FAST 10-K diff: FY 2024-12-31 → FY 2025-12-31
Paragraph-level diff of Risk Factors (Item 1A) and Management's Discussion & Analysis (Item 7).
Item 1A · Risk Factors
+16 paragraphs −15 paragraphs ~15 changed
FY 2024-12-31 (earlier)
ITEM 1A. RISK FACTORS
In addition to the other information in this Form 10-K, the following factors should be considered in evaluating our business. Our operating results depend upon many factors and are subject to various risks and uncertainties. The material risks and uncertainties known to us which may cause our operating results to vary from anticipated results or which may negatively affect our operating results and profitability are as follows:
Company-Specific Risks
Operational Risks
Products that we sell may expose us to potential material liability for property damage, environmental damage, personal injury, or death linked to the use of those products by our customers. Some of our customers operate in challenging industries in which there is a material risk of catastrophic events. We are actively seeking to expand our sales to certain categories of customers, some of whose businesses may entail heightened levels of such risk. If any of these events are linked to the use of any of our products by our customers, claims could be brought against us by those customers, by governmental authorities, and by third parties who are injured or damaged as a result of such events. In addition, our reputation could be adversely affected by negative publicity surrounding such events regardless of whether or not claims against us are successful. While we maintain insurance coverage to mitigate a portion of this risk and may have recourse against our suppliers for losses arising out of defects in products procured from them, we could experience significant losses as a result of claims made against us to the extent adequate insurance is not in place, the products are manufactured by us or legal recourse against our suppliers is otherwise not available, or our insurers or suppliers are unwilling or unable to satisfy their obligations to us.Interruptions in the proper functioning of information systems or the inability to maintain or upgrade our information systems, or convert to alternate systems in a timely and efficient manner, could disrupt operations, cause unanticipated increases in costs and/or decreases in sales, and result in less efficient operations. The proper functioning of our information systems is critical to many aspects of our business and we could be adversely affected if we experience a disruption or data loss relating to our information systems and are unable to recover in a timely manner. Our information systems are protected with robust backup systems and processes, including physical and software safeguards and remote processing capabilities. Still, information systems are vulnerable to natural disasters, power losses, unauthorized access, cybersecurity incidents, telecommunication failures, and other problems. In addition, certain software used by us is licensed from, and certain services related to our information systems are provided by, third parties who could choose to discontinue their products or services or their relationship with us. It is also possible that we are unable to improve, upgrade, maintain, and expand our information systems. Our ability to process orders, maintain proper levels of inventories, collect accounts receivable, pay expenses, and maintain the security of Fastenal and customer data, as well as the success of our growth drivers, is dependent in varying degrees on the effective and timely operation and support of our information technology systems. If critical information systems fail or these systems or related software or services are otherwise unavailable, if we experience extended delays or unexpected expenses in securing, developing, and otherwise implementing technology solutions to support our growth and operations, or if certain insurance coverages are limited in their capabilities or affordability, it could adversely affect our profitability and/or ability to grow.The ability to adequately protect our intellectual property or successfully defend against infringement claims by others may have an adverse impact on operations. Additionally, our business relies on the use, validity, and continued protection of certain proprietary information and intellectual property, which include current and future patents, trade secrets, trademarks, service marks, copyrights, and confidentiality agreements, as well as license and sublicense agreements to use intellectual property owned by affiliated entities or third parties. Unauthorized use of our intellectual property by others could result in harm to various aspects of the business and may result in costly and protracted litigation in order to protect our rights. In addition, we may be subject to claims that we have infringed on the intellectual property rights of others, which could subject us to liability, require us to obtain licenses to use those rights at significant cost, or otherwise cause us to modify our operations.Our ability to successfully attract, develop, and retain qualified personnel to staff our selling locations could impact labor costs, sales at existing selling locations, and the successful execution of our growth drivers. Our success depends in part on our ability to attract, motivate, and retain a sufficient number of qualified employees, including inside and outside branch associates, Onsite managers, national account sales representatives, and logistical and administrative support personnel, who understand and appreciate our culture and are able to adequately represent this culture to our customers. Qualified individuals of the requisite caliber and number needed to fill these positions may be in short supply in some areas, and the turnover rate in the industry is high, particularly for less tenured employees. If we are unable to hire and retain personnel capable of consistently providing a high level of customer service, as demonstrated by their enthusiasm for our culture and product knowledge, our sales could be materially and adversely affected. Additionally, competition for qualified employees could require us to pay higher wages to attract a sufficient number of employees. An inability to recruit and retain a sufficient number of qualified individuals in the future may also delay the planned expansion of our various selling channels.
