On this page of StockholderLetter.com we present the 2/6/2024 shareholder letter from FASTENAL CO — ticker symbol FAST. Reading current and past FAST letters to shareholders can bring important insights into the investment thesis.
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2/6/2024 Letter Continued (Full PDF)
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2/7/2023 FAST Stockholder Letter
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2/6/2024 Letter Continued (Full PDF)
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2/7/2023 FAST Stockholder Letter•
2/6/2025 FAST Stockholder Letter•
More "Home Improvement Stores" Category Stockholder Letters•
FAST Benford's Law Stock Score = 75FAST 2/6/2024 Shareholder/Stockholder Letter Transcript:
Table of
CONTENTS
1-3
Letters to Shareholders
and Employees
4-5
10-Year Selected
Financial Data and
Financial Highlights
6
Stock and
Financial Data
7
Stock Performance
Highlights
8
Creating Value and
Measuring the Impact
Inside Back
Cover
Directors | Executive
Of cers | Corporate
Information
2023
ANNUAL REPORT
In our industry, there s generally a trade-off between service and scope. On one end of the
spectrum are small distributors who offer local service but limited technology and geographic reach.
On the other end are large suppliers with strong eCommerce platforms and national reach but
limited local service. In this landscape, Fastenal stands apart in our ability to support customers
with local service, comprehensive technology, and consistent capabilities on a global scale.
MOVING
FORWARD IN OUR
ESG JOURNEY
It starts with a simple premise:
great people, close to the customer, with a passion for learning and growth.
23,201
874,000+ Fastenal School
employees
71% directly serve our customers
In the latter part of 2022, we achieved
third-party certi cation to the ISO
45001 occupational health and
safety management standard, the
ISO/IEC 27001 information security
management standard, and the ISO
14001 environmental management
standard all re ecting our core
commitment to being a safe, secure,
and sustainable organization.
Having completed an ESG materiality
assessment in late 2022, we began
2023 by road-mapping our ESG
strategy and building out our internal
ESG Community of Practice to promote
structured cross-departmental
collaboration. In Q4 2023, we completed
a scope 3 materiality assessment to
broaden our understanding of our carbon
inventory and guide future efforts to
reduce our environmental impact.
As a result of our efforts and improved
reporting on ESG matters, we received
the 2023 Sustainability Award from
Business Intelligence Group and made
Newsweek s 2024 list of America s
Greenest Companies. We nished
the year by being awarded a silver
medal from EcoVadis, signifying that
our sustainability performance ranks
in the top 25% of all companies in all
industries assessed by EcoVadis.
Scan below to learn more about our
ESG programs and progress.
of Business trainings completed
Our local team operates in 3,419 in-market selling locations across 25 countries.
64% of our $1.5B in inventory is staged locally or within customer sites for same-day access.
1,597 public branches
1,822 Onsite locations
Our local service is enhanced by a variety of technology solutions.
56.1% of our total revenue flows through this Digital Footprint. (1)
113,138 weighted FASTBin/
FASTVend installations (MEUs(2))
eCommerce
FASTStock
Improves the efficiency of
procurement/purchasing processes.
Represented 23.6% of total sales in
2023 vs. 8.4% in 2019.
SM
Using mobile technology
to illuminate inventory and
simplify replenishment.
FASTBin
FASTVend
Point-of-use devices with
embedded technology providing
a 24/7 sightline to the customer s
current inventory state.
Providing secure access and
usage tracking close to the point
of use in a customer s facility.
These Fastenal Managed Inventory (FMI ) programs represented 40.3% of total sales in 2023.
95% of total revenue comes from customers utilizing more than one of our sales channels and tools, with 74% of total revenue coming from customers utilizing four or more.(3)
This core model is supported by a range of high-touch services and
high-tech solutions to help customers solve problems and gain efficiencies.
