With strong sales through its internet-connected vending machines installed at customers’ sites, Fastenal returned to double-digit growth and improved margins in the second quarter.

Fastenal Co., a distributor of industrial and construction supplies, this week reported second quarter sales growth that was noticeably stronger than the single-digit growth rates of recent quarters.

“The second quarter of 2017 felt more like Fastenal,” president and CEO Dan Florness says.

Sales through Fastenal's vending machines continued to grow at a double-digit pace.

Fastenal says the uptick in sales was driven primarily by an increase in unit sales, not increased prices, as customer demand went up. The distributor also attributes growth to an ongoing increase in sales through its expanding network of internet-connected vending machines that it places at customer locations. “Sales through our vending machines continued to grow at a double-digit pace,” Fastenal says.

The company signed contracts in the quarter to install and operate 4,881 new vending machines. As of June 30, it reported having an installed base of 66,577, an increase of 14% from a year earlier.

Fastenal’s internet-connected vending machines, which it places at customers’ industrial plant locations, provide customers with ready self-service access to such products as rivets, nuts and bolts used in manufacturing products or in repairing equipment. They can also be stocked with non-fastener items like safety goggles and work gloves, items that workers may frequently need to replace on the spot in order to keep working. Vending machines have also been helping to drive up sales for industrial supplies distributors including W.W. Grainger Inc. and MSC Industrial Supply Co.

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Dan Florness, president and CEO,
Fastenal Co.

Employees typically enter codes into the vending machines to access and retrieve products; machine sensors connected to the internet record when items are removed to update inventory and financial records, and set in motion replenishment orders. Fastenal also sells online at Fastenal.com.

Fastenal also attributes growth to a 45.9% increase in its number of “Onsite” locations to 486 in the second quarter from 333 a year earlier. Onsite locations are Fastenal-stocked and -managed product sales and service centers located at customers’ facilities; many of them include Fastenal vending machines.

Fastenal also operates about 2,500 branches, or stores, located primarily in North America, with additional locations in Asia, Europe, Latin America and Africa.

Florness, on a conference call with stock analysts this week, said Fastenal attributed an 8.4% hike in its second quarter gross profit to more efficient sourcing of inventory, a broader mix of industrial supplies and construction products, and an increase in its sales of Fastenal’s private label products, according to a transcript provided by Seeking Alpha.

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He said the broader mix of products was helped by Fastenal’s March 2017 acquisition of Hudsonville, Mich.-based Manufacturer’s Supply Co., or Mansco, for which it paid $57.9 million. He added that Fastenal’s 16 private-label product lines—including such brands as Body Guard safety gear, EquipRite vehicle fleet maintenance equipment, and Rock River construction tools—now account for about 12-13% of sales. “We think that over some period of time, that should probably approach 20%,” he said.

For the second quarter ended June 30, 2017, Fastenal reported:

  • Net sales of $1.1215 billion, up 10.6% from $1.0143 billion;
  • Gross profit of $558.5 million, up 11.3% from $501.6 million;
  • Net earnings of $148.9 million, up 13.2% from $131.5 million.

For the six months ended June 30, Fastenal reported:

  • Net sales of $2.169 billion, up 8.4% from $2.001 billion;
  • Gross profit of $1.0765 billion, up 8.4% from $993.1 million;
  • Net earnings of $283.1 million, up 9.9% from $257.7 million.

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