18Table of ContentsCybersecurity incidents, or violations of data privacy laws and regulations, could cause us to experience certain operational interruptions, incur substantial additional costs, become subject to legal or regulatory proceedings, or suffer damage to our reputation in the marketplace. The nature of our business requires us to receive, retain, and transmit certain personally identifying information that our customers provide to purchase products or services, register on our websites, or otherwise communicate and interact with us. While we have taken and continue to undertake significant steps to protect our customer and confidential information, a compromise of our data security systems or those of businesses with which we interact could result in information related to our customers or business being obtained by unauthorized persons. We develop and update processes and maintain systems in an effort to try to prevent such unauthorized access, and have established and maintained disclosure controls and procedures that would permit us to make accurate and timely disclosures of any material event, including any cybersecurity event. The development and maintenance of these processes and systems are costly and require ongoing monitoring and updating as technologies change and efforts to overcome security measures become more sophisticated. Consequently, despite our efforts, the possibility of cybersecurity incidents cannot be eliminated entirely. There can be no assurance that we will not experience a cybersecurity incident that may materially impact our business. While we also seek to obtain assurances that third parties we interact with will protect confidential information, there is a risk the confidentiality of data held or accessed by third parties may be compromised. If a compromise of our data security were to occur, it could interrupt our operations, subject us to additional legal, regulatory, and operating costs, and damage our reputation in the marketplace. In addition, regulatory authorities have increased their focus on how companies collect, process, use, store, share, and transmit personal data. Privacy security laws and regulations, including the European Union General Data Protection Regulation 2016, the California Consumer Protection Act, and other similar privacy laws, pose increasingly complex compliance challenges, which may increase compliance costs, and any failure to comply with data privacy laws and regulations could result in significant penalties.Changes in customer or product mix, downward pressure on sales prices, and changes in volume or timing of orders have caused and could continue to cause our gross profit percentage to fluctuate or decline in the future. Changes in our customer and product mix have caused our gross profit percentage to decline and could cause our gross profit percentage to further fluctuate or decline. For example, we have experienced a sustained increase in the proportion of our sales attributable to both non-fastener products and national accounts and Onsite customers. Non-fastener products typically have a lower gross profit percentage than fasteners because in many cases non-fastener products are less technical, have shorter supply chains, and are easier to transport. Similarly, national accounts and Onsite customers typically have a lower gross profit percentage than smaller customers by virtue of their scale, available business, and broader offering of products which typically have lower gross profit percentages. Whether and to what extent this adverse mix impact will result in a decline of our gross profit percentage in any given year or period will depend on the extent to which they are offset by positive impacts to gross profit percentage during such year or period. Setting aside the circumstances of any given year or period, however, customer and product mix have contributed to the decline of our gross profit percentage over time and, based on the anticipated sources of our future growth, will likely continue to reduce our gross profit percentage into the foreseeable future. There are other variables that could cause our gross profit percentage to decline, including downward pressure on sales prices due to deflation, increases in overseas freight charges, the inability of freight sales to leverage the expenses associated with our captive trucking fleet, pressure from customers to reduce costs, or increased competition. We could experience reductions in the volume of purchases we make from our suppliers, which could reduce supplier volume allowances. We may not be able to pass higher product costs along to customers if those customers have ready product or supplier alternatives in the marketplace. We experienced a number of these variables in 2024. A softer manufacturing economy caused relative weakness in our more cyclical and higher gross margin fastener product line versus our non-fastener product lines. Similarly, we continued to execute initiatives aimed at accelerating key account penetration, which resulted in relative growth in our lower gross margin national account and Onsite customers. The combination of these two events produced pressure on our product gross profit percentage in 2024 from product and customer mix.
Our SG&A expenses could grow more rapidly than net sales, which could result in failure to achieve our goals related to leveraging sales growth into higher net income. Over time, we have generally experienced an increase in our SG&A expenses, including costs related to payroll, occupancy, freight, and information technology, among others, as our net sales have grown. However, historically, a portion of these expenses has not increased at the same rates as net sales, allowing us to leverage our growth and sustain or expand our operating profit margins. There are various scenarios where we may not be able to continue to achieve this leverage as we have been able to do in the past. For instance, it is typical that when demand slows or declines, most commonly from cyclical or general market factors (although it could be due to customer losses or some other company-specific event), our SG&A expenses do not fall as quickly as net sales. It is also possible that in the future we will elect to make investments in SG&A expenses that would result in costs growing faster than net sales. In addition, market variables, which include but are not exclusive of labor rates, energy costs, legal costs, and health care costs, could move in such a way as to cause us to not be able to manage our SG&A expenses so as to leverage our sales growth into higher net income. We experienced a number of these variables in 2024. Specifically, a softer manufacturing economy and our continued investment in personnel to support Onsite growth caused our SG&A to grow faster than sales, resulting in pressure on our operating margin percentage.
19Table of ContentsOur inability to attract or transition key executive officers may divert the attention of other members of our senior leadership and adversely impact our existing operations. Our success depends on the efforts and abilities of our key executive officers and senior leadership. In the event of voluntary or involuntary vacancies in our executive team in the future, the extent to which there is disruption in the oversight and/or leadership of our business will depend on our ability to either transition internal, talented individuals or recruit suitable replacements to serve in these roles. In addition, difficulties in smoothly implementing any transition to new members of our executive team, or recruiting suitable replacements, could divert the attention of other members of our senior leadership team from our existing operations. In December 2024, our Chief Financial Officer disclosed his intention to resign from Fastenal effective April 16, 2025. The process of filling this role is underway. However, failure to develop, attract, and retain a suitable replacement may have an adverse effect on our senior leadership team and our existing operations.Our competitive advantage in FMI solutions, which includes industrial vending (FASTVend) and bin stock (FASTStock and FASTBin) tools, could be eliminated and, in the case of FASTVend and FASTBin, the loss of key suppliers of equipment and services could be impactful and result in failure to deploy devices. Certain circumstances could lead to a short-term inability to promote and/or install our FMI solutions. We believe we have a competitive advantage in industrial vending and bin stock due to our hardware and software, our local presence (allowing us to service devices and bins more rapidly and with less burden on our customers), our depth of products that lend themselves to being dispensed through industrial vending devices or bin stocks, and, particularly in North America, our distribution strength. These advantages have developed over time; however, other competitors could respond to our expanding industrial vending and bin stock position with highly competitive platforms of their own. Such competition could negatively impact our ability to expand our industrial vending and bin stock tools or negatively impact the economics of that business. In addition, we currently choose to rely on a limited number of suppliers for our vending devices, RFID technology, and IR technology used in our FASTVend and FASTBin platforms. While devices, software, and services can be obtained from other sources, loss of our current suppliers could be disruptive and could result in our failure to meet short- or long-term goals related to the numbers of FASTVend and FASTBin devices we are able to deploy. Certain circumstances may reduce short-term customer receptivity to adopting our FMI services. For instance, during periods of dramatic change in economic activity, some customers may prioritize managing existing operations over adopting new technologies until business circumstances change.
