Fastenal Company, a leader in the wholesale distribution of industrial and construction supplies, announced its financial results for the quarter ending March 31, 2022.
Year-over-year quarterly results of operations
Net sales increased $287.0, or 20.3%, in the first quarter of 2022 when compared to the first quarter of 2021. There was one more selling day in the quarter relative to the year earlier period, and taking this into consideration, net daily sales increased 18.4% in the first quarter of 2022 when compared to the first quarter of 2021. This increase is due to improved unit sales across most products to its traditional manufacturing and construction customers, resulting from continued improvement in business activity. Net daily sales growth also benefited by roughly 100 basis points from the absence of last year's adverse weather. The first quarter of 2022 continued to experience strong, economically-driven growth in underlying demand for manufacturing and construction equipment and supplies, which drove higher unit sales that contributed to the increase in net sales in the period. Foreign exchange negatively affected sales in the first quarter of 2022 by approximately 10 basis points.
The overall impact of product pricing on net sales in the first quarter of 2022 was 580 to 610 basis points. This increase reflects pricing actions taken during 2021, particularly in the second half, and the first quarter of 2022. These actions were taken as part of its strategy to mitigate the impact of marketplace inflation for products, particularly fasteners, and transportation services. During the first quarter of 2022, costs for fuel and transportation services accelerated in their inflationary impact. The company will continue to take actions aimed at mitigating the impact of product and transportation cost inflation as the need arises in 2022. The impact of product pricing on net sales in the first quarter of 2021 was 60 to 90 basis points.
From a product standpoint, there are three categories: fasteners, safety products, and other products, the latter of which includes eight smaller product categories, such as tools, janitorial supplies, and cutting tools. Fastener daily sales increased 24.6% over the first quarter of 2021, and represented 34.3% of net sales in the first quarter of 2022; fasteners represented 32.5% of net sales in the first quarter of 2021. Safety product daily sales increased 15.3% over the first quarter of 2021 and represented 21.0% of net sales in the first quarter of 2022; safety products represented 21.5% of net sales in the first quarter of 2021. Other products daily sales increased 14.8% over the first quarter of 2021 and represented 44.7% of net sales in the first quarter of 2022; other products represented 46.0% of net sales in the first quarter of 2021.
The company reports customers in two categories: national accounts, which are customers with a multi-site contract, and non-national accounts, which include large regional customers, small local customers, and government customers. Daily sales to national account customers increased 22.8% in the first quarter of 2022 over the first quarter of 2021. Most national account customers grew in the first quarter of 2022 over the year earlier period, as sales grew at 92 of its Top 100 national account customers. Revenues attributable to national account customers represented 57.1% of total revenues in the period. Daily sales to non-national account customers, which includes government customers, increased 13.0% in the first quarter of 2022 from the first quarter of 2021. Revenues attributable to non-national account customers represented 42.9% of total revenues in the period.
Gross profit, as a percentage of net sales, increased 120 basis points to 46.6% in the first quarter of 2022 from 45.4% in the first quarter of 2021. This increase reflects a couple of items. First, the first quarter of 2021 included a $7.8 write-down of masks, the value of which had declined significantly as supply shifted from tightly constrained in mid-2020 to abundantly available in early 2021. The absence of this write-down contributed 60 basis points to the increase in the gross margin percentage in the first quarter of 2022. Second, product margins improved, primarily due to a higher gross profit percentage realized in its safety products. This was a result of the margin of COVID-related products returning to pre-pandemic levels. The first quarter of 2022 did not have the large, multi-quarter commitments to supply COVID supplies, generally at a lower margin, that existed in the first quarter of 2021. This more than offset slightly lower fastener product margins. The impact of price/cost was largely neutral to gross profit percentage in the first quarter of 2022. These positive impacts to its gross profit percentage were partly offset by higher transportation expenses related primarily to higher overseas shipping costs, third-party freight charges, and the cost of fuel in its internal fleet. In addition, the net impact of product and customer mix was modestly negative as the dilutive impact of customer mix was slightly greater than the additive impact of product mix.