High-Touch Services
High-Tech Solutions
620+ supply chain professionals(4) including 130+ on the ground in Asia
Mobile apps simplifying ordering and other processes
Approximately 90% of product tonnage is transported between our
hubs and our in-market locations via our captive logistics fleet
FAST360 tools to visualize inventory locations and status
420M products made, modified, or maintained by our manufacturing
and industrial services teams
FASTCribSM software to manage requisitions, inventory, and assets
580+ subject matter specialists (e.g., Lean, safety, engineering,
metalworking)
Trajectory tracking how vended products are used in the business
eProcurement Integration automating processes while improving
accuracy and visibility
The goal is to help organizations reduce cost, risk, and growth constraints in their supply
chains. The result: an opportunity for our customers to reduce their total cost of ownership
for products purchased from Fastenal by an average of 21.2% (learn more on pg. 8).
(1)
(2)
(3)
(4)
Our Digital Footprint is a combination of our sales through FMI Technology (FASTStock, FASTBin, and FASTVend) plus that portion of our eCommerce
sales that do not represent billings of FMI services.
Machine Equivalent Units (MEUs).
Sales channels and tools include branch, Onsite, FMI, national accounts, and web.
Includes individuals specializing in the following: sourcing, quoting, purchasing, supplier development and operations, compliance, and logistics.
Dan Florness
THANK
YOU
For Being a Shareholder of Fastenal
President & Chief Executive Officer
Sometimes the best insight into an organization
is to understand how they think about
themselves (versus the image they present to the
outside world). We have always operated under
the premise there is no fa ade, and we openly
share ourselves (warts included). To that end,
we started sharing a section from the Blue Team
Report, our internal annual report to employees,
several years ago. Page three includes the leadin letter from the current report.
The Fastenal culture could be characterized as a
glass half-full mindset or, stated more directly,
a group of pragmatic optimists. One of the
goals in writing this year s letter to employees,
and in sharing some insight into our January
2024 earnings call, was to remind us of the work
we ve completed and to use this reminder as a
means to shed some of the unneeded baggage
that may have come along for the ride. Another
goal was simply to reset our view towards our
opportunity a big market in need of a great
supply chain partner like Fastenal. Shifting gears
to our message to you, our valued shareholders,
here are three items which were either noted in
the earnings call or are relevant to a discussion
about 2023 (and beyond).
First, our global footprint has evolved. In 2022,
our total international business exceeded $1
billion for the rst time. In 2023, our international
business in just the Americas exceeded $1
billion for the rst time. This business is primarily
in Canada and Mexico, and it s operated with
locally grown talent. Our international business
outside the Americas continues to progress, and
today we think of it as a $200-million business
poised for the future.
At this size, the depth of employee talent is large
enough to bene t from an increase in investment.
The rst step to this increased investment
involved splitting our international business into
two pieces Americas (outside the United States)
and Eurasia (Europe and Asia). We then elevated
two successful international leaders to lead
these new business units. Next, we challenged
everyone within our supporting infrastructure,
which is primarily United States-based, to
spend some time traveling internationally and to
actively invest more time and attention to helping
their international cousins. Our international
business units represent about 17% of our
revenue and should receive at least 17% of our
attention. Build for the future!
Second, we completed a large-scale multiyear branch optimization initiative in the United
States, and to a lesser degree in Canada, which
began a decade ago (and which occurred largely
unnoticed). As highlighted in our January 2024
earnings call, our United States and Canada
branch network peaked in 2013 at just over
2,600 locations. In 2013 and 2014, we had a
slight reduction because we weren t pushing
the team to open branches. During this time, we
also gained momentum with the expansion of
our Onsite locations (the subset of our business
dedicated to one customer versus a local
market). There was a separate component of our
business also gaining momentum: our industrial
vending business (a service channel we now
refer to as FASTVend, a subset of Fastenal
Managed Inventory, or FMI).
Since 2015, our local sales leadership actively
contracted their branch network. To assist, we
provided our district managers with a 10,000foot view of the marketplace. (As noted, much of
the reduction occurred in the United States. This
subset represented about 2,400 of our 2,600
United States and Canadian locations a decade
ago.) At our peak United States branch count, we
estimate we were within a 30-minute drive of
about 95% of the United States manufacturing
marketplace. At today s count of 1,441, we
believe we still have 30-minute access to roughly
93.5% of the U.S. manufacturing marketplace
(with a similar presence in Canada) based on
our prior analysis of a target branch count of
1,450. The contraction lowered our occupancy
expense in the eld and was a necessary part
of our Onsite expansion; however, the work of
consolidating and relocating also distracted
our local team. It s nice to have this distraction
behind us.