We may be affected by global climate change or legal, tax, regulatory, or market responses to such change. The concern over climate change has led to legislative and regulatory initiatives aimed at reducing greenhouse gas emissions. Compliance with any new or more stringent laws or requirements, or stricter interpretations of existing laws, could require additional expenditures by us or our suppliers. In addition, many of the regulations that have been issued create mandatory, annual reporting requirements related to carbon emissions and other sustainability-related information that will ultimately be subject to audit. If we are unable to respond to any new regulatory or market changes in a timely fashion or at all in a way that satisfies regulators and/or our suppliers and customers, it could directly or indirectly affect our business, supply chains, financial condition, results of operations, and cash flows. Furthermore, climate change may present additional physical risks to our operations and lead to an increased frequency of unusual or extreme weather conditions, which could disrupt our supply chain or harm or disrupt our operations or those of our customers or suppliers.We may be unable to meet our goals regarding the growth drivers of our business. Our sales growth is dependent primarily on our ability to attract new customers and increase our activity with existing customers within North America and abroad. In recent years, we have increased the resources devoted to developing a multi-dimensional, differentiated service offering, including our Digital Footprint (which incorporates our FMI and eBusiness capabilities), Onsites, national accounts, international capabilities, and process and consumption analytics. While we have taken steps to build momentum in the growth drivers of our business, we cannot assure you those steps will lead to sales growth. Failure to achieve any of our goals regarding our Digital Footprint, Onsites, national accounts, international capabilities, analytics, or other growth drivers could negatively impact our long-term sales and profit growth. In addition, failure to identify appropriate targets for the growth drivers of our business or failure to persuade the appropriate targets to adopt these offerings once identified may adversely impact our internally developed and/or externally communicated deployment objectives.The ability to identify new products and product lines, and integrate them into our selling efforts and distribution network, may impact our ability to compete, our ability to generate additional sales, and our profit margins. Our success depends in part on our ability to develop product expertise at our selling locations and through our specialist roles and identify future products and product lines that complement existing products and product lines and that respond to our customers' needs. We may not be able to compete effectively unless our product selection keeps up with trends in the markets in which we compete or trends in new products. In addition, our ability to integrate new products and product lines into our selling locations and distribution network could impact sales and profit margins.20
Table of ContentsThe ability to adequately protect our reputation may have an adverse impact on operations and profitability. The Fastenal name is valuable to our business, as well as to the implementation of our strategies for expanding our business. Maintaining, promoting, and positioning our brand will depend largely on our ability to provide high quality products, deliver consistent services, and improve our customers' business operations. Further, information on Fastenal, including our products and services, can be more easily accessed and more quickly disseminated through traditional and social media and digital channels. Should we fail to deliver a positive customer experience or should our public image be tarnished by negative publicity, whether or not based in fact, it could jeopardize our reputation and discourage customers from purchasing our products and services, which in turn could adversely affect our ability to grow our sales and profitability.We may not be able to compete effectively against traditional or non-traditional competitors, which could cause us to lose market share or erode our gross and/or operating income profit and/or percentage. The industrial, construction, and maintenance supply industry, although slowly consolidating, still remains a large, fragmented, and highly competitive industry. Our current or future competitors may include companies with similar or greater market presence, name recognition, and financial, marketing, technological, and other resources, and we believe they will continue to challenge us with their product selection, financial resources, technological advancements, and services. Increased competition from brick-and-mortar retailers could cause us to lose market share, reduce our prices, or increase our spending. Similarly, the emergence of online retailers, whether as extensions of our traditional competition or in the form of major, non-traditional competitors, could result in easier and quicker price discovery and the adoption of aggressive pricing strategies and sales methods. These pressures could have the effect of eroding our gross and/or operating income profit and/or percentage over time.
We may not be successful in integrating acquisitions and achieving intended benefits and synergies. Historically, substantially all of our growth has been organic. However, we have completed several acquisitions over the last decade and expect to continue to pursue strategic acquisitions that we believe will either expand or complement our business in new or existing markets or further enhance the value and offerings we are able to provide to our existing or future potential customers. Acquisitions involve numerous risks and challenges, including, among others, a risk of potential loss of key employees of an acquired business, inability to achieve identified operating and financial synergies anticipated to result from an acquisition, diversion of our capital and our management's attention from other business issues, and risks related to the integration of the acquired business, including unanticipated changes in our business, our industry, or general economic conditions that affect the assumptions underlying the acquisition. Any one or more of these factors could cause us to not realize the benefits anticipated to result from the acquisitions.
Equity Risks
Our stock price will fluctuate, and at times these fluctuations may be volatile . The prices of markets and individual equities tend to fluctuate. These fluctuations commonly reflect events, many of which may be fully or partially outside of our control, that may change investors' perception of our future income growth prospects, including changes in economic conditions, ability to execute business strategy, the impacts of public policy, investor sentiment, competitive dynamics, and many other factors. While the sources of stock price fluctuation can be common across companies, the magnitude of these fluctuations can vary for different companies. This is commonly measured by beta, which is an individual stock's volatility in relation to the overall market. Our stock price has traditionally had a high beta value, which means fluctuations in the price of our shares will often be sharper than what is experienced by broader market indices. We can provide no assurance that the above-average historical volatility of our stock versus the broader market will moderate. Volatility in our stock price could also result in the filing of securities class action litigation, which could result in substantial costs and the diversion of our management's time, attention, and resources.
