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. References to daily sales rate (DSR) change may reflect either growth (positive) or contraction (negative) for the applicable period.
Business
Fastenal is a North American leader in the wholesale distribution of industrial and construction supplies. We distribute these supplies through a network of approximately 3,300 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
The following table presents a performance summary of our results of operations for the nine-month and three-month periods endedSeptember 30, 2022 and 2021. Nine-month Period Three-month Period 2022 2021 Change 2022 2021 Change Net sales$ 5,285.0 4,479.0 18.0 %$ 1,802.4 1,554.2 16.0 %
Business days 192 191 64 64 Daily sales $ 27.5 23.5 17.4 % $ 28.2 24.3 16.0 % Gross profit$ 2,447.4 2,064.3 18.6 %$ 826.5 720.2 14.8 % % of net sales 46.3 % 46.1 % 45.9 % 46.3 % Operating and administrative expenses$ 1,326.7 1,147.8 15.6 %$ 447.3 401.8 11.3 % % of net sales 25.1 % 25.6 % 24.8 % 25.9 % Operating income$ 1,120.7 916.5 22.3 %$ 379.2 318.4 19.1 % % of net sales 21.2 % 20.5 % 21.0 % 20.5 % Earnings before income taxes$ 1,111.8 909.3 22.3 %$ 375.3 316.1 18.7 % % of net sales 21.0 % 20.3 % 20.8 % 20.3 % Net earnings$ 841.3 693.8 21.3 %$ 284.6 243.5 16.9 % Diluted net earnings per share $ 1.46 1.20 21.3 % $ 0.50 0.42 17.4 % 12
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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: Q3 Q2 Q2 Q4 Q4 Q3 Q3 2022 2022 2022 2021 2021 2021 2021 In-market locations - absolute employee headcount 13,243 13,134
0.8 % 12,464 6.3 % 12,347 7.3 % In-market locations - FTE employee headcount
11,897 12,039 -1.2 % 11,337 4.9 % 11,104 7.1 % Total absolute employee headcount 22,025
21,629 1.8 % 20,507 7.4 % 20,231 8.9 %
Total FTE employee headcount 19,519 19,523 0.0 % 18,370 6.3 % 17,860 9.3 %
Number of branch locations 1,716 1,737
-1.2 % 1,793 -4.3 % 1,859 -7.7 %
Number of active
1,501 4.4 % 1,416 10.7 % 1,367 14.6 % Number of in-market locations
3,283 3,238 1.4 % 3,209 2.3 % 3,226 1.8 % Weighted FMI devices (MEU installed count) (1)
99,409 96,872 2.6 % 92,874 7.0 % 90,493 9.9 %
(1) This number excludes approximately 7,500 non-weighted devices that are part of our locker lease program.
During the last twelve months, we increased our total FTE employee headcount by 1,659. This reflects an increase in our in-market and non-in-market selling FTE employee headcount of 1,131 to support growth in the marketplace and sales initiatives targeting customer acquisition. We had an increase in our distribution center FTE employee headcount of 329 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 199 that relates primarily to personnel investments in information technology, manufacturing, and operational support, such as purchasing and product development. We opened three branches in the third quarter of 2022 and closed 24 branches, net of conversions. We activated 92Onsite locations in the third quarter of 2022 and closed 26, net of conversions. In any period, the number of closings tends 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.
THIRD QUARTER OF 2022 VERSUS THIRD 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 endedSeptember 30 : Three-month Period 2022 2021 Net sales 100.0 % 100.0 % Gross profit 45.9 % 46.3 % Operating and administrative expenses 24.8 % 25.9 % Operating income 21.0 % 20.5 % Net interest expense -0.2 % -0.2 % Earnings before income taxes 20.8 % 20.3 %
Note - Amounts may not foot due to rounding difference.
