday, as our purchasing activities remained steady relative to slower sales at the end of the first quarter of 2024.
Net Cash Used in Investing Activities
Net cash used in investi
ng activities increased by $17.4 in the first quarter of 2024 when compared to the first quarter of 2023. This was due to higher net capital expenditures (purchases of property and equipment, net of proceeds from sales of property and equipment) in the first quarter of 2024 compared to the first quarter of 2023.
Our capital spending typically falls into six categories: (1) purchases related to FMI hardware, (2) purchases of property and equipment related to expansion of and enhancements to distribution centers, (3) spending on software and hardware for our information processing systems, (4) the addition of fleet vehicles, (5) expansion, improvement or investment in certain owned or leased branch properties, and (6) the addition of manufacturing and warehouse equipment. Proceeds from the sales of property and equipment, typically for the planned disposition of pick-up trucks as well as distribution vehicles and trailers in the normal course of business, are netted against these purchases an
d additions.
During the first quarter of 2024, our net capital expenditures were $48.3, which was an increase from $30.9 in the first quarter of 2023. This was primarily due to an increase in spending for facility construction and upgrades, as well as higher vehicle spending reflecting the timing of deliveries from our suppliers.
Cash requirements for capital expenditures were satisfied from cash generated from operations, available cash and cash equivalents, our borrowing capacity, and the proceeds of disposals.
During the full year of 2024, we continue to expect our investment in property and equipment, net of proceeds from sales, to be within a range of $225.0 to $245.0, increasing from $160.6 in 2023. This increase reflects spending to complete our Utah distribution center, investments in picking technology and equipment in our hubs and branches, higher outlays for FMI hardware reflecting our higher targeted signings and a slight build in device inventory, and an increase in spending on information technology.
19
Net Cash Used in Financing Activities
Net cash used in financing ac
tivities decreased $81.5 in the first quarter of 2024 when compared to the first quarter of 2023. This was primarily due to debt reduction in the first quarter of 2024 being significantly lower than in the first quarter of 2023 owing to smaller outstanding debt balances. This was only partly offset by an increase in capital returned to shareholders through dividends in the period.
During the first quarter of 2024, we returned $223.2 to our shareholders in the form of dividends, compared to the first quarter of 2023 when we returned $199.8 to our shareholders in the form of dividends. We did not repurchase any of our common stock in either period.
We have authority to purchase up to 6,200,000 additional shares of our common stock under the July 12, 2022 authorization. This authorization does not have an expiration date.
Total debt on our balance sheet was $200.0 at the end of the first quarter of 2024, or 5.5% of total capital (the sum of stockholders' equity and total debt). This compares to $400.0, or 10.9% of total capital, at the end of the first quarter of 2023. The higher level of debt carried in the first quarter of 2023 was due to having used our revolver to finance working capital to mitigate supply chain constraints. With the supply chain normalizing, we have been able to reduce layers of working capital and generate cash flow to lower our level of indebtedness in the first quarter of 2024.
Our material cash requirements for known contractual obligations include capital expenditures, debt, and lease obligations, each of which are discussed in more detail earlier in this report in the Notes to Condensed Consolidated Financial Statements and in our
2023
annual report on Form 10-K.
An overview of our cash dividends paid or declared in 2024 and 2023 is contained in Note 3 of the Notes to Condensed Consolidated Financial Statements.
20
Critical Accounting Policies and Estimates –
A discussion of our critical accounting policies and estimates is contained in our 2023 annual report on Form 10-K. There have been no material changes from the critical accounting policies and estimates disclosed in our annual report on Form 10-K.
Recently Issued and Adopted Accounting Pronouncements –
A description of recently issued and adopted accounting pronouncements, if any, is contained in Note 1 of the Notes to Condensed Consolidated Financial Statements.