There can be no assurance that our stock price will continue to reflect the current multiple of income over time. Stock prices, including ours, are commonly thought to be a function of income compounded by a multiple. This is often referred to as a price-to-earnings (P/E) ratio, although other forms of multiples are often utilized by investors to value Fastenal shares. Historically, investors have given our income a higher multiple, or premium, than is typical of the broader industrial sector with which we are typically associated. We believe we have earned this premium by virtue of a long history of superior growth, profitability, and returns. However, to the extent that we fail to successfully execute our growth strategies and/or poorly navigate the risks that surround our business, including those described throughout this section, or to the extent our industry (industrial distribution, or industrial stocks in general) loses favor in the marketplace, there can be no assurance that investors will continue to afford a premium multiple to our income, which could adversely affect our stock price.21Table of ContentsWe cannot provide any guaranty of future dividend payments or that we will continue to purchase shares of our common stock pursuant to our share purchase program. Although our board of directors has historically authorized the payment of quarterly cash dividends on our common stock and indicated an intention to do so in the future, there are no assurances that we will continue to pay dividends in the future or continue to increase dividends at historic rates. In addition, although our board of directors has authorized share purchase programs and we purchased shares in 2022, 2020, and prior years through these programs, we may discontinue doing so at any time. Any decision to continue to pay quarterly dividends on our common stock, to increase those dividends, or to purchase our common stock in the future will be based upon our financial condition and results of operations, the price of our common stock, credit conditions, and such other factors as are deemed relevant by our board of directors.General Economic and Operating Risks
Operational Risks
Products manufactured in foreign countries may cease to be available, which could adversely affect our inventory levels and operating results. We obtain certain of our products, and our suppliers obtain certain of their products, from China, Taiwan, South Korea, and other foreign countries. Our suppliers could discontinue or experience disruption in selling products manufactured in foreign countries at any time for reasons that may or may not be in our control or our suppliers' control, including foreign government regulations, domestic government regulations, disruption in trade relationships and agreements, political unrest, war, disease, labor availability, or changes in local economic conditions. Additionally, the shipment of goods from foreign countries could be delayed by container shipping companies encountering financial, capacity, or other difficulties. Our operating results and inventory levels could suffer if we are unable to promptly replace a supplier or shipper who is unwilling or unable to satisfy our requirements with another supplier or shipper providing products and services of comparable quality and utility.
A downturn in the economy or in the principal markets served by us and other factors may affect customer spending, which could harm our operating results. In general, our sales are the result of planned and unplanned customer spending on products used in production of final goods, infrastructure construction, and/or the maintenance of facilities. This spending is affected by many factors, including, among others:
• general business conditions;
• business conditions in our principal markets;
• changes in the value of local currencies relative to our functional currency, the U.S. dollar;
• interest rates;
• increases (inflation) or decreases (deflation) in the cost of products from our vendors, transportation services, energy and fuel prices, and electrical power rates;
• liquidity in credit markets;
• taxation;
• government regulations and actions;
• the impact on customer demand or availability of goods and services based on labor shortages or work stoppages;
• unemployment trends;
• terrorist attacks and acts of war;
• impact of higher sustained global temperatures (climate change);
• acts of God, which may include, but are not limited to, weather events, earthquakes, pandemics, etc.; and
• other matters that influence customer confidence and spending.A downturn in either the national or local economies where we operate, or in the principal markets served by us, or changes in any of the other factors described above, could negatively impact sales at our in-market locations, sales through our other selling channels, and the level of profitability of those in-market locations and other selling channels. The primary variable affecting our results in 2024 was a softening in manufacturing sector business conditions.
Trade policies could make sourcing product from overseas more difficult and/or more costly, and could adversely impact our gross and/or operating profit percentage. We source a significant amount of the products we sell from outside of North America, primarily Asia. We have made significant structural investments over time to be able to source both directly from Asia through our wholly-owned, Asia-based subsidiary, FASTCO Trading Co., Ltd., and indirectly from suppliers that procure product from international sources. This was initially necessary due to the absence of significant domestic fastener production, but over time we have expanded our non-fastener sourcing as well, and at this time it may be difficult to adjust our sourcing in the short term. In light of this, changes in trade policies could affect our sourcing operations, our ability to secure sufficient product to serve our customers and/or impact the cost or price of our products, with potentially adverse impacts on our gross and operating profit percentages and financial results. China represents a significant source of product for North America. In
22Table of Contentsaddition, we move and source products within North America. Any trading disruption (tariffs, product restrictions, etc.) between Canada, the U.S., and Mexico, or disruption in their respective trading relationships with other nations can adversely impact our business. On February 1, 2025, the White House issued three executive orders directing the U.S. to impose an increase of the duty on imports from Canada and Mexico and China and empowering the U.S. president to raise the tariffs further should any country retaliate. On February 3, 2025, the prospective tariffs on Canada and Mexico were deferred for 30 days, though the execution of these tariff increases remain possible beyond the current short-term reprieve. The 10% additional tariff on all imports from China went into effect, and on February 4, 2025 China retaliated with various levels of tariffs on certain products imported into that country from the U.S. We are closely monitoring these actions, which could have an adverse impact on our business and financial results. There can be no assurances that these disruptions will not continue or increase in the future, with the previously mentioned countries or additional countries with which we do business. The degree to which these changes in the global marketplace affect our financial results will be influenced by the specific details of the changes in trade policies, their timing and duration, and our effectiveness in deploying tools to address these issues.Changes in energy costs and the cost of raw materials used in our products could impact our net sales, cost of sales, gross profit percentage, distribution expenses, and occupancy expenses, which may result in lower operating income. Our suppliers can experience significant fluctuation over time in the cost of raw materials (e.g., steel, plastic, etc.) used to produce their products. They can also experience significant fluctuation in the cost of energy consumed in their production processes and in the cost of fuel consumed to transport their products. These suppliers typically look to pass their increased costs along to us through price increases. We also consume energy and fuel in our own operations, and can experience direct and significant fluctuation in our own costs. Increases in the cost of fuel or raw materials could be damaging to us, decreases in those costs, particularly if severe, could also adversely impact us by creating deflation in selling prices, which could cause our gross profit to decline, or by negatively impacting customers in certain industries, which could cause our sales to those customers to decline. Failure to fully pass any such increased prices and costs through to our customers or to modify our activities to mitigate the impact would have an adverse effect on our operating income.