The branch optimization initiative was a major
undertaking, but we believe the most signi cant
change of the last decade is our expanded
Onsite location network. (See the chart on the
following page, which was previously provided
in our January 2024 earnings call ip book.)
The best way to think of our Onsite network is
a business model adaptation that enhances our
ability to pursue the total addressable market. In
full disclosure, the Onsite network encompasses
three main variations: (1) a dedicated business
unit with people and inventory primarily placed in
the customer s facility, (2) a dedicated business
unit with people and inventory primarily placed
in a facility located near the customer site, or (3)
a dedicated business unit primarily located in the
back of an existing Fastenal branch. The latter
two types are usually a result of a customer s
lack of space for us in their facility. We prefer
option one but will adjust to any of the three.
The evolution of our branch and Onsite network
unlocks our energy to pursue by freeing up time
for greater engagement with our customers. It
also allows us to lower our cost structure. The
former is about inquiry and customer service,
and the latter is about expanding the basket of
products (or customer needs) available to us
based on situational economics. (The operational
ef ciency of the Onsite model allows us to do and
supply things for our customers that traditionally
would not have been cost-effective.)
Here is an example of the impact based on four
of our oldest markets (Minnesota, Wisconsin,
Iowa, and Illinois). These four U.S. states
represented about 19% of our global revenue in
2007 (our 40th year as a business). From 2007
to 2017, our revenue in this geography had a
compound annual growth rate (CAGR) of 5.7%,
and our pre-tax earnings had a CAGR of 5.6%.
In 2023, these four American states represented
about 15% of our global revenue; and from
2017 to 2023, this revenue expanded to a CAGR
of 8.2%, while our pre-tax earnings expanded
to an 8.5% CAGR. Simply put, our local team
enhanced our ability to grow in a very mature
market by changing their approach. Part of the
change involved reducing the number of branch
locations in these four states by almost 30%
versus a decade ago while expanding the Onsite
location count roughly seven-fold. In these four
states, our Onsite business grew from about
18% of revenue to about 46%. If we want to
be more wonky on the view and look at our six
oldest metropolitan markets touching these
four states (Minneapolis, Madison, Milwaukee,
Omaha, Des Moines, and Chicago), a similar
story emerges. The branch count drop is
slightly greater than 30%, and the Onsite count
expansion is more pronounced, with a greater
than 10-fold increase. Similarly, our CAGR for
revenue and pre-tax earnings expanded, and
the percent of our business operated through an
Onsite expanded.
2023 ANNUAL REPORT
1
Again, the details are a little wonky, but the
point is simple: The Blue Team in these markets
challenged the status quo, rede ned their
approach, and improved an already-great
business. I believe this enhances our future
potential in every market in which we operate.
Time will demonstrate if this belief is correct.
The third and nal item is our operating cash
ow i.e., the Net cash provided by operating
activities line in our cash ow statement (and
the ultimate health of a business long-term
potential). The improvement to operating cash
ow we enjoyed in the fourth quarter of 2022
continued in 2023.
was sent to you in the form of a supplemental
dividend paid in December 2023, the fourth
such supplemental dividend in our history. (The
other three were explained in greater detail in
last year s letter to shareholders.) Rest assured,
this supplemental dividend is a statement
about con dence in the business, not about
opportunities to invest.
We believe our ability to generate cash in the
future, and our ability to supplement available
cash with debt if needed (given our conservative
balance sheet), will allow us to invest in
opportunities as we continue our pursuit of
Growth Through Customer Service.
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President and Chief Executive Officer
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Harnessing Our
AN EXCERPT FROM THE
2023 BLUE TEAM REPORT
SUPERPOWER
You could write a book on what s special within Fastenal. Come to think
of it, Bob Kierlin already did it s titled The Power of Fastenal People.
It s an interesting read, and I would highly recommend it. Even if you ve
read it before, a refresher never hurts. To be honest, every employee in
Fastenal (me included) would have been well served to have read it in 2022
and in 2023. It would have reminded us how important it is to (1) support
each other and (2) stay focused on our common goal. As it turned out, we
wavered on both fronts, and as a result, we underperformed in both years.
