FASTENAL COMPANY 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. 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.
Business
Fastenal is a North American leader in the wholesale distribution of industrial and construction supplies. We distribute these supplies through a network of over 3,200 in-market locations. Most of our customers are in the manufacturing and non-residential construction markets. The manufacturing market includes sales of 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. The non-residential construction market includes general, electrical, plumbing, sheet metal, and road contractors. Other users of our products include 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 inNorth America . Our motto 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 partnership approach is differentiated in the marketplace and allows us to gain market share in what remains a fragmented industrial distribution market.
Executive Overview
Net sales increased$270.8 , or 18.0%, in the second quarter of 2022 when compared to the second quarter of 2021. The number of business days were the same in both periods. Our gross profit increased$127.0 , or 18.1%, in the second quarter of 2022 relative to the second quarter of 2021, and as a percentage of net sales was unchanged at 46.5% in the second quarter of 2022 from 46.5% in the second quarter of 2021. Our operating income increased$65.6 , or 20.7%, in the second quarter of 2022 relative to the second quarter of 2021, and as a percentage of net sales increased to 21.6% in the second quarter of 2022 from 21.1% in the second quarter of 2021. Our net earnings during the second quarter of 2022 were$287.1 , an increase of 19.8% compared to the second quarter of 2021. Our diluted net earnings per share were$0.50 during the second quarter of 2022, which increased from$0.42 during the second quarter of 2021. The table below summarizes our total and 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 activeOnsite 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 Change Change Since: Since: Since: Q2 Q1 Q1 Q4 Q4 Q2 Q2 2022 2022 2022 2021 2021 2021 2021 In-market locations - absolute employee headcount 13,134 12,855
2.2 % 12,464 5.4 % 12,446 5.5 % In-market locations - FTE employee headcount
12,039 11,644 3.4 % 11,337 6.2 % 11,390 5.7 % Total absolute employee headcount 21,629
21,167 2.2 % 20,507 5.5 % 20,317 6.5 %
Total FTE employee headcount 19,523 18,958 3.0 % 18,370 6.3 % 18,253 7.0 %
Number of branch locations 1,737 1,760
-1.3 % 1,793 -3.1 % 1,921 -9.6 %
Number of active
1,440 4.2 % 1,416 6.0 % 1,323 13.5 % Number of in-market locations
3,238 3,200 1.2 % 3,209 0.9 % 3,244 -0.2 % Weighted FMI devices (MEU installed count) (1)
96,872 94,425 2.6 % 92,874 4.3 % 87,567 10.6 %
(1) This number excludes approximately 9,000 non-weighted devices that are part of our locker lease program.
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During the last twelve months, we increased our total FTE employee headcount by 1,270. This reflects an increase in our in-market and non-in-market selling FTE employee headcount of 927 to support growth in the marketplace and sales initiatives targeting customer acquisition. We had an increase in our distribution center FTE employee headcount of 181 to support increasing product throughput at our facilities and to expand our local inventory fulfillment terminals (LIFTs). We had an increase in our remaining FTE employee headcount of 162 that relates primarily to personnel investments in information technology, manufacturing, and operational support, such as purchasing and product development. We opened two branches in the second quarter of 2022 and closed 25 branches, net of conversions. We activated 81Onsite locations in the second quarter of 2022 and closed 20, net of conversions. In any period, the number of closings tend to reflect both 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. Our in-market network forms the foundation of our business strategy, and we will continue to open or close locations as is deemed necessary to sustain and improve our network, support our growth drivers, and manage our operating expenses.
SECOND QUARTER OF 2022 VERSUS SECOND QUARTER OF 2021
Results of Operations
The following table sets forth condensed consolidated statement of earnings
information (as a percentage of net sales) for the periods ended
Three-month Period
2022 2021
Net sales 100.0 % 100.0 %
Gross profit 46.5 % 46.5 %
Operating and administrative expenses 25.0 % 25.4 %
Operating income 21.6 % 21.1 %
Net interest expense -0.2 % -0.2 %
Earnings before income taxes 21.4 % 20.9 %
Note - Amounts may not foot due to rounding difference.