We are exposed to foreign currency exchange rate risk, and changes in foreign exchange rates could increase the cost of purchasing products and impact our foreign sales. Given that we were founded and remain based in the U.S. and that we are publicly traded in the U.S., we report our results based on the U.S. dollar. Because the functional currency related to most of our non-U.S. operations is the applicable local currency, we are exposed to foreign currency exchange rate risk arising from transactions in the normal course of business. Fluctuations in the relative strength of foreign economies and their related currencies could adversely impact our ability to procure products at competitive prices and our foreign sales. Historically, our primary exchange rate exposure has been with the Canadian dollar as our Mexican activities are primarily conducted in U.S. dollars and our non-North American operations are relatively small in scale. There can be no assurance that currency exchange rate fluctuations with the Canadian dollar and other foreign currencies will not adversely affect our results of operations, financial condition, and cash flows. While the use of currency hedging instruments may provide us with protection from adverse fluctuations in currency exchange rates, we are not currently using these instruments and we have not historically hedged this exposure. If we decide to do so in the future, we could potentially forego the benefits that might result from favorable fluctuations in currency exchange rates.Our current estimates of total market potential as well as the market potential of our business strategies could be incorrect. We believe we have a significant opportunity for growth based on our belief that North American market demand for the products we sell is estimated to exceed $140 billion. This figure is not derived from an independent organization or data source that aggregates and publishes widely agreed-upon demand and market share statistics. Instead, we have identified this figure based on our own experience in the marketplace for our products and by evaluating estimates from other sources. If we have overestimated the size of our market, and in doing so, underestimated our current share of it, the size of our opportunity for growth may not be as significant as we currently believe. Similarly, we have provided estimates of the opportunities we have with some of our specific growth strategies, such as FMI solutions and Onsite locations. Within North America, we believe the potential market opportunity for industrial vending is approximately 1.7 million devices and we have identified over 11,000 customer locations with the potential to implement our Onsite service model within our traditional manufacturing and construction customer base. We have identified additional markets, such as government, healthcare, and academia, and geographies into which we can sell our FMI solutions, which would increase the number of identified potential FMI solutions or Onsite locations. However, our presence in emerging markets and geographies is not as established as is the case in our traditional markets and geographies, which could extend the sales cycle. As is the case for total market size, we use our own experience and data to arrive at the size of these potential opportunities and not independent sources. These estimates are based on our business model today, and the introduction or expansion of other business strategies could cause them to change. In addition, the market potential of a particular business strategy may vary from expectations due to a change in the marketplace (such as changes in customer concentration or needs), a change in the nature of that business strategy, or weaker than anticipated acceptance by customers of that business strategy. We cannot guarantee that our market potential estimates are accurate or that we will ultimately decide to expand our industrial vending or Onsite service models as we anticipate to reach the full market opportunity.
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The industrial, construction, and maintenance supply industry is consolidating, which could cause it to become more competitive and could negatively impact our market share, gross profit, and operating income. The industrial, construction, and maintenance supply industry in North America is consolidating, reflecting two factors. First, our customers' needs are evolving to reflect a greater awareness of the total cost and risk of fulfillment and their need to have consistent sources of supply at multiple locations, including outside of North America. Second, providing these capabilities to our customers requires increasing investment in hardware, software, and analytic capabilities that require a certain degree of scale to support. While we believe that in a fragmented market such as exists for industrial supplies these emerging trends favor large distributors such as Fastenal, as the industry consolidates into fewer and larger competitors it may become more difficult to differentiate our product and service offering from that of our competitors. We also continue to see consolidation among our suppliers. This trend could result in fewer and larger suppliers, with greater channel power and negotiating leverage. There can be no assurance we will be able in the future to take effective advantage of the trend toward consolidation within our industry or among our suppliers. In either or both cases, the trend toward consolidation could make it more difficult for us to maintain our growth and/or gross and operating profit. Furthermore, as our industrial customers face increased foreign competition, and potentially lose business to foreign competitors, or shift their operations overseas in an effort to reduce expenses, we may face increased difficulty in growing and maintaining our market share.
The occurrence of a widespread public health crisis could have a material adverse effect on our business, results of operations, and financial condition. A public health crisis, if sufficiently widespread as to affect economic activity, could negatively impact our business. Mitigation efforts and prescriptions may be facilitated by regulatory authorities, which could limit our flexibility to pursue alternative, potentially more favorable, means of limiting these negative impacts. The effects on our business efforts to mitigate the effects of the crisis may include a reduction in demand, inefficiencies due to workplace accommodations, reduced availability of personnel, supply chain disruption, or constraints on product availability, among other difficulties. In any such event, the severity, duration, and extent of the crisis can be difficult to predict, which can make it difficult to anticipate the magnitude and length of the impact on our sales, profits, and/or cash flow. It can also be difficult to anticipate what the effect on business conditions will be as the impacts of any public health crisis fade and mitigating policies are reversed.
Inclement weather and other disruptions to the transportation network could adversely impact our distribution system and demand for our products. Our ability to provide efficient distribution of core business products to our branch network is an integral component of our overall business strategy. Disruptions at distribution centers or shipping ports may affect our ability to both maintain core products in inventory and deliver products to our customers on a timely basis, which may in turn adversely affect our results of operations. In addition, severe weather conditions could adversely affect demand for our products in particularly hard hit regions.
