Fastenal (FAST) 8-KFastenal Company Reports 2023 Annual and Fourth Quarter Earnings

EXHIBIT 99.1

Fastenal Company Reports 2023 Annual and Fourth Quarter Earnings

WINONA, Minn., January 18, 2024 (BUSINESS WIRE) -- Fastenal Company (Nasdaq:FAST), a leader in the wholesale distribution of industrial and construction supplies, today announced its financial results for the quarter and year ended December 31, 2023. Except for share and per share information, or as otherwise noted below, 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. References to daily sales rate (DSR) change may reflect either growth (positive) or contraction (negative) for the applicable period.

PERFORMANCE SUMMARY

QUARTERLY RESULTS OF OPERATIONS

Net sales increased $63.0, or 3.7%, in the fourth quarter of 2023 when compared to the fourth quarter of 2022. The number of business days were the same in both periods. We experienced higher unit sales in the fourth quarter of 2023 primarily due to growth at our Onsite locations, particularly those newly opened in 2023 and 2022, and with large customers. Foreign exchange positively affected sales in the fourth quarter of 2023 by approximately 10 basis points as compared to negatively affecting sales in the fourth quarter of 2022 by approximately 90 basis points.

The impact of product pricing on net sales in the fourth quarter of 2023 was modestly positive, consistent with historical trends, as compared to the impact of product pricing on net sales in the fourth quarter of 2022 of 350 to 380 basis points. Incremental pricing actions over the past twelve months have been modest in scope, resulting in mostly stable price levels through the fourth quarter of 2023.

From a product standpoint, we have three categories: fasteners, safety supplies, and other products, 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 fourth quarter of 2023, 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, growth in our safety products accelerated through the period due to improved holiday-related sales to support the operations of our retailer-oriented customers, product mix, and easier comparisons. This factor was largely due to customers with large distribution center networks that are within our other end markets category. The DSR change when compared to the same period in the prior year and the percent of sales in the period were as follows:

Our end markets consist of manufacturing, non-residential construction, reseller, and other, the latter of which includes government/education and transportation/warehousing. A couple of trends are playing out in our end markets. First, we continued to experience a divergence in the performance of our manufacturing end market versus our non-manufacturing end markets in the fourth quarter of 2023. 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. Second, other end markets benefited from significant growth to support the operations of our retailer-oriented customers during the holiday shopping season, product mix, and easier comparisons. This trend largely reflected the purchase of safety products by customers with large distribution center networks. The DSR change when compared to the same period in the prior year and the percent of sales in the period were as follows:

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 customers. 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 sales through Onsite locations and larger, key accounts. The DSR change when compared to the same period in the prior year and the percent of sales in the period were as follows:

Our operating income, as a percentage of net sales, increased to 20.1% in the fourth quarter of 2023 from 19.6% in the fourth quarter of 2022.

Our operating and administrative expenses, as a percentage of net sales, improved to 25.3% in the fourth quarter of 2023 from 25.7% in the fourth quarter of 2022 despite continued slow sales growth. This improvement reflects a combination of general efforts to control costs and easier comparisons in certain cost categories that produced broad, yet modest leverage of occupancy and other operating and administrative expenses. This more than offset a modest deleverage of employee-related expenses.

Our net earnings during the fourth quarter of 2023 were $266.4, an increase of 8.5% compared to the fourth quarter of 2022. Our diluted net earnings per share were $0.46 during the fourth quarter of 2023, which increased from $0.43 during the fourth quarter of 2022.

We produced operating cash flow of $354.0 in the fourth quarter of 2023, an increase of 17.3% from the fourth quarter of 2022, representing 132.9% of the period's net earnings versus 122.9% in the fourth quarter of 2022. The improvement in operating cash flow, as a percent of net earnings, reflects working capital being a relatively greater source of cash in the fourth quarter of 2023 than was the case in the fourth quarter of 2022. This reflects more favorable accruals in the period related to the timing of disbursements on customer rebates and more stable incentive compensation relative to the prior year. In 2023, our operating cash flow was $1,432.7, an increase of 52.3% from 2022, representing 124.0% of the period's net earnings versus 86.6% in 2022. The improvement in operating cash flow in 2023, as a percent of net earnings, reflects the normalization of global supply chains over the course of the year versus the prior year and, to a lesser degree, slower business activity. The latter two items combine to reduce the rate of working capital expansion necessary to support our customers' growth.

