If there are specific areas of the industrial economy ready to take off on the back of the Purchasing Managers’ Index finally turning positive again, don’t count on Holden Lewis to tell us about it.
The CFO of Fastenal Co., the $7.5 billion distributor of industrial and construction supplies, told analysts April 11 that the distinctions between the company’s various customer groups—heavy and light manufacturers as well as commercial builders, resellers, transport firms and government entities —are narrowing. And not in a good way.
“When I talk to the regional leadership and they provide their feedback, there’s different times when certain markets are called out because they’re either stronger or weaker or what have you,” Lewis said on a conference call discussing Fastenal’s first-quarter results. “At this point, I’m not getting a lot of end market callouts, which suggests to me that people are kind of feeling a general softness across the board. So, I don’t have a lot of market-by-market color to add. I’m not sure there is much.”
Fastenal is seeing a similar dynamic when it comes to what the company is charging for its goods, Lewis said. There continues to be pressure on fasteners but that’s being offset by products such as safety supplies.
“The pricing environment is fairly unremarkable, which is why we’re not giving it as much time and energy in our dialogue,” Lewis said.
The comments from Lewis and President and CEO Dan Florness suggest that the manufacturing economy’s upward turn—at least as suggested by the Institute of Supply Management’s most recent PMI reading—could take a while to work its way through the system. That’s particularly the case for machinery investment, something Lewis called out in an echo of recent comments from Rockwell Automation Inc. boss Blake Moret about customers still working down inventories.
Minnesota-based Fastenal reported Q1 net income of $298 million, up a tick from the first three months of last year, as sales rose 2% to nearly $1.9 billion. Operating income slipped from a year ago but Florness and Lewis said that’s in part for encouraging reasons: Spending was up on travel for salespeople and other growth-related investments, such as an upcoming customer trade show that has garnered a much larger response than Fastenal’s leaders had expected. Such spending, Lewis, is starting to show up as more contract wins.
“Make no mistake,” Lewis said. “If we have to talk to you about what […] the cost is going to be in the second quarter, we do expect a return on it. It may not all happen at the show, but it’s expected to happen shortly thereafter.”
Investors appear more focused on the short term, however: Heading into the close of trading April 11, Fastenal shares (Ticker: FAST) were down more than 6% to about $70. They are still up 25% over the past six months, however, a move that has grown the company’s market capitalization to about $40 billion.