Legal, Regulatory, and Compliance Risks
Failure to maintain an effective system of internal controls over business processes and/or financial reporting could materially impact our business and results. Fastenal's management is responsible for establishing and maintaining effective internal controls designed to provide reasonable assurance regarding the achievement of objectives relating to operations, reporting, and compliance. Any system of internal controls, no matter how well designed and operated, can only provide reasonable, not absolute, assurance that the objectives of the control system are met. Further, the design of a system of controls must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all systems of internal controls, internal controls over business processes and financial reporting may not prevent or detect fraud or misstatements. Any failure to maintain an effective system of internal controls over business processes and financial reporting could limit our ability to report our financial results accurately and timely or to detect and prevent fraud, and could expose us to litigation, economic loss, or adversely affect the market price of our common stock.
Our business is subject to a wide array of operating laws and regulations in every jurisdiction where we operate. Compliance with these laws and regulations increases the cost of doing business and failure to comply could result in the imposition of fines or penalties, damage to our reputation, or the termination of contracts. We are subject to a variety of laws and regulations including without limitation import and export requirements, anti-bribery and corruption laws, product compliance laws, environmental laws, foreign exchange controls and cash repatriation restrictions, advertising regulations, data privacy (including in the U.S., the California Consumer Privacy Act, as amended by the California Privacy Rights Act, and in the European Union, the General Data Protection Regulation 2016, with interpretations varying from state to state and country to country) and cybersecurity requirements (including protection of information and incident responses), regulations on suppliers regarding the sources of supplies or products, labor and employment laws, and anti-competition regulations. In addition, as a supplier to federal, state, and local government agencies, we must comply with certain laws and regulations relating specifically to the formation, administration, and performance of our governmental contracts. We are also subject to governmental audits and inquiries in the normal course of business. Ongoing audit activity and changes to the legal and regulatory environments could increase the cost of doing business, and such costs may increase in the future as a result of changes in these laws and regulations or in their interpretation. While we have implemented policies and procedures designed to facilitate compliance24Table of Contents
with these laws and regulations, there can be no assurance that our employees, contractors, or agents will not violate such laws and regulations, or our policies. Any such violations could result in the imposition of fines and penalties, damage to our reputation, and, in the case of laws and regulations relating specifically to governmental contracts, the loss of those contracts.Tax laws and regulations require compliance efforts that can increase our cost of doing business and changes to these laws and regulations could impact financial results. We are subject to a variety of tax laws and regulation in the jurisdictions in which we operate. Maintaining compliance with these laws can increase our cost of doing business and failure to comply could result in audits or the imposition of fines or penalties. Further, our future effective tax rates in any of these jurisdictions could be affected, positively or negatively, by changing tax priorities, changes in statutory rates, and/or changes in tax laws or the interpretation thereof, including any changes resulting from the new presidential administration in the U.S. In 2022, the Inflation Reduction Act was passed, which contained tax-related provisions. We did not experience, and do not anticipate experiencing in the near future, any meaningful impact to our tax rates from the legislation.Changes in accounting standards and subjective assumptions, estimates, and judgments by management related to complex accounting matters could significantly affect our financial results or financial condition. U.S. generally accepted accounting principles (GAAP) and related accounting pronouncements, implementation guidelines and interpretations with regard to a wide range of matters that are relevant to our business, such as asset impairment, inventories, lease obligations, self-insurance, vendor allowances, tax matters, business combinations, and legal matters, are complex and involve many subjective assumptions, estimates, and judgments. Changes in accounting standards or their interpretation or changes in underlying assumptions, estimates or judgments, could significantly change our reported or expected financial performance or financial condition. The implementation of new accounting standards could also require certain systems, internal processes, internal control, and other changes that could increase our operating costs.
We are subject to litigation risk due to the nature of our business, which may have a material adverse effect on our business. From time to time, we are involved in lawsuits or other legal proceedings that arise from business transactions or the operation of our business. Due to the nature of our business, these proceedings may, for example, relate to product liability claims, commercial disputes, suits arising from our trucking operations, or employment matters. In addition, we could face claims over other matters, such as claims arising from our status as a government contractor, intellectual property matters, or corporate or securities law matters. The defense and ultimate outcome of lawsuits or other legal proceedings may result in higher operating expenses, which could have a material adverse effect on our business, financial condition, or results of operations.
Credit and Liquidity RisksTight credit markets could impact our ability to obtain financing on reasonable terms or increase the cost of existing or future financing and interest rate fluctuations could adversely impact our results. As of December 31, 2024, we had $200.0 of outstanding debt obligations, all in the form of senior unsecured promissory notes issued under our master note agreement (the Master Note Agreement). The notes issued under our Master Note Agreement carry a fixed interest rate and consist of four series and are described in further detail in Note 9 of the Notes to Consolidated Financial Statements in this Form 10-K. We also have borrowing capacity under our revolving credit facility (the Credit Facility) of $835.0, but no loans were outstanding as of December 31, 2024. Loans under the Credit Facility generally bear interest at a rate per annum equal to Daily Simple Secured Overnight Financing Rate (SOFR), the rate on which may vary daily, and mature on September 28, 2027.
We currently have the capacity under our Credit Facility and Master Note Agreement to increase borrowings in the future to finance stock purchases, dividends, capital expenditures, working capital additions, acquisitions, or other investments. Should we seek to increase our borrowings during periods of volatility and disruption in the U.S. credit markets, financing may become more costly and more difficult to obtain. This was not a material consideration in 2024. The cost of servicing any existing balances on our Credit Facility could increase if interest rates increase due to the SOFR-based interest rate provided for under our Credit Facility.