It wasn t as obvious in 2022. The global economy was mending from the
pandemic, supply chains were constrained, and in ation was running hot.
Our strength in supply chain really shined through, and we grew well;
however, under the surface we knew we were losing something. We started
to forget about our priorities and purpose, and we became a bit too focused
on ourselves. As 2023 progressed, it became apparent, and then a weaker
global marketplace ampli ed the problem.
There s a quote credited to Winston Churchill from the World War II era,
and it goes something like this: You can always count on the Americans
to do the right thing after they ve tried everything else. I m not sure why
this quote popped into my head, but it seemed to aptly describe the Blue
Team s approach to 2023. The good news: After some soul searching and
structural changes, we ve progressed from tried everything else to do
the right thing, which for us means refocusing on our core strengths as
an organization.
Fastenal has a superpower. I believe the essence of this power can be
summarized as our ability to find great people, ask them to join, and
give them a reason to stay. In an era when it s easy to nd differences
and separation, we excel at the opposite, and the members of the Blue
Team cherish the unique humanness in each other. We also care enough
to push each other to learn, to change, and to grow; and this creates a
winning culture. Yes, we sometimes drive each other crazy with our speed
of change, but that s okay our customers like this about us. We harness
this superpower every day by remembering some simple truths:
1. Get everyone pursuing a common goal and you can
accomplish great things.
2. Understand our obligations to each other.
3. Goals matter!
The rst truth is about our desire to deliver great customer service, knowing
the market s reward for this service is growth. As alluded to above, we lost
sight of this truth in 2022 and 2023. In 2024, our common goal is serving
the customer well. Fortunately, our motto is easy to remember: Growth
Through Customer Service.
The second truth is understanding our obligations to each other. We directly
serve our customers through the local Blue Team in our branch and Onsite
network. Everyone else provides the assist by focusing on helping the local
Blue Team. This keeps it simple, and we nd success together.
months of economic contraction in the manufacturing sector, as indicated
by a sub-50 Purchasing Managers Index (PMI), the longest period of
contraction since the Great Recession. But we spent more time discussing
our poor execution and the steps taken to address the problem.
On this and on earlier calls we spoke about some needed course corrections,
and about asking some people to step into new roles. We also spoke about
the positives our success with FMI, our celebration of 20 years in China
(and my recent visit to the Blue Team there to recognize the milestone),
and our upcoming ten-year celebration in India. If the schedule works out, I
hope to visit our Blue Team in India later this year.
Speaking of new roles, Jeff Watts (who was promoted to chief sales
of cer in 2023) laid out three simple concepts for 2024 when he spoke
at our recent Employee Expo: (1) Alignment working together toward
a common goal, (2) Accountability embracing a culture of ownership,
and (3) Execution translating plans into action. The concepts are simple
and direct.
As we move into 2024, I m excited by what I see:
We are focused on our strength: driving planned/managed spend.
We are acknowledging and addressing our de ciencies: improving our
capabilities around unplanned/unmanaged spend. This includes
addressing weakness in our eCommerce capabilities and creating
PO automation to simplify daily processes. We re also improving our
knowledge capabilities (i.e., IT/data capabilities) to view our business
through a holistic customer lens versus an individual account lens.
We have a clear sales focus: Target 5, Onsite growth, FMI, and
the Customer Solutions Consultant (CSC) program. We ve also
simpli ed the language we use to describe our diverse customer base:
contract and non-contract customers.
Earlier I mentioned a recent trip to China (so recent I m still experiencing a
bit of jet lag). There were many highlights from the trip meeting the team
in person, seeing their facilities and how they support their local customers
and their Blue Team cousins across the globe, spending time with a longterm supplier. However, what stood out to me is the number of people
recognized for ve, ten, fteen, and twenty years of service. We are still a
very young organization in China, and it s amazing how many people have
decided to make Fastenal a career.
As always, good luck in 2024 and GO BLUE!
DANIEL L. FLORNESS
President and Chief Executive Officer
If you listen to our quarterly earnings calls, you might have been taken
aback by the bluntness in our January 18th call. Don t get me wrong, we
provided some context by discussing the weak economy: 14 consecutive
2023 ANNUAL REPORT
3
2/6/2024 Letter Continued (Full PDF)