Important takeaways from Fastenal’s (FAST) Q3 report

Fastenal Company (NASDAQ: FAST), a provider of fasteners used in industries like manufacturing and construction, is a market leader that has consistently expanded the business by integrating into the businesses it serves. Of late, there has been a steady increase in onsite locations, a program where the company invests in customers’ locations, and that contributes significantly to revenues.   

Investing in FAST

FAST is a stable stock that has effectively navigated through the recent selloff and general weakness in the market. The stock maintained an uptick so far this year and is moving closer to the record it set about two years ago. Last week, the shares jumped after the company reported strong third-quarter results. As far as investing is concerned, the valuation is just right, and the stock is unlikely to disappoint long-term investors.   

Over the years, Fastenal’s revenues and earnings have grown constantly, and the trend is likely to continue. There is stable demand as the company serves a wide range of businesses that would need to replace the products at regular intervals. The recovery in enterprise spending, in line with improvements in the economy, bodes well for the company.

Fastenal’s balance sheet is healthy, marked by steady cash flows and a relatively lower debt – the debt-to-equity ratio is a modest 0.06%. The strong cash position has come in handy when faced with challenges.

Key Numbers

In the third quarter, Fastenal’s net income came in at $295.5 million or $0.52 per share, compared to $284.6 million or $0.50 per share in the corresponding period of 2022. Earnings beat analysts’ forecasts, continuing the long-term trend. Margins benefitted from higher prices and moderation in freight costs due to supply chain improvements.

The growth was driven by a 2% year-over-year increase in revenues to $1.85 billion. The top line benefited from higher unit sales amid strong growth in onsite locations, particularly those opened in the last two years. That more than offset the impact of weaker end-market demand from some manufacturing customers and lower revenues from construction and reseller customers.

From Fastenal’s Q3 2023 earnings call:

“We did some restructuring of the sales side of our organization because we wanted to double down on the challenge we’d put in place in front of everybody going back to the 2015 time frame. And that was really stepping into what we saw as an untapped opportunity to grow our business faster, and that was to expand our Onsite presence. It was earlier this year that, for the first time, the number of Onsites in the organization outnumbered the number of branches in the organization, and that delta continues to expand.”

Fastenal’s stock closed the last session lower. The weakness continued in the early hours of Tuesday and the stock traded slightly below $60.