FY 2025-12-31 (later)
ITEM 1A. RISK FACTORS
In addition to the other information in this Form 10-K, the following factors should be considered in evaluating our business. Our operating results depend upon many factors and are subject to various risks and uncertainties. The material risks and uncertainties known to us which may cause our operating results to vary from anticipated results or which may negatively affect our operating results and profitability are as follows:
Company-Specific Risks
Operational Risks
Products that we sell may expose us to potential material liability for property damage, environmental damage, personal injury, or death linked to the use of those products by our customers. Some of our customers operate in challenging industries in which there is a material risk of catastrophic events. We are actively seeking to expand our sales to certain categories of customers, some of whose businesses may entail heightened levels of such risk. If any of these events are linked to the use of any of our products by our customers, claims could be brought against us by those customers, by governmental authorities, and by third parties who are injured or damaged as a result of such events. In addition, our reputation could be adversely affected by negative publicity surrounding such events regardless of whether or not claims against us are successful. While we maintain insurance coverage to mitigate a portion of this risk and may have recourse against our suppliers for losses arising out of defects in products procured from them, we could experience significant losses as a result of claims made against us to the extent adequate insurance is not in place, the products are manufactured by us or legal recourse against our suppliers is otherwise not available, or our insurers or suppliers are unwilling or unable to satisfy their obligations to us.Interruptions in the proper functioning of information systems or the inability to maintain or upgrade our information systems, or convert to alternate systems in a timely and efficient manner, could disrupt operations, cause unanticipated increases in costs and/or decreases in sales, and result in less efficient operations. The proper functioning of our information systems is critical to many aspects of our business and we could be adversely affected if we experience a disruption or data loss relating to our information systems and are unable to recover in a timely manner. Our information systems are protected with robust backup systems and processes, including physical and software safeguards and remote processing capabilities. Still, information systems are vulnerable to natural disasters, power losses, unauthorized access, cybersecurity incidents, telecommunication failures, and other problems. In addition, certain software used by us is licensed from, and certain services related to our information systems are provided by, third parties who could choose to discontinue their products or services or their relationship with us. It is also possible that we are unable to improve, upgrade, maintain, and expand our information systems. Our ability to process orders, maintain proper levels of inventories, collect accounts receivable, pay expenses, and maintain the security of Fastenal and customer data, as well as the success of our growth drivers, is dependent in varying degrees on the effective and timely operation and support of our IT systems. If critical information systems fail or these systems or related software or services are otherwise unavailable, if we experience extended delays or unexpected expenses in securing, developing, and otherwise implementing technology solutions to support our growth and operations, or if certain insurance coverages are limited in their capabilities or affordability, it could adversely affect our profitability and/or ability to grow.
We may not be successful in adopting and integrating emerging technologies. Our ability to maintain and enhance our competitive position depends in part on our capacity to adopt and integrate emerging technologies, including AI and advanced analytics, into our operations, customer solutions, and supply chain management. If we fail to identify, develop, or implement relevant technologies in a timely and cost-effective manner, or if such technologies do not deliver the anticipated benefits, our business operations, customer experience, and financial performance could be adversely affected. Additionally, our competitors may leverage these technologies more effectively, which could result in a loss of market share. The evolving regulatory landscape surrounding AI and data usage may also introduce compliance risks and additional costs. These factors could materially and adversely impact our business, financial condition, and results of operations.The ability to adequately protect our intellectual property or successfully defend against infringement claims by others may have an adverse impact on operations. Additionally, our business relies on the use, validity, and continued protection of certain proprietary information and intellectual property, which include current and future patents, trade secrets, trademarks, service marks, copyrights, and confidentiality agreements, as well as license and sublicense agreements to use intellectual property owned by affiliated entities or third parties. Unauthorized use of our intellectual property by others could result in harm to various aspects of the business and may result in costly and protracted litigation in order to protect our rights. In addition, we may be subject to claims that we have infringed on the intellectual property rights of others, which could subject us to liability, require us to obtain licenses to use those rights at significant cost, or otherwise cause us to modify our operations.16Table of ContentsOur ability to successfully attract, develop, and retain qualified personnel to staff our selling locations could impact labor costs, sales at existing selling locations, and the successful execution of our growth drivers. Our success depends in part on our ability to attract, motivate, and retain a sufficient number of qualified employees, including inside and outside branch associates, Onsite managers, contract account sales representatives, and logistical and administrative support personnel, who understand and appreciate our culture and are able to adequately represent this culture to our customers. Qualified individuals of the requisite caliber and number needed to fill these positions may be in short supply in some areas, and the turnover rate in the industry is high, particularly for less tenured employees. If we are unable to hire and retain personnel capable of consistently providing a high level of customer service, as demonstrated by their enthusiasm for our culture and product knowledge, our sales could be materially and adversely affected. Additionally, competition for qualified employees could require us to pay higher wages to attract a sufficient number of employees. An inability to recruit and retain a sufficient number of qualified individuals in the future may also delay the planned expansion of our various selling channels.Cybersecurity incidents, or violations of data privacy laws and regulations, could cause us to experience certain operational interruptions, incur substantial additional costs, become subject to legal or regulatory proceedings, or suffer damage to our reputation in the marketplace. The nature of our business requires us to receive, retain, and transmit certain personally identifying information that our customers provide to purchase products or services, register on our websites, or otherwise communicate and interact with us. While we have taken and continue to undertake significant steps to protect our customer and confidential information, a compromise of our data security systems or those of businesses with which we interact could result in information related to our customers or business being obtained by unauthorized persons. We develop and update processes and maintain systems in an effort to try to prevent such unauthorized access, and have established and maintained disclosure controls and procedures that would permit us to make accurate and timely disclosures of any material event, including any cybersecurity event. The development and maintenance of these processes and systems are costly and require ongoing monitoring and updating as technologies change and efforts to overcome security measures become more