Certain Risks and Uncertainties –
Certain statements contained in this document do not relate strictly to historical or current facts. As such, they are considered 'forward-looking statements' that provide current expectations or forecasts of future events. These forward-looking statements are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Such statements can be identified by the use of terminology such as anticipate, believe, should, estimate, expect, intend, may, will, plan, goal, project, hope, trend, target, opportunity, and similar words or expressions, or by references to typical outcomes. Any statement that is not a purely historical fact, including estimates, projections, trends, and the outcome of events that have not yet occurred, is a forward-looking statement. Our forward-looking statements generally relate to our expectations and beliefs regarding the business environment in which we operate, our projections of future performance, our perceived marketplace opportunities, our strategies, goals, mission and vision, our expectations related to future capital expenditures, future investment in property and equipment, future tax rates, future inventory levels, pricing, Onsite and weighted FMI device signings, the impact of inflation on our cost of goods or SG&A expenses, the impact of price increases on overall sales growth or margin performance, and our ability to grow our business through the enhancement of sales through our Digital Footprint. You should understand that forward-looking statements involve a variety of risks and uncertainties, known and unknown, and may be affected by inaccurate assumptions. Consequently, no forward-looking statement can be guaranteed and actual results may vary materially. Factors that could cause our actual results to differ from those discussed in the forward-looking statements include, but are not limited to, economic downturns, weakness in the manufacturing or commercial construction industries, competitive pressure on selling prices, changes in our current mix of products, customers, or geographic locations, changes in our average branch size, changes in our purchasing patterns, changes in customer needs, changes in fuel or commodity prices, inclement weather, changes in foreign currency exchange rates, difficulty in adapting our business model to different foreign business environments and the challenges of operating in foreign business environments, failure to accurately predict the market potential of our business strategies, the introduction or expansion of new business strategies, weak acceptance or adoption of our FMI offering or Onsite business models, increased competition in FMI or Onsite, difficulty in maintaining installation quality as our FMI business expands, the leasing to customers of a significant number of additional FMI devices, the failure to meet our goals and expectations regarding branch openings, branch closings, or expansion of our FMI offering or Onsite operations, changes in the implementation objectives of our business strategies, challenges in developing and expanding our digital capabilities, difficulty in hiring, relocating, training, or retaining qualified personnel, difficulty in controlling SG&A expenses, including FTE growth, difficulty in collecting receivables or accurately predicting future inventory needs, dramatic changes in sales trends, changes in supplier production lead times, the rate at which our supply chain normalizes, changes in our cash position or our need to make capital expenditures, credit market volatility, changes in tax law or the impact of any such changes on future tax rates, changes in tariffs or the impact of any such changes on our financial results, changes in the availability or price of commercial real estate, changes in the nature, price, or availability of distribution, supply chain, or other technology (including software licensed from third parties) and services related to that technology, cyber-security incidents, potential liability and reputational damage that can arise if our products are defective, difficulties measuring the contribution of price increases on sales growth, acts of war, and other risks and uncertainties detailed in our filings with the Securities and Exchange Commission, including our most recent annual and quarterly reports. Each forward-looking statement speaks only as of the date on which such statement is made, and we undertake no obligation to update any such statement to reflect events or circumstances arising after such date.
21
ITEM 3 — QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
We are exposed to certain market risks from changes in foreign currency exchange rates, commodity steel pricing, commodity energy prices, and interest rates. Changes in these factors cause fluctuations in our income and cash flows. We evaluate and manage exposure to these market risks as follows:
Import shipping costs
– We import a significant quantity of our products, particularly fasteners and private label products, from foreign suppliers, primarily in Asia. As a result, we incur costs related to shipping charges, duties, harbor fees, and sundry other expenses involved in the movement of product for sale in North America and our other global locations. These costs are embedded in our product values, and significant fluctuations can affect our product gross profit depending on what mitigating actions might be taken. The most significant contributor to these fluctuations is the cost of overseas shipping containers, although the timing of any impact can be affected by the length of our supply chain, contractually agreed upon rates, or differences in rates between routes. We estimate the effect on our net income related to import shipping costs was a favorable $5.0 to $10.0 in the first quarter of 2024.
Commodity steel prices
– We buy
and sell various types of steel products; these products consist primarily of different types of
fasteners and related hardware. We are exposed to the impacts of commodity steel pricing and our related ability to pass through the impacts to our end customers. During the first quarter of 2024, the price of steel as reflected in many market indexes was at or slightly below the prior year. Due to our long supply chain, changes in the cost of steel can take a number of quarters to be reflected in our financial results. Further, the cost of the raw material is generally a small part of the total value of the steel products that we sell, which can also diminish the impact of cost changes for the raw material. We estimate the effect on our net income related to commodity steel prices was immaterial in the first quarter of 2024.
Commodity energy prices
– We have market risk for changes in prices of oil, gasoline, diesel fuel, natural gas, and electricity. As reflected in many market indexes, energy prices during the first quarter of 2024 were at or slightly below the prior year, which contributed to slightly lower costs for fuel consumed in our vehicles and lower utility costs at our facilities. Total direct fuel consumption is a relatively minor cost to the company and, as a result, we estimate the effect on our net income related to commodity energy prices was immaterial in the first quarter of 2024.
Fossil fuels are also often a key feedstock for chemicals and plastics that comprise a key raw material for many products that we sell. During the first quarter of 2024, prices for fossil fuels were generally stable with prior year levels. The cost of the raw material is generally a small part of the total value of the products that we sell, which can diminish the impact of cost changes for the raw material. As a result, we estimate the effect on our net income related to materials for which fossil fuels are a feedstock was immaterial in the first quarter of 2024.
Foreign currency exchange rates
– Foreign currency fluctuations can affect our net investments, our operations in countries other than the U.S., and income denominated in foreign currencies. Our primary exchange rate exposure has traditionally been with the Canadian dollar against the United States dollar, and we have not historically hedged our foreign currency risk given that exposure to date has not been material. Changes in foreign exchange rates were immaterial for the first quarter of 2024.