The table below sets forth net sales and daily sales for the periods endedJune 30 , and changes in such sales from the prior period to the more recent period: Three-month Period 2022 2021 Net sales$ 1,778.6 1,507.7 Percentage change 18.0 % -0.1 % Business days 64 64 Daily sales$ 27.8 23.6 Percentage change 18.0 % -0.1 % Daily sales impact of currency fluctuations -0.5 % 1.2 %
Note - Daily sales are defined as the total net sales for the period divided by the number of business days (in
Net sales increased$270.8 , or 18.0%, in the second quarter of 2022 when compared to the second quarter of 2021. The number of business days were the same in both periods. The second 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 second quarter of 2022 by approximately 50 basis points. The overall impact of product pricing on net sales in the second quarter of 2022 was 660 to 690 basis points compared to the second quarter of 2021. This reflects actions taken over the past twelve months intended to mitigate the impact of marketplace inflation for our products, particularly fasteners, and transportation services. We did not take any broad price increases in the second quarter of 2022, but benefited from carryover from actions taken in the first quarter of 2022, the timing of opportunities with national account contracts, and tactical, SKU-level adjustments. Costs for fuel and transportation services and certain key metals and plastics are at elevated but stable levels. We will continue to take actions aimed at mitigating the impact of product 13
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and transportation cost inflation should the need arise in 2022. The impact of product pricing on net sales in the second quarter of 2021 was 80 to 110 basis points. From a product standpoint, we have 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 21.2% over the second quarter of 2021, and represented 34.6% of our net sales in the second quarter of 2022; fasteners represented 33.6% of net sales in the second quarter of 2021. Safety product daily sales increased 13.8% over the second quarter of 2021 and represented 20.3% of our net sales in the second quarter of 2022; safety products represented 21.0% of net sales in the second quarter of 2021. Other products daily sales increased 17.0% over the second quarter of 2021 and represented 45.1% of our net sales in the second quarter of 2022; other products represented 45.4% of net sales in the second quarter of 2021. From an end market standpoint, daily sales to our manufacturing customers increased 23.1% in the second quarter of 2022 from the second quarter of 2021. Daily sales to our non-residential construction customers increased 10.8% in the second quarter of 2022 from the second quarter of 2021. Sales trends for our traditional manufacturing and construction customers reflected sustained strength in underlying economic activity as well as favorable product pricing. Sales to government customers, which includes health care providers, decreased 2.1% and represented 3.8% of sales in the second quarter of 2022, down from 4.6% in the second quarter of 2021. We report our 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 our national account customers increased 22.9% in the second quarter of 2022 over the second quarter of 2021. Most of our national account customers grew in the second quarter of 2022 over the year earlier period, as our sales grew at 91 of our Top 100 national account customers. Revenues attributable to national account customers represented 57.3% of our total revenues in the period. Daily sales to our non-national account customers, which includes government customers, increased 12.2% in the second quarter of 2022 from the second quarter of 2021. Revenues attributable to non-national account customers represented 42.7% of our total revenues in the period. Our growth driver signings have been challenged over recent quarters. At various times over the last several years, the COVID-19 pandemic, severe constraints on supply chains and labor availability, and/or significant inflation have created issues with access to facilities and key decision-makers or diverted energy from conversations about our growth drivers. However, as the primary effects of the pandemic have receded and as supply chain, labor and marketplace challenges have stabilized, the outlook for signings activity going forward is improved. •We signed 102 newOnsite locations (defined as dedicated sales and service provided from within, or in close proximity to, the customer's facility) in the second quarter of 2022, resulting in year-to-date signings of newOnsite locations of 208. We had 1,501 active sites onJune 30, 2022 , which represented an increase of 13.5% fromJune 30, 2021 . Daily sales through ourOnsite locations, excluding sales transferred from branches to new Onsites, grew at a better than 20% rate in the second quarter of 2022 over the second quarter of 2021. This growth is due to improved business activity from ourOnsite customers and, to a lesser degree, contributions from the increase in the number of Onsites we operate. The signings through the first half of 2022 keeps us on track to sign 375 to 400 Onsites in 2022. •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. Prior to 2021, we reported exclusively on the signings, installations, and sales of FASTVend. Beginning in the first quarter of 2021, we began disclosing certain statistics around our 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. 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 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. 14
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The table below summarizes the signings and installations of, and sales through,
our FMI devices.