sophisticated. Consequently, despite our efforts, the possibility of cybersecurity incidents cannot be eliminated entirely. There can be no assurance that we will not experience a cybersecurity incident that may materially impact our business. While we also seek to obtain assurances that third parties we interact with will protect confidential information, there is a risk the confidentiality of data held or accessed by third parties may be compromised. If a compromise of our data security were to occur, it could interrupt our operations, subject us to additional legal, regulatory, and operating costs, and damage our reputation in the marketplace. In addition, regulatory authorities have increased their focus on how companies collect, process, use, store, share, and transmit personal data. Privacy security laws and regulations, including the European Union General Data Protection Regulation 2016, the California Consumer Protection Act, and other similar privacy laws, pose increasingly complex compliance challenges, which may increase compliance costs, and any failure to comply with data privacy laws and regulations could result in significant penalties.17Table of ContentsChanges in customer or product mix, downward pressure on sales prices, an inability to capture price increases in response to increased costs associated with tariffs, and changes in volume or timing of orders have caused and could continue to cause our gross profit percentage to fluctuate or decline in the future. Changes in our customer and product mix have caused our gross profit percentage to decline and could cause our gross profit percentage to further fluctuate or decline. For example, we have experienced a sustained increase in the proportion of our sales attributable to both non-fastener products and contract accounts and Onsite customers. Non-fastener products typically have a lower gross profit percentage than fasteners because in many cases non-fastener products are less technical, have shorter supply chains, and are easier to transport. Similarly, contract accounts and Onsite customers typically have a lower gross profit percentage than smaller customers by virtue of their scale, available business, and broader offering of products which typically have lower gross profit percentages. Whether and to what extent this adverse mix impact will result in a decline of our gross profit percentage in any given year or period will depend on the extent to which they are offset by positive impacts to gross profit percentage during such year or period. Setting aside the circumstances of any given year or period, however, customer and product mix have contributed to the decline of our gross profit percentage over time and, based on the anticipated sources of our future growth, will likely continue to reduce our gross profit percentage into the foreseeable future. In 2025, tariff rates increased on many of the parts we sell. Additionally, new tariffs were enacted. There are other variables that could cause our gross profit percentage to decline, including downward pressure on sales prices due to deflation, increases in overseas freight charges, the inability of freight sales to leverage the expenses associated with our captive trucking fleet, pressure from customers to reduce costs, or increased competition. We could experience reductions in the volume of purchases we make from our suppliers, which could reduce supplier volume allowances. We may not be able to pass higher product costs along to customers if those customers have ready product or supplier alternatives in the marketplace. In 2025, the softer manufacturing economy continued to cause relative weakness in our more cyclical and higher gross margin fastener product line versus our non-fastener product lines. Similarly, we continued to execute initiatives aimed at accelerating key account penetration, which resulted in relative growth in our lower gross margin contract accounts. The combination of these two events produced pressure on our product gross profit percentage in 2025 from product and customer mix.
Our SG&A expenses could grow more rapidly than net sales, which could result in failure to achieve our goals related to leveraging sales growth into higher net income. Over time, we have generally experienced an increase in our SG&A expenses, including costs related to payroll, occupancy, freight, and IT, among others, as our net sales have grown. However, historically, a portion of these expenses has not increased at the same rates as net sales, allowing us to leverage our growth and sustain or expand our operating profit margins. There are various scenarios where we may not be able to continue to achieve this leverage as we have been able to do in the past. For instance, it is typical that when demand slows or declines, most commonly from cyclical or general market factors (although it could be due to customer losses or some other company-specific event), our SG&A expenses do not fall as quickly as net sales. It is also possible that in the future we will elect to make investments in SG&A expenses that would result in costs growing faster than net sales. In addition, market variables, which include but are not exclusive of labor rates, energy costs, legal costs, and health care costs, could move in such a way as to cause us to not be able to manage our SG&A expenses so as to leverage our sales growth into higher net income. In 2025, our incentive compensation programs did not leverage during the year due to increased sales and pretax profit growth compared to contraction or very low growth in most periods of 2024.
Our inability to attract or transition key executive officers may divert the attention of other members of our senior leadership and adversely impact our existing operations. Our success depends on the efforts and abilities of our key executive officers and senior leadership. In the event of voluntary or involuntary vacancies in our executive team in the future, the extent to which there is disruption in the oversight and/or leadership of our business will depend on our ability to either transition internal, talented individuals or recruit suitable replacements to serve in these roles. In addition, difficulties in smoothly implementing any transition to new members of our executive team, or recruiting suitable replacements, could divert the attention of other members of our senior leadership team from our existing operations. As previously disclosed, on December 19, 2025, Mr. Florness informed our board of directors of his decision to voluntarily step out of his role as our chief executive officer, effective as of the CEO Transition Date, and his decision to resign from our board of directors, effective as of the CEO Transition Date. On December 19, 2025, our board of directors also appointed Mr. Watts, our current president and chief sales officer, as the next chief executive officer of Fastenal, effective as of the CEO Transition Date. If we are unable to manage this transition effectively, our operations may be disrupted.
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Table of ContentsOur competitive advantage in FMI solutions, which includes industrial vending (FASTVend) and bin stock (FASTStock and FASTBin) tools, could be eliminated and, in the case of FASTVend and FASTBin, the loss of key suppliers of equipment and services could be impactful and result in failure to deploy devices. Certain circumstances could lead to a short-term inability to promote and/or install our FMI solutions. We believe we have a competitive advantage in industrial vending and bin stock due to our hardware and software, our local presence (allowing us to service devices and bins more rapidly and with less burden on our customers), our depth of products that lend themselves to being dispensed through industrial vending devices or bin stocks, and, particularly in North America, our distribution strength. These advantages have developed over time; however, other competitors could respond to our expanding industrial vending and bin stock position with highly competitive platforms of their own. Such competition could negatively impact our ability to expand our industrial vending and bin stock tools or negatively impact the economics of that business. In addition, we currently choose to rely on a limited number of suppliers for our vending devices, RFID technology, and IR technology used in our FASTVend and FASTBin platforms. While devices, software, and services can be obtained from other sources, loss of our current suