Fastenal Company — Q2 2021 Form 10-Q Summary
Business context and reporting period
Fastenal distributes industrial and construction supplies through more than 3,200 in-market locations, primarily serving manufacturing and non-residential construction customers. This filing covers the quarter and six months ended June 30, 2021. The financial statements are unaudited and presented in millions, except per-share data.
Key financial metrics
| Metric | Q2 2021 | Q2 2020 | Six months 2021 | Six months 2020 |
|---|---|---|---|---|
| Net sales | $1,507.7 | $1,509.0 | $2,924.7 | $2,876.0 |
| Gross profit | $700.7 | $671.6 | $1,344.1 | $1,308.4 |
| Gross margin | 46.5% | 44.5% | 46.0% | 45.5% |
| Operating income | $317.8 | $316.0 | $598.1 | $587.3 |
| Operating margin | 21.1% | 20.9% | 20.5% | 20.4% |
| Net earnings | $239.7 | $238.9 | $450.3 | $441.5 |
| Diluted EPS | $0.42 | $0.42 | $0.78 | $0.77 |
| Operating cash flow | Source text does not provide a clear quarterly value | Source text does not provide a clear quarterly value | $446.3 | $491.8 |
At June 30, 2021, cash and cash equivalents were $321.8, total debt was $405.0, and available borrowings under the unsecured revolving credit facility were $700.0, with no borrowings outstanding. Current debt was $40.0 and long-term debt was $365.0. The company was in compliance with its debt covenants. Total stockholders’ equity was $2,880.8.
Net cash used in investing activities was $61.4 for the first six months, including $67.3 of property and equipment purchases. Net cash used in financing activities was $308.0, primarily reflecting $321.6 of dividends paid. Cash increased $76.1 during the period to $321.8.
Material changes versus comparable periods
- Second-quarter sales declined 0.1%, while first-half sales increased 1.7%. Management attributed the limited reported growth to the nonrecurrence of pandemic-related PPE and sanitation “surge” sales in Q2 2020, largely offset by stronger manufacturing demand.
- Fastener daily sales increased 28.4% in Q2 and 15.4% in the first half, while safety daily sales declined 20.2% in the first half as pandemic-related demand receded.
- Manufacturing daily sales increased 14.6% in the first half; non-residential construction daily sales declined 0.8%; government customer sales declined 39.2% and represented 5.0% of sales versus 8.4% in the prior-year period.
- Gross margin improved 200 basis points in Q2 and 50 basis points in the first half, supported by product mix, operating leverage, favorable rebates, and improved safety-category customer mix. Higher freight costs and a $7.8 inventory write-down for three-ply masks partially offset these benefits.
- Operating and administrative expenses increased as a percentage of sales, primarily because employee-related expenses grew faster than revenue.
- First-half operating cash flow decreased 9.3%, principally because the company resumed income-tax payments that had been deferred in 2020 under the CARES Act.
- FMI sales increased 61.4% in Q2 and 34.0% in the first half. FMI represented 31.1% of Q2 sales and 30.1% of first-half sales. E-commerce represented 13.2% of Q2 revenue, and management reported a 41.7% Q2 digital footprint.
Guidance, outlook, commentary, and risks
- Management expects 2021 net capital expenditures of $170.0 to $200.0, compared with $157.5 in 2020.
- Management expects 2021 Onsite signings of 300 to 350 locations and believes the market could support 375 to 400 annually as customer access normalizes.
- The 2021 goal for weighted FASTVend and FASTBin signings remains 23,000 to 25,000 machine-equivalent units.
- Management expects an ongoing tax rate of approximately 24.5% to 25.0%, absent discrete tax items or broader tax-law changes.
- Inflation in product and transportation costs persisted. Pricing actions contributed approximately 70 to 100 basis points to first-half sales and 80 to 110 basis points to Q2 sales; further pricing actions may be required.
- COVID-19’s direct impact had diminished, but variants could cause renewed customer, supplier, labor, logistics, and facility disruptions. Management stated that the future impact cannot reasonably be estimated.
- Other risks include manufacturing and construction downturns, pricing competition, commodity and fuel inflation, supply-chain disruptions, foreign exchange, labor availability, technology and cybersecurity issues, inventory and receivables management, and adoption or execution risks related to FMI and Onsite strategies.
- No litigation matters were considered probable or reasonably possible to have a material adverse outcome as of June 30, 2021. The company declared a quarterly dividend of $0.28 per share payable August 24, 2021.
Facts investors should verify
- Whether manufacturing recovery and fastener growth continue to offset declining pandemic-related PPE and government sales.
- Whether pricing actions can offset sustained product, freight, labor, and supply-chain inflation without weakening demand or margins.
- Progress toward the 2021 Onsite signing target and 23,000 to 25,000 weighted FMI signing goal.
- Whether capital expenditures remain within the $170.0 to $200.0 outlook and support continued digital and distribution expansion.
- The effect of working-capital changes, tax payments, and supply constraints on operating cash flow.
- Future COVID-19 developments, including variants, customer access, supplier capacity, labor availability, and logistics disruptions.
- Upcoming debt maturities, including the $40.0 Series A notes due July 20, 2021, and the company’s continued compliance with debt covenants.