The dollar and percentage change in accounts receivable, net, inventories, and accounts payable as of December 31, 2023 when compared to December 31, 2022 were as follows:

Note - Amounts may not foot due to rounding difference.

The increase in our accounts receivable balance in the fourth quarter of 2023 is primarily attributable to three 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. Third, customers have historically delayed payments at the end of years that are economically challenged, and we saw that effect in the fourth quarter of 2023.

The decrease in our inventory balance in the fourth quarter of 2023 is primarily attributable to the absence of supply chain disruptions from the prior year. Our response at the time was to deepen our inventory as a means of maintaining high service to our customers, particularly for imported inventory. Dissipation of these disruptions has allowed us to shorten our product ordering cycle. It is also likely that slower business activity reduced the level of inventory our customers required us to maintain to meet their production needs. We have also experienced modest deflation in our inventory.

The increase in our accounts payable balance in the fourth quarter of 2023 is primarily attributable to our product purchases increasing to support the growth in our business. The growth in our accounts payable balance is below the growth in our sales, which reflects the dissipation of supply chain disruptions from the prior year that has allowed us to shorten our product ordering cycle in the fourth quarter of 2023 versus the fourth quarter of 2022.

During the fourth quarter of 2023, our investment in property and equipment, net of proceeds from sales, was $32.9, which is a decrease from $41.5 in the fourth quarter of 2022. In 2023, our investment in property and equipment, net of proceeds from sales, was $160.6, which is comparable to the $162.4 we invested in 2022, but below our anticipated range of $180.0 to $190.0. Our net capital investment slowed versus expectations primarily due to a slower business environment, which reduced the need to purchase certain equipment at the pace originally anticipated. It also reflects the timing of certain outlays and, to a lesser extent, lead times on certain materials. It does not reflect the cancellation of any significant initiatives, and much of the spending is expected to occur in 2024 when we see our investment in property and equipment, net of proceeds from sales, being in a range of $225.0 to $245.0. 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.

During the fourth quarter of 2023, we returned $417.3 to our shareholders in the form of dividends, compared to the fourth quarter of 2022 when we returned $270.1 to our shareholders in the form of dividends ($176.9) and purchases of our common stock ($93.2). In 2023, we returned $1,016.8 to our shareholders in the form of dividends, compared to 2022 when we returned $949.1 to our shareholders in the form of dividends ($711.3) and purchases of our common stock ($237.8). In the fourth quarter of 2023, we paid both our regular $0.35 per share dividend and a special $0.38 per share dividend, with the latter reflecting what was at the time our high cash balances, as well as our favorable outlook for future cash generation.

Total debt on our balance sheet was $260.0 at the end of 2023, or 7.2% of total capital (the sum of stockholders' equity and total debt). This compares to $555.0, or 14.9% of total capital, at the end of 2022.

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 FMI devices at the end of the periods presented and the percentage change compared to the end of the prior periods.

During the last twelve months, we increased our total FTE employee headcount by 867. This reflects an increase in our total FTE selling personnel of 594 to support growth in the marketplace and sales initiatives targeting customer acquisition. We had an increase in our distribution and transportation FTE personnel of 124 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 149 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.

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 because of significant growth in Onsites and, to a lesser degree international branches, which has more than overcome a meaningful decline in our traditional branch network. In any period, the number of locations closed tends to reflect normal churn in our business, whether due to redefining or exiting customer relationships, the shutting or relocation of customer facilities that host our locations, or a customer decision, as well as our ongoing review of underperforming locations. We will continue to open or close locations to sustain and improve our network, support our growth drivers, and manage our operating expenses. However, we believe the strategic rationalization that has produced the meaningful decline in our traditional branch network in the United States and Canada since 2013 is largely completed, and we expect reduced closing activity beginning in 2024.

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 historical fact, including estimates, projections, future 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, and our expectations about future capital expenditures, future tax rates, future inventory levels, pricing, future Onsite and weighted FMI device signings, investment in property and equipment, the impact of inflation or deflation on our cost of goods or operating costs, future traditional branch closures and openings, and future operating results and business activity. You should understand that forward-looking statements involve a variety of risks and uncertainties, known and unknown (including risks disclosed in our most recent annual and quarterly reports), 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, those detailed in 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. FAST-E