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The table below sets forth net sales and daily sales for the periods endedSeptember 30 , and changes in such sales from the prior period to the more recent period: Three-month Period 2022 2021 Net sales$ 1,802.4 1,554.2 Percentage change 16.0 % 10.0 % Business days 64 64 Daily sales$ 28.2 24.3 Percentage change 16.0 % 10.0 % Daily sales impact of currency fluctuations -0.6 % 0.5 %
Note - Daily sales are defined as the total net sales for the period divided by the number of business days (in
Net sales increased$248.2 , or 16.0%, in the third quarter of 2022 when compared to the third quarter of 2021. The number of business days were the same in both periods. We estimate adverse weather that impacted the southeasternU.S. reduced our quarterly growth by 10 to 30 basis points. We experienced higher unit sales in the third quarter of 2022 that contributed to the increase in net sales in the period. This was due to good underlying demand in markets tied to industrial capital goods and commodities, which more than offset softer markets tied to consumer goods and relatively lower growth in construction. Foreign exchange negatively affected sales in the third quarter of 2022 by approximately 60 basis points. The overall impact of product pricing on net sales in the third quarter of 2022 was 550 to 580 basis points compared to the third quarter of 2021. The increase is from 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 pricing actions in the third quarter of 2022, and price levels in the market remained stable. The favorable impact of product pricing moderated in the third quarter of 2022 relative to the second quarter of 2022 due to comparisons against initial price events that began in the third quarter of 2021. Spot prices in the marketplace for many inputs, particularly fuel, transportation services, and steel, began to decline during the period. Due to our long supply chain for fasteners and certain non-fastener products, however, it is likely to take several quarters before this is reflected in our cost of goods. The impact of product pricing on net sales in the third quarter of 2021 was 230 to 260 basis points. From a product standpoint, we have three categories: fasteners, safety supplies, and other product lines, the latter of which includes eight smaller product categories, such as tools, janitorial supplies, and cutting tools. The DSR change when compared to the same period in the prior year and the percent of sales in the period were as follows: DSR Change % of Sales Three-month Period Three-month Period 2022 2021 2022 2021 Fasteners 18.2 % 20.2 % 34.1 % 33.4 % Safety supplies 12.4 % -2.9 % 20.5 % 21.1 % Other 15.4 % 9.2 % 45.4 % 45.5 %
Our end markets consist of manufacturing, non-residential construction, and other, the latter of which includes resellers, government/education, and transportation/warehousing. The DSR change when compared to the same period in the prior year and the percent of sales in the period were as follows:
DSR Change % of Sales
Three-month Period Three-month Period
2022 2021 2022 2021
Manufacturing 22.6% 20.8% 72.9% 68.9%
Non-residential construction 5.2% 10.5% 10.2% 11.3%
Other -1.4% -16.2% 16.9% 19.8%
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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. Sales
to most of our national account customers grew in the third quarter of 2022 over
the year earlier period, as our sales grew at 83 of our Top 100 national account
customers. The DSR change when compared to the same period in the prior year and
the percent of sales in the period were as follows:
DSR Change % of Sales
Three-month Period Three-month Period
2022 2021 2022 2021
National Accounts 20.8 % 16.8 % 58.0 % 56.6 %
Non-National Accounts 9.9 % 2.2 % 42.0 % 43.4 %
Growth Drivers
•We signed 86 new Onsite locations (defined as dedicated sales and service
provided from within, or in close proximity to, the customer's facility) in the
third quarter of 2022, resulting in year-to-date signings of new Onsite
locations of 294. We had 1,567 active sites on September 30, 2022 , which
represented an increase of 14.6% from September 30, 2021 . Daily sales through
our Onsite locations, excluding sales transferred from branches to new Onsites,
grew at a greater than 20% rate in the third quarter of 2022 over the third
quarter of 2021. This growth is due to improved business activity from our
Onsite customers and, to a lesser degree, contributions from the increase in the
number of Onsites we operate. We continue to anticipate signing 375 to 400
Onsites in 2022, though we currently expect to be in the lower half of this
range given year-to-date signings.
•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 sales through FASTStock, FASTBin, and FASTVend. A portion of the
growth in 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.
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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) 5,187 4,813 7.8 %
Signings per day 81 75
Weighted FASTBin/FASTVend installations (MEUs; end of period) 99,409 90,493 9.9 %
FASTStock sales $ 215.9 165.9 30.2 %
% of sales 11.8 % 10.6 %
FASTBin/FASTVend sales $ 456.9 352.4 29.7 %
% of sales 25.1 % 22.4 %
FMI sales $ 672.8 518.3 29.8 %
FMI daily sales $ 10.5 8.1 29.8 %
% of sales 36.9 % 33.0 %
We continue to anticipate weighted FASTBin and FASTVend device signings in 2022 in a range of 21,000 to 23,000 MEUs.