Three-month Period
2022 2021 Change
Weighted FASTBin/FASTVend signings (MEUs) 5,490 5,843 -6.0 %
Signings per day 86 91
Weighted FASTBin/FASTVend installations (MEUs; end of period) 96,872 87,567 10.6 %
FASTStock sales $ 207.3 140.5 47.6 %
% of sales 11.5 % 9.2 %
FASTBin/FASTVend sales $ 433.3 327.7 32.2 %
% of sales 24.1 % 21.5 %
FMI sales $ 640.6 468.2 36.8 %
FMI daily sales $ 10.0 7.3 36.8 %
% of sales 35.6 % 30.7 %
We began disclosing the above table in the second quarter of 2021 using sales
after rebates (net sales). In the third quarter of 2021, we updated our process
to reflect sales before rebates (sales) to ensure consistency across our FMI and
Digital Footprint reporting. The second quarter of 2021 percent of sales figures
above and our digital footprint below, may differ slightly from those disclosed
in the second quarter of 2021 based on this minor change in reporting.
Our signings of FMI devices in the second quarter and year-to-date 2022 have
improved slightly on a sequential basis, but at a slower pace than is necessary
to achieve our annual goals. As a result, we currently expect our 2022 signings
goal for weighted FASTBin and FASTVend devices to be 21,000 to 23,000 MEUs, a
reduction from our previous goal of 23,000 to 25,000 MEUs.
All metrics provided above exclude approximately 9,000 non-weighted vending devices that are part of a leased locker program.
•Our eCommerce business includes sales made through an electronic data interface (EDI), or other types of technical integrations, and through our web verticals. Daily sales through eCommerce grew 52.7% in the second quarter of 2022 and represented 17.1% of our total revenues in the period. Our digital 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 second quarter of 2022 represented 47.9% of our sales, an increase from 41.4% of sales in the second quarter of 2021.
Sales by Product Line
The approximate mix of sales from fasteners, safety supplies, and all other
product lines was as follows for the periods ended
Three-month Period
2022 2021
Fasteners 34.6 % 33.6 %
Safety supplies 20.3 % 21.0 %
Other product lines 45.1 % 45.4 %
100.0 % 100.0 %
Gross Profit
Our gross profit, as a percentage of net sales, was unchanged at 46.5% in the
second quarter of 2022 from 46.5% in the second quarter of 2021. We experienced
a modest decline in product margin, due in part to a greater dilutive net impact
from product and customer mix, which was largely offset by better leverage of
organizational expenses as a result of strong business activity. The impact of
price/cost was largely neutral to our gross profit percentage in the second
quarter of 2022.
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Operating and Administrative Expenses
Our operating and administrative expenses, as a percentage of net sales, fell to 25.0% in the second quarter of 2022 from 25.4% in the second quarter of 2021. A decline, as a percentage of net sales, in occupancy-related and employee-related expenses was only partly offset by an increase, as a percentage of net sales, in other operating and administrative expenses.
The percentage change in employee-related, occupancy-related, and all other operating and administrative expenses compared to the same periods in the preceding year, is outlined in the table below.