Interest rates
-
Loans under our Credit Facility bear interest at floating rates. As a result, changes in such rates can affect our operating results and liquidity to the extent we do not have effective interest rate swap arrangements in place. We have not historically used interest rate swap arrangements to hedge the variable interest rates under our Credit Facility. A one percentage point increase to our floating rate debt in the first quarter of 2024 would have resulted in approximately $0.1 of additional interest expense. A description of our Credit Facility is contained in Note 6 of the Notes to Condensed Consolidated Financial Statements.
ITEM 4 — CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures –
As of the end of the period covered by this report, we conducted an evaluation, under the supervision and with the participation of the principal executive officer and principal financial officer, of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934 (the Securities Exchange Act)). Based on this evaluation, the principal executive officer and principal financial officer concluded that our disclosure controls and procedures are effective to ensure that information required to be disclosed by us in reports that we file or submit under the Securities Exchange Act is recorded, processed, summarized, and reported within the time periods specified in SEC rules and forms, and is accumulated and communicated to our management, including the principal executive officer and principal financial officer, to allow for timely decisions regarding disclosure.
Changes in Internal Control Over Financial Reporting
–
There was no change in our internal control over financial reporting during our most recently completed fiscal quarter that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
22
PART II — OTHER INFORMATION
ITEM 1 — LEGAL PROCEEDINGS
A description of our legal proceedings, if any, is contained in Note 7 of the Notes to Condensed Consolidated Financial Statements. The description of legal proceedings, if any, in Note 7 is incorporated herein by reference.
ITEM 1A — RISK FACTORS
There have been no material changes from the risk factors described in Part I,
Item 1
A, Risk Fa
ctors
of our most recently filed annual report on Form 10-K.
ITEM 2 — UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
Issuer Purchases of Equity Securities
The table below sets forth information regarding purchases of our common stock during the first quarter of 2024:
| (a) | (b) | (c) | (d) | |||||||||||||||||||||||||||||||||||
| Period |
Total Number of
Shares Purchased |
Average Price
Paid per Share |
Total Number of
Shares Purchased
as Part of Publicly
Announced Plans
or Programs
(1)
|
Maximum Number (or
Approximate Dollar
Value) of Shares that
May Yet Be Purchased
Under the Plans or
Programs
(1)
|
||||||||||||||||||||||||||||||||||
| January 1-31, 2024 | 0 | $0.00 | 0 | 6,200,000 | ||||||||||||||||||||||||||||||||||
| February 1-29, 2024 | 0 | $0.00 | 0 | 6,200,000 | ||||||||||||||||||||||||||||||||||
| March 1-31, 2024 | 0 | $0.00 | 0 | 6,200,000 | ||||||||||||||||||||||||||||||||||
| Total | 0 | $0.00 | 0 | 6,200,000 | ||||||||||||||||||||||||||||||||||
|
(1)
|
As of March 31, 2024, we had remaining authority to repurchase 6,200,000 shares under the July 12, 2022 authorization. This authorization does not have an expiration date.
|
||||
ITEM 5 — OTHER INFORMATION
ITEM 6 — EXHIBITS
INDEX TO EXHIBITS
| Exhibit Number | Description of Document | |||||||
| 3.1 | ||||||||
| 3.2 | ||||||||
| 31 | ||||||||
| 32 | ||||||||
| 101 |
The following financial statements from the quarterly report on Form 10-Q for the quarter ended March 31, 2024, formatted in Inline XBRL: (i) Condensed Consolidated Balance Sheets, (ii) Condensed Consolidated Statements of Income, (iii) Condensed Consolidated Statements of Comprehensive Income, (iv) Condensed Consolidated Statements of Stockholders’ Equity, (v) Condensed Consolidated Statements of Cash Flows, and (vi) Notes to Condensed Consolidated Financial Statements.
|
|||||||
| 104 |
The cover page from the quarterly report on Form 10-Q for the quarter ended March 31, 2024, formatted in Inline XBRL.
|
|||||||
23
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
| FASTENAL COMPANY | |||||||||||
| Date: April 16, 2024 | By: | /s/ Holden Lewis | |||||||||
| Holden Lewis | |||||||||||
| Senior Executive Vice President and Chief Financial Officer | |||||||||||
| (Principal Financial Officer) | |||||||||||
| Date: April 16, 2024 | By: | /s/ Sheryl A. Lisowski | |||||||||
| Sheryl A. Lisowski | |||||||||||
| Executive Vice President - Chief Accounting Officer and Treasurer | |||||||||||
| (Duly Authorized Officer and Principal Accounting Officer) | |||||||||||
24
TABLE OF CONTENTS
Part I Financial InformationprintItem 1 Financial StatementsprintItem 2 Management's Discussion and Analysis Of Financial Condition and Results Of OperationsprintItem 3 Quantitative and Qualitative Disclosures About Market RiskprintItem 4 Controls and ProceduresprintPart II Other InformationprintItem 1 Legal ProceedingsprintItem 1A Risk FactorsprintItem 1a, Risk FactorsprintItem 2 Unregistered Sales Of Equity Securities and Use Of ProceedsprintItem 5 Other InformationprintItem 6 Exhibitsprint