All metrics provided above exclude approximately 7,500 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 50.2% in the third quarter of 2022 and represented 18.0% 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 third quarter of 2022 represented 49.5% of our sales, an increase from 43.7% of sales in the third quarter of 2021.
Gross Profit
Our gross profit, as a percentage of net sales, declined to 45.9% in the third quarter of 2022 from 46.3% in the third quarter of 2021. The decline in our gross profit percentage was primarily related to three factors. First, the net impact from product and customer mix was dilutive, reflecting relatively strong growth of ourOnsite and national account customers, which tend to be larger and have a lower gross margin percentage. Second, we experienced unfavorable price/cost, reflecting stable pricing for our products and services but slightly higher costs. Third, we had a$3.4 write down in the value of certain gloves in our inventory. Demand for nitrile gloves expanded dramatically during the pandemic, and we purchased significant quantities in 2021 to address needs from certain industries. As market conditions normalized, some of the product had an inventory value above current market value, a situation we did not see reversing. These impacts were partly offset by strong freight revenue, which narrowed our freight losses, and our ability to leverage organizational expenses.
Operating and Administrative Expenses
Our operating and administrative expenses, as a percentage of net sales, fell to
24.8% in the third quarter of 2022 from 25.9% in the third quarter of 2021. This
was primarily due to a decline, as a percentage of net sales, in
occupancy-related and employee-related expenses.
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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% 14.1 %
Occupancy-related expenses 15% to 20% 3.8 %
All other operating and administrative expenses 10% to 15% 5.9 %
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 third quarter of 2022, our employee-related expenses increased when compared to the third 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 and, to a lesser degree, higher average wages. Bonus and commission payments increased at a rate greater than sales, reflecting improved business activity and financial performance versus the year-ago period. We also had higher profit sharing expense. These costs were partly offset by lower healthcare expenses reflecting post-COVID normalization of the healthcare environment.
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:
Q3 Q2 Q2 Q3 Q3
2022 2022 2022 2021 2021
In-market locations (branches & Onsites) 11,897 12,039 -1.2 % 11,104 7.1 %
Non-in-market selling 2,387 2,299 3.8 % 2,049 16.5 %
Selling subtotal 14,284 14,338 -0.4 % 13,153 8.6 %
Distribution/Transportation 2,889 2,872 0.6 % 2,560 12.9 %
Manufacturing 671 672 -0.1 % 616 8.9 %
Organizational support personnel (1) 1,675 1,641 2.1 % 1,531 9.4 %
Non-selling subtotal 5,235 5,185 1.0 % 4,707 11.2 %
Total 19,519 19,523 0.0 % 17,860 9.3 %
(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.
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 third quarter of 2022, our occupancy-related expenses increased when compared to the third quarter of 2021. Costs increased related to investment in hardware and equipment, including FMI devices and materials and equipment involved in maintaining and upgrading our branches and hubs. Total building costs were mostly flat in the period.
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.
Combined, all other operating and administrative expenses increased in the third
quarter of 2022 when compared to the third 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, increased spending on
information technology services, and increased spending for travel and supplies.
This was only partly offset by reduced spending for general insurance.