Approximate Percentage of Three-month Period
Total Operating and
Administrative Expenses 2022
Employee-related expenses 70% to 75% 16.8 %
Occupancy-related expenses 15% to 20% 1.4 %
All other operating and administrative expenses 10% to 15% 34.2 %
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 second quarter of 2022, our employee-related expenses increased when compared to the second quarter of 2021. We experienced an increase in employee base pay, albeit at a rate below the growth in sales, due to higher average FTE during the period, a greater proportion of full-time employees in our labor pool, and, to a lesser degree, higher average wages. Bonus and commission payments and profit sharing increased at a rate greater than sales, reflecting improved business activity and financial performance versus the year-ago period. This was partly offset by lower healthcare expenses reflecting reduced COVID-related costs.
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 Change
Since: Since:
Q2 Q1 Q1 Q2 Q2
2022 2022 2022 2021 2021
In-market locations (branches & Onsites) 12,039 11,644 3.4 % 11,390 5.7 %
Non-in-market selling 2,299 2,197 4.6 % 2,021 13.8 %
Selling subtotal 14,338 13,841 3.6 % 13,411 6.9 %
Distribution/Transportation 2,872 2,856 0.6 % 2,691 6.7 %
Manufacturing 672 656 2.4 % 618 8.7 %
Organizational support personnel (1) 1,641 1,605 2.2 % 1,533 7.0 %
Non-selling subtotal 5,185 5,117 1.3 % 4,842 7.1 %
Total 19,523 18,958 3.0 % 18,253 7.0 %
(1) Organizational support personnel consists of: (1) Sales & Growth Driver
Support personnel (35%-40% of category), which includes sourcing, purchasing,
supply chain, product development, etc.; (2) Information Technology personnel
(30%-35% of category); and (3) Administrative Support personnel (25%-30% 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 (we consider the vending
equipment, excluding leased locker equipment, to be a logical extension of our
in-market operations and classify the depreciation and repair costs as occupancy
expenses).
In the second quarter of 2022, our occupancy-related expenses increased when
compared to the second quarter of 2021. Building expense declined, reflecting
lower branch-related expenses. Costs related to investment in hardware and
equipment, including FMI and maintenance of hub and branch equipment, increased
to support growth, albeit at a rate below our sales growth.
All other operating and administrative 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) the loss (gain) on sales of property and
equipment.
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Combined, all other operating and administrative expenses increased in the second quarter of 2022 when compared to the second quarter of 2021. The increase in other operating and administrative expenses relates primarily to higher product movement and fuel costs for our local truck fleet, expenses from our customer show, and increased spending for travel and supplies.
Net Interest Expense
Our net interest expense was
Income Taxes
We recorded income tax expense of$93.6 in the second quarter of 2022, or 24.6% of earnings before income taxes. Income tax expense was$75.5 in the second quarter of 2021, or 24.0% of earnings 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%. Net Earnings Our net earnings during the second quarter of 2022 were$287.1 , an increase of 19.8% compared to the second quarter of 2021. Our diluted net earnings per share were$0.50 during the second quarter of 2022, which increased from$0.42 during the second quarter of 2021.
Liquidity and Capital Resources
Cash flow activity was as follows for the periods ended
Three-month Period
2022 2021
Net cash provided by operating activities 151.2 171.5
Percentage of net earnings 52.7 % 71.6 %
Net cash used in investing activities 43.9 31.5
Percentage of net earnings 15.3 % 13.1 %
Net cash used in financing activities 85.9 153.8
Percentage of net earnings 29.9 % 64.2 %
Net Cash Provided by Operating Activities
We produced operating cash flow of$151.2 in the second quarter of 2022, a decrease of 11.8% from the second quarter of 2021, representing 52.7% of the period's net earnings versus 71.6% in the second quarter of 2021. Second quarters traditionally have lower conversion rates due to the timing of tax payments. However, in the second quarter of 2022, cash flow was also affected by higher working capital assets, which reflected significant product cost inflation and efforts to support customer growth. 17
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The dollar and percentage change in accounts receivable, net, inventories, and accounts payable as ofJune 30, 2022 when compared toJune 30, 2021 were as follows: Twelve-month Dollar Twelve-month June 30 Change Percentage Change 2022 2021 2022 2022 Accounts receivable, net$ 1,103.9 908.9 $ 195.0 21.5 % Inventories 1,665.2 1,327.9 337.3 25.4 % Trade working capital$ 2,769.1 2,236.8 $ 532.3 23.8 % Accounts payable$ 291.8 236.1 $ 55.8 23.6 % Trade working capital, net$ 2,477.3 2,000.7 $ 476.6 23.8 % Net sales in last two months$ 1,207.8 1,010.6 $ 197.2 19.5 %
Note - Amounts may not foot due to rounding difference.
Our accounts receivable balance increased due to several factors. First, our receivables increased as a result of improved business activity and resulting growth in our customers' sales. Second, we continue to experience a shift in our mix due to relatively stronger growth from national account customers, which tend to be larger and carry longer payment terms than our non-national account customers. The increase in our inventory balance is primarily attributable to two items. First, we experienced an increase in the physical quantity of stocked product as we support our customers growth and supply chain needs. Second, we experienced significant inflation that increased the cost of our inventory. These two factors each accounted for roughly half of the increase in our total inventory balance. The proportion of our inventory gain accountable to inflation has moderated over the last few quarters reflecting stability of product costs at elevated levels and rising availability in our hubs. The latter represents our commitment to providing a resilient and robust supply chain as our customers expand production, as well as deeper inventory stocking due to disruptions in supply chains.
Our accounts payable balance increased due to higher product purchases to support the growth of our customers.
Net cash used in investing activities increased by$12.4 in the second quarter of 2022 when compared to the second quarter of 2021. This was primarily due to an increase in our net capital expenditures (purchases of property and equipment net of proceeds from sales of property and equipment) in the second quarter of 2022 compared to the second quarter of 2021. Our capital spending will typically fall into six categories: (1) purchases related to industrial vending, (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 and additions. During the second quarter of 2022, our net capital expenditures were$43.4 , which is an increase of 37.8% from the second quarter of 2021. The most significant areas driving this increase are higher spending on hub safety and automation upgrades and on FMI equipment, only partly offset by lower spending on a new building in downtown Winona, which was completed in 2021. 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. In 2022, we continue to expect our investment in property and equipment, net of proceeds of sales, to be within a range of$180.0 to$200.0 , an increase from$148.2 in 2021. This reflects an increase in spending on FMI equipment in anticipation of higher signings, an increase in spending on hub properties to reflect upgrades to and investments in automation, as well as facilities upgrades, and an increase in manufacturing capacity to support demand and expand capabilities. In addition to capital expenditures, material cash requirements for known contractual obligations include debt and lease obligations which are discussed in more detail earlier in this report in the Notes to Condensed Consolidated Financial Statements and in our 2021 annual report on Form 10-K. 18
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Net cash used in financing activities decreased$67.9 in the second quarter of 2022 when compared to the second quarter of 2021. This is primarily due to an increase in debt obligations, which exceeded the increase in the capital used for the payment of dividends and the purchase of our common stock in the second quarter of 2022 compared to in the second quarter of 2021. During the second quarter of 2022, we returned$227.8 to our shareholders in the form of dividends ($178.5 ) and purchases of our common stock ($49.3 ), compared to$160.8 in the second quarter of 2021, all in the form of dividends. During the second quarter of 2022, we purchased 1,000,000 shares of our common stock at an average price of approximately$49.29 per share. We did not purchase any shares of our common stock in the second quarter of 2021. We have authority to purchase up to 2,200,000 additional shares of our common stock under theJuly 11, 2017 authorization. OnJuly 12, 2022 , the board of directors of the company authorized repurchases by the company of up to an additional 8,000,000 shares of its common stock. These authorizations do not have an expiration date.