Operating income, as a percentage of net sales, increased to 21.0% in the first quarter of 2022 from 19.8% in the first quarter of 2021. The increase in operating income percentage in the first quarter of 2022 was primarily due to the 120 basis point increase in gross profit, as a percentage of net sales, as described in the preceding paragraph. Operating and administrative expenses, as a percentage of net sales, improved slightly to 25.5% in the first quarter of 2022 from 25.6% in the first quarter of 2021. A decline, as a percentage of net sales, in occupancy-related expenses was mostly offset by increases, as a percentage of net sales, in employee-related expenses and, to a lesser degree, other operating and administrative expenses.
Net earnings during the first quarter of 2022 were $269.6, an increase of 28.0% compared to the first quarter of 2021. Diluted net earnings per share were $0.47 during the first quarter of 2022, which increased from $0.37 during the first quarter of 2021.
Growth driver performance
- During the first quarter of 2022, the company signed 106 new onsite locations (defined as dedicated sales and service provided from within, or in close proximity to, the customer's facility). It had 1,440 active sites on March 31, 2022, which represented an increase of 12.1% from March 31, 2021. Daily sales through onsite locations, excluding sales transferred from branches to new onsites, grew at a better than 20% rate in the first quarter of 2022 over the first quarter of 2021. This growth is due to improved business activity from onsite customers and, to a lesser degree, contributions from the increase in the number of onsites it operates. It is not unusual for onsite signings to be relatively strong in first quarters of calendar years. The signings in the first quarter of 2022 represent a record number for any quarter and a substantial improvement on first quarter signings over the prior two years. The company believes this reflects normalization of the business environment which is improving access to facilities and decision-makers while reviving customers' strategic planning around supply chain solutions. It continues to believe the market will support a long-term rate of 375 to 400 annual signings, and this remains its goal for onsite signings in 2022.
- FMI Technology is comprised of 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 its proprietary mobility technology. FASTBin and FASTVend incorporate highly efficient and powerful embedded data tracking and fulfillment processing technologies. Prior to 2021, the company reported exclusively on the signings, installations, and sales of FASTVend. Beginning in the first quarter of 2021, it began disclosing certain statistics around its FMI offering. 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. The company does 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 revenue through FMI Technology which combines the net sales through FASTStock, FASTBin, and FASTVend. A portion of the growth in net 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.
Signings in the first quarter of 2022 were below the pace necessary to achieve annual goals. However, the company had meaningful improvement in signings per day on both an annual and sequential basis and experienced better momentum through the quarter. As a result, 2022 goal for weighted FASTBin and FASTVend device signings remains at 23,000 to 25,000 MEUs.
All metrics provided above exclude approximately 10,000 non-weighted vending devices that are part of a leased locker program.
- eCommerce business includes sales made through an electronic data interface (EDI), or other types of technical integrations, and through web verticals. Daily sales through eCommerce grew 55.6% in the first quarter of 2022. Revenues attributable to eCommerce represented 16.1% of total revenues in the first quarter of 2022.
Digital products and services are comprised of sales through FMI (FASTStock, FASTBin, and FASTVend) plus that proportion of eCommerce sales that do not represent billings of FMI services (collectively, Digital Footprint). The company believes the data that is created through digital capabilities enhances product visibility, traceability, and control that reduces risk in operations and creates ordering and fulfillment efficiencies for both the company and its customers. As a result, the company believes in an opportunity to grow its business will be enhanced through the continued development and expansion of its digital capabilities.
Digital Footprint in the first quarter of 2022 represented 47.0% of sales. The company began to provide this figure in the first quarter of 2021, when it reported that its Digital Footprint represented 34.8% of sales. It subsequently identified a calculation error. Using the same approach to calculating Digital Footprint as it used starting in the second quarter of 2021, its Digital Footprint represented 39.1% of sales in the first quarter of 2021.
Except for share and per share information, or as otherwise noted, dollar amounts are stated in millions. Throughout this document, percentage and dollar calculations, which are based on non-rounded dollar values, may not be able to be recalculated using the dollar values included in this document due to the rounding of those dollar values.