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Net Interest Expense
Our net interest expense was
Income Taxes
We recorded income tax expense of$90.7 in the third quarter of 2022, or 24.2% of earnings before income taxes. Income tax expense was$72.6 in the third quarter of 2021, or 23.0% 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 third quarter of 2022 were$284.6 , an increase of 16.9% compared to the third quarter of 2021. Our diluted net earnings per share were$0.50 during the third quarter of 2022, which increased from$0.42 during the third 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 257.9 167.4
Percentage of net earnings 90.6 % 68.8 %
Net cash used in investing activities 44.5 45.6
Percentage of net earnings 15.6 % 18.7 %
Net cash used in financing activities 220.8 190.2
Percentage of net earnings 77.6 % 78.1 %
Net Cash Provided by Operating Activities
We produced operating cash flow of$257.9 in the third quarter of 2022, an increase of 54.1% from the third quarter of 2021, representing 90.6% of the period's net earnings versus 68.8% in the third quarter of 2021. While the conversion rate in the third quarter of 2022 remains below historical norms for the period, it also represents the first year-over-year improvement in the metric since the first quarter of 2021. The resources required for operating working capital eased relative to prior periods. The dollar and percentage change in accounts receivable, net, inventories, and accounts payable as ofSeptember 30, 2022 when compared toSeptember 30, 2021 were as follows: Twelve-month Dollar Twelve-month September 30 Change Percentage Change 2022 2021 2022 2022 Accounts receivable, net$ 1,110.6 949.4 $ 161.2 17.0 % Inventories 1,678.1 1,401.1 277.0 19.8 % Trade working capital$ 2,788.7 2,350.5 $ 438.3 18.6 % Accounts payable$ 277.2 256.9 $ 20.3 7.9 % Trade working capital, net$ 2,511.5 2,093.6 $ 418.0 20.0 % Net sales in last two months$ 1,249.1 1,062.5 $ 186.6 17.6 %
Note - Amounts may not foot due to rounding difference.
The increase in our accounts receivable balance in the third quarter of 2022 is
primarily attributable to two 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.
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The increase in our inventory balance in the third quarter of 2022 is primarily attributable to three factors. First, our inventory increased to support improved business activity by our customers. Second, over the past twelve months we have aggressively imported product to deepen our inventory as a means of addressing supply disruptions and provide our customers with resilient and robust product availability. In the third quarter of 2022, we achieved target product availability in our hubs and experienced easing constraints in our supply chain, which allowed us to slightly shorten our product ordering cycle. Third, inflation was responsible for slightly less than half of the overall increase. The impact of inflation remains significant but continues to moderate, with the third quarter being the first quarter in 2022 where inflation was not the primary driver of inventory growth in the period.
Our accounts payable balance increased due to higher product purchases to support the growth of our customers and, to a lesser degree, the favorable impact of timing on certain payable balances.
Net cash used in investing activities decreased by$1.1 in the third quarter of 2022 when compared to the third quarter of 2021. This was primarily due to an increase in our proceeds from sales of property and equipment in the third quarter of 2022 compared to the third 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 third quarter of 2022, our net capital expenditures (purchases of property and equipment net of proceeds from sales of property and equipment) were$44.4 , which is a decrease of 2.4% from the third quarter of 2021. We had higher spending for FMI equipment, information technology, and hub safety and automation upgrades, which was more than offset by lower spending on a new building in downtown Winona, 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. We now expect our investment in property and equipment, net of proceeds of sales, to be within a range of$170.0 to$190.0 (versus our prior$180.0 to$200.0 ), an increase from$148.2 in 2021. This annual increase reflects primarily: (1) higher spending on FMI equipment in anticipation of higher signings, a deepening of FMI unit inventory to address supply chain risks, and higher unit costs; (2) an increase in spending on hub properties to reflect upgrades to and investments in automation, as well as facility upgrades; and (3) an increase in manufacturing capacity to support demand and expand capabilities. We reduced our range for the full year of 2022 due to slightly lower purchases of FMI devices deriving from our lower signings activity, slightly lower vehicle purchases due to availability constraints, and higher asset sales. 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.
Net cash used in financing activities increased$30.6 in the third quarter of 2022 when compared to the third quarter of 2021. This is primarily due to an increase in cash used for dividend payments and to purchase our common stock, which exceeded the increase in our debt obligations. During the third quarter of 2022, we returned$272.8 to our shareholders in the form of dividends ($177.5 ) and purchases of our common stock ($95.3 ), compared to$161.0 in the third quarter of 2021, all in the form of dividends. During the third quarter of 2022, we purchased 2,000,000 shares of our common stock at an average price of approximately$47.68 per share. We did not purchase any shares of our common stock in the third quarter of 2021. We have authority to purchase up to 200,000 additional shares of our common stock under theJuly 11, 2017 authorization and 8,000,000 additional shares of our common stock under theJuly 12, 2022 authorization. These authorizations do not have an expiration date.
An overview of our cash dividends paid or declared in 2022 and 2021 is contained in Note 3 of the Notes to Condensed Consolidated Financial Statements.