An overview of our cash dividends paid or declared in 2022 and 2021 is contained in Note 3 of the Notes to Condensed Consolidated Financial Statements.
SIX MONTHS ENDED
Results of Operations
The following table sets forth condensed consolidated statement of earnings
information (as a percentage of net sales) for the periods ended
Six-month Period
2022 2021
Net sales 100.0 % 100.0 %
Gross profit 46.5 % 46.0 %
Operating and administrative expenses 25.3 % 25.5 %
Operating income 21.3 % 20.5 %
Net interest expense -0.1 % -0.2 %
Earnings before income taxes 21.2 % 20.3 %
Note - Amounts may not foot due to rounding difference.
The table below sets forth net sales and daily sales for the periods endedJune 30 , and changes in such sales from the prior period to the more recent period: Six-month Period 2022 2021 Net sales$ 3,482.6 2,924.7 Percentage change 19.1 % 1.7 % Business days 128 127 Daily sales $ 27.2 23.0 Percentage change 18.1 % 2.5 % Daily sales impact of currency fluctuations -0.3 % 0.9 %
Note - Daily sales are defined as the total net sales for the period divided by the number of business days (in
Net sales increased$557.8 , or 19.1%, in the first six months of 2022 when compared to the first six months of 2021. Adjusted for one more selling day in the first six months of 2022, our net daily sales increased 18.1%. This increase is due to improved unit sales across most products, resulting from continued strength in business activity. Foreign exchange negatively affected sales in the first six months of 2022 by approximately 30 basis points. The overall impact of product pricing on net sales was 620 to 650 basis points during the first six months of 2022. This increase reflects actions taken as part of our strategy to mitigate the impact of marketplace inflation for our products and services, particularly fasteners, and transportation services. During the first six months of 2022, costs for fuel and transportation services accelerated in their inflationary impact. We will continue to take actions aimed at mitigating the impact of product and 19
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transportation cost inflation as the need arises in 2022. The impact of product
pricing on net sales was 70 to 100 basis points during the first six months of
2021.
From a product standpoint, we have 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 22.8% over the first six months of 2021, and represented
34.4% of our net sales in the first six months of 2022; fasteners represented
33.1% of net sales in the first six months of 2021. Safety product daily sales
increased 14.5% over the first six months of 2021 and represented 20.7% of our
net sales in the first six months of 2022; safety products represented 21.3% of
net sales in the first six months of 2021. Other products daily sales increased
15.9% over the first six months of 2021 and represented 44.9% of our net sales
in the first six months of 2022; other products represented 45.6% of net sales
in the first six months of 2021.
From an end market standpoint, daily sales to our manufacturing customers
increased 23.5% in the first six months of 2022 from the first six months of
2021. Daily sales to our non-residential construction customers increased 12.3%
in the first six months of 2022 from the first six months of 2021. Sales trends
for our traditional manufacturing and construction customers reflected sustained
strength in underlying economic activity as well as favorable product pricing.
Sales to government customers, which includes health care providers, decreased
4.2% and was 4.1% of sales in the first six months of 2022, down from 5.0% in
the first six months of 2021.
We report our 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 our national account customers increased 22.8% in the first six months
of 2022 over the the first six months of 2021. Most of our national account
customers grew in the first six months of 2022 over the year earlier period, as
our sales grew at 92 of our Top 100 national account customers. Revenues
attributable to national account customers represented 57.2% of our total
revenues in the first six months of 2022. Daily sales to our non-national
account customers, which includes government customers, increased 12.6% in the
first six months of 2022 from the first six months of 2021. Revenues
attributable to non-national account customers represented 42.8% of our total
revenues in the the first six months of 2022.
The table below summarizes the signings and installations of, and sales through,
our FMI devices.
Six-month Period
2022 2021 Change
Weighted FASTBin/FASTVend signings (MEUs) 10,818 10,526 2.8 %
Signings per day 85 83
Weighted FASTBin/FASTVend installations (MEUs; end of period) 96,872 87,567 10.6 %
FASTStock sales $ 405.8 251.0 61.7 %
% of sales 11.5 % 8.5 %
FASTBin/FASTVend sales $ 845.3 628.7 34.5 %
% of sales 24.0 % 21.3 %
FMI sales $ 1,251.1 879.7 42.2 %
FMI daily sales $ 9.8 6.9 41.1 %
% of sales 35.5 % 29.8 %
All metrics provided above exclude approximately 9,000 non-weighted vending devices that are part of a leased locker program.
Daily sales through eCommerce grew 54.0% in the first six months of 2022 and represented 16.6% of our total revenues in the period.
Our Digital Footprint in the first six months of 2022 represented 47.5% of our sales, an increase from 40.3% of sales in the first six months of 2021.
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Sales by Product Line
The approximate mix of sales from fasteners, safety supplies, and all other
product lines was as follows for the periods ended
Six-month Period
2022 2021
Fasteners 34.4 % 33.1 %
Safety supplies 20.7 % 21.3 %
Other product lines 44.9 % 45.6 %
100.0 % 100.0 %
Gross Profit
In the first six months of 2022, our gross profit, as a percentage of net sales,
improved to 46.5%, or 50 basis points from 46.0% in the first six months of
2021. This was driven by a number of factors. First, approximately half of the
increase in gross profit percentage during this period is due to the absence in
the first quarter of 2022 of a $7.8 write-down of mask inventories that we
incurred in the first quarter of 2021. Second, product margins improved
slightly, primarily due to a higher gross profit percentage realized in our
safety products. This was a result of the margin of COVID-related products
returning to pre-pandemic levels. The period did not have the large,
multi-quarter commitments to supply COVID supplies, generally at a lower margin,
that existed in the preceding period. This was more than offset by slightly
lower fastener product margins. The impact of price/cost was largely neutral to
our gross profit percentage in the first half of 2022.
Operating and Administrative Expenses
Our operating and administrative expenses, as a percentage of net sales, fell to 25.3% compared to 25.5% in the first six months of 2021. A decline, as a percentage of net sales, in occupancy-related expenses more than offset slight increases, as a percentage of net sales, in employee-related and other operating and administrative expenses.
The percentage change in employee-related, occupancy-related, and all other operating and administrative expenses compared to the same periods in the preceding year, is outlined in the table below.
Approximate Percentage of Six-month Period
Total Operating and
Administrative Expenses 2022
Employee-related expenses 70% to 75% 19.8 %
Occupancy-related expenses 15% to 20% 3.3 %
All other operating and administrative expenses 10% to 15% 30.0 %
In the first six months of 2022, our employee-related expenses increased when
compared to the first six months of 2021. We experienced a significant increase
in bonus and commission payments, including as a percentage of net sales, based
on our improved operating and financial performance over the period. We also
experienced an increase in base pay, although at a rate below our growth in net
sales, related to higher average FTE over the period, a shift in mix toward
full-time labor, and higher wages.
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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:
Q2 Q4 Q4
2022 2021 2021In-market locations (branches & Onsites) 12,039 11,337 6.2
% Non-in-market selling 2,299 2,076 10.7 % Selling subtotal 14,338 13,413 6.9 % Distribution/Transportation 2,872 2,740 4.8 % Manufacturing 672 619 8.6 % Organizational support personnel (1) 1,641 1,598 2.7 % Non-selling subtotal 5,185 4,957 4.6 % Total 19,523 18,370 6.3 % (1) Organizational support personnel consists of: (1) Sales & Growth Driver Support personnel (35%-40% of category), which includes sourcing, purchasing, supply chain, product development, etc.; (2) Information Technology personnel (30%-35% of category); and (3) Administrative Support personnel (25%-30% of category), which includes human resources,Fastenal School of Business , accounting and finance, senior management, etc. In the first six months of 2022, our occupancy-related expenses increased when compared to the first six months of 2021. This was primarily related to an increase in expenses for FMI technology to support growth in our business as well as higher costs to maintain and upgrade facility equipment. Total facility costs were flat, with lower combined branch and non-branch costs due to branch rationalizations, which were offset by higher utility expenses. Combined, all other operating and administrative expenses increased in the first six months of 2022 when compared to the first six months of 2021. The most significant contributors to this increase were higher selling-related transportation expenses to support growth and as a result of higher fuel costs, higher costs related to travel and supplies, and higher general insurance costs.
Net Interest Expense
Our net interest expense was
Income Taxes
We recorded income tax expense of
Net Earnings
Our net earnings during the first six months of 2022 were$556.7 , an increase of 23.6% when compared to the first six months of 2021. Our diluted net earnings per share where$0.96 during the first six months of 2022, which increased from$0.78 during the first six months of 2021.
Liquidity and Capital Resources
Cash flow activity was as follows for the periods ended
Six-month Period
2022 2021
Net cash provided by operating activities
68.5 % 99.1 %
Net cash used in investing activities
13.8 % 13.6 %
Net cash used in financing activities
51.3 % 68.4 %
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Net Cash Provided by Operating Activities
We produced operating cash flow of$381.2 in the first six months of 2022, a decrease of 14.6% from the first six months of 2021, representing 68.5% of the period's net earnings versus 99.1% in the first six months of 2021. The decline in our operating cash flow and conversion rate is primarily due to an increased need for working capital to support our customers growth as business activity improves, as well as from inflation in inventory. Customer mix, while not as significant a contributor in the period as customer growth and inflation, also contributed. National accounts continue to grow in our sales mix, and these customers tend to be larger and have longer payment terms. These impacts were only partly offset by growth in profits.
Net cash used in investing activities increased by$15.7 in the first six months of 2022 when compared to the first six months 2021. This was primarily due to an increase in our net capital expenditures (purchases of property and equipment net of proceeds from sales of property and equipment) in the first six months of 2022 compared to in the first six months of 2021. During the first six months of 2022, our net capital expenditures were$76.5 , which is an increase of 24.4% from the first six months of 2021. The most significant areas driving this increase are higher spending on hub safety and automation upgrades, FMI equipment, and information technology, only partly offset by lower spending on a new building in downtown Winona, which was completed in 2021.
Net cash used in financing activities decreased by$22.6 in the first six months of 2022 when compared to the first six months of 2021. This is primarily due to an increase in debt obligations, which more than offset our increased use of capital for the payment of dividends and purchases of our common stock in the first six months of 2022 compared to the first six months of 2021. During the first six months of 2022, we returned$406.2 to our shareholders in the form of dividends ($356.9 ) and purchases of our common stock ($49.3 ), compared to$321.6 in the first six months of 2021, all in the form of dividends. During the first six months of 2022, we purchased 1,000,000 shares of our common stock at an average price of approximately$49.29 per share. We did not purchase any shares of our common stock in the first six months of 2021.
Critical Accounting Policies and Estimates - A discussion of our critical accounting policies and estimates is contained in our 2021 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.
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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, and our expectations related to future capital expenditures, future tax rates, future inventory levels, pricing,Onsite and weighted FMI device signings, and the impact of price increases and surge sales on overall sales growth or margin performance. 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, the impact of the COVID-19 pandemic, 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, 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 orOnsite business models, increased competition in FMI orOnsite , 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 orOnsite operations, changes in the implementation objectives of our business strategies, our ability to retain certain government and other types of customers that bought product from us for the first time during the pandemic, difficulty in hiring, relocating, training, or retaining qualified personnel, difficulty in controlling operating expenses, difficulty in collecting receivables or accurately predicting future inventory needs, dramatic changes in sales trends, changes in supplier production lead times, 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 theSecurities 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.
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