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NINE MONTHS ENDED
Results of Operations
The following table sets forth condensed consolidated statement of earnings information (as a percentage of net sales) for the periods endedSeptember 30 : Nine-month Period 2022 2021 Net sales 100.0 % 100.0 % Gross profit 46.3 % 46.1 % Operating and administrative expenses 25.1 % 25.6 % Operating income 21.2 % 20.5 % Net interest expense -0.2 % -0.2 % Earnings before income taxes 21.0 % 20.3 %
Note - Amounts may not foot due to rounding difference.
The table below sets forth net sales and daily sales for the periods endedSeptember 30 , and changes in such sales from the prior period to the more recent period: Nine-month Period 2022 2021 Net sales$ 5,285.0 4,479.0 Percentage change 18.0 % 4.4 % Business days 192 191 Daily sales $ 27.5 23.5 Percentage change 17.4 % 5.0 % Daily sales impact of currency fluctuations -0.4 % 0.8 %
Note - Daily sales are defined as the total net sales for the period divided by the number of business days (in
Net sales increased$806.0 , or 18.0%, in the first nine months of 2022 when compared to the first nine months of 2021. Adjusted for an extra selling day in the first nine months of 2022, our net daily sales increased 17.4%. This increase is due to improved unit sales across all major product categories, resulting from continued strength in business activity. Foreign exchange negatively affected sales in the first nine months of 2022 by approximately 40 basis points. We estimate that adverse weather reduced our growth by approximately 10 basis points during the nine-month period. The overall impact of product pricing on net sales was 600 to 630 basis points during the first nine 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 nine months of 2022, material costs remained elevated while costs for fuel and transportation services accelerated in their inflationary impact. However, during the third quarter of 2022 we began to see costs for key inputs, such as steel and fuel, decline. Should that trend be sustained, it could eventually benefit our cost of goods, although given our long supply chain it would likely take several quarters to see such an impact. The impact of product pricing on net sales was 120 to 150 basis points during the first nine months of 2021. From a product standpoint, we have three categories: fasteners, safety supplies, and other product lines, the latter of which includes eight smaller product categories, such as tools, janitorial supplies, and cutting tools. The DSR change when compared to the same period in the prior year and the percent of sales in the period were as follows: DSR Change % of Sales Nine-month Period Nine-month Period 2022 2021 2022 2021 Fasteners 21.2 % 17.1 % 34.3 % 33.2 % Safety supplies 13.8 % -15.0 % 20.6 % 21.2 % Other 15.7 % 8.1 % 45.1 % 45.6 % 20
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Our end markets consist of manufacturing, non-residential construction, and other, the latter of which includes resellers, government/education, and transportation/warehousing. The DSR change when compared to the same period in the prior year and the percent of sales in the period were as follows:
DSR Change % of Sales
Nine-month Period Nine-month Period
2022 2021 2022 2021
Manufacturing 23.2% 16.7% 72.0% 68.6%
Non-residential construction 9.8% 2.9% 10.4% 11.2%
Other 2.1% -21.1% 17.6% 20.2%
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. Sales
to most of our national account customers grew in the first nine months of 2022
over the year earlier period, as our sales grew at 92 of our Top 100 national
account customers. The DSR change when compared to the same period in the prior
year and the percent of sales in the period were as follows:
DSR Change % of Sales
Nine-month Period Nine-month Period
2022 2021 2022 2021
National Accounts 22.1 % 8.2 % 57.5 % 56.2 %
Non-National Accounts 11.6 % 1.0 % 42.5 % 43.8 %
The table below summarizes the signings and installations of, and sales through, our FMI devices.
Nine-month Period
2022 2021 Change
Weighted FASTBin/FASTVend signings (MEUs) 16,005 15,339 4.3 %
Signings per day 83 80
Weighted FASTBin/FASTVend installations (MEUs; end of period) 99,409 90,493 9.9 %
FASTStock sales $ 621.7 416.9 49.1 %
% of sales 11.6 % 9.2 %
FASTBin/FASTVend sales $ 1,302.2 981.1 32.7 %
% of sales 24.4 % 21.7 %
FMI sales $ 1,923.9 1,398.0 37.6 %
FMI daily sales $ 10.0 7.3 36.9 %
% of sales 36.0 % 30.9 %
All metrics provided above exclude approximately 7,500 non-weighted vending devices that are part of a leased locker program.
Daily sales through eCommerce grew 52.6% in the first nine months of 2022 and represented 17.1% of our total revenues in the period.
Our Digital Footprint in the first nine months of 2022 represented 48.2% of our sales, an increase from 41.5% of sales in the first nine months of 2021.
Gross Profit
In the first nine months of 2022, our gross profit, as a percentage of net sales, improved to 46.3%, or 20 basis points from 46.1% in the first nine months of 2021. This was driven by relatively modest changes in a number of variables. The net effect of write-downs was favorable, as the absence of the$7.8 mask write-down we had in the first quarter of 2021 was more favorable than the$3.4 glove write-down we had in the third quarter of 2022. We also achieved good leverage over organizational expenses as a result of strong business activity. These factors more than offset the dilutive impact of customer and product mix and slightly lower product margin as the impact of weaker price/cost for fasteners more than offset strong safety product margins. The impact of price/cost was largely neutral to our gross profit percentage in the first nine months of 2022. 21
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Operating and Administrative Expenses
Our operating and administrative expenses, as a percentage of net sales, fell to 25.1% compared to 25.6% in the first nine months of 2021. This is almost entirely due to a decline, as a percentage of net sales, in occupancy-related 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 Nine-month Period
Total Operating and
Administrative Expenses 2022
Employee-related expenses 70% to 75% 17.8 %
Occupancy-related expenses 15% to 20% 3.5 %
All other operating and administrative expenses 10% to 15% 20.8 %
In the first nine months of 2022, our employee-related expenses increased when
compared to the first nine 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.
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 period:
Change
Since:
Q3 Q4 Q4
2022 2021 2021In-market locations (branches & Onsites) 11,897 11,337 4.9
% Non-in-market selling 2,387 2,076 15.0 % Selling subtotal 14,284 13,413 6.5 % Distribution/Transportation 2,889 2,740 5.4 % Manufacturing 671 619 8.4 % Organizational support personnel (1) 1,675 1,598 4.8 % Non-selling subtotal 5,235 4,957 5.6 % Total 19,519 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 nine months of 2022, our occupancy-related expenses increased when compared to the first nine 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 costs related to branch rationalization being offset by higher utility expenses. Combined, all other operating and administrative expenses increased in the first nine months of 2022 when compared to the first nine 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, higher spending on information technology, and higher general insurance costs.
Net Interest Expense
Our net interest expense was
Income Taxes
We recorded income tax expense of
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Net Earnings
Our net earnings during the first nine months of 2022 were
Liquidity and Capital Resources
Cash flow activity was as follows for the periods ended
Nine-month Period
2022 2021
Net cash provided by operating activities
76.0 % 88.5 %
Net cash used in investing activities
14.5 % 15.4 %
Net cash used in financing activities
60.2 % 71.8 %
Net Cash Provided by Operating Activities
We produced operating cash flow of$639.1 in the first nine months of 2022, an increase of 4.1% from the first nine months of 2021, representing 76.0% of the period's net earnings versus 88.5% in the first nine months of 2021. Growth in operating cash flow was due to higher net income, which more than offset an increased need for working capital to support our customer's growth as well as inflation in inventory. The working capital effects were more impactful to our conversion ratio, however, causing that metric to decline over the nine-month period.
Net cash used in investing activities increased by
During the first nine months of 2022, our net capital expenditures were$120.9 , which is an increase of 13.0% from the first nine 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, completed in 2021.
Net cash used in financing activities increased by$8.0 in the first nine months of 2022 when compared to the first nine months of 2021. This is primarily due to an increase in cash used for dividend payments and to purchase our common stock, which exceeded the increase in our debt obligations. During the first nine months of 2022, we returned$679.0 to our shareholders in the form of dividends ($534.4 ) and purchases of our common stock ($144.6 ), compared to$482.6 in the first nine months of 2021, all in the form of dividends. During the first nine months of 2022, we purchased 3,000,000 shares of our common stock at an average price of approximately$48.22 per share. We did not purchase any shares of our common stock in the first nine 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, the impact of inflation on our cost of goods or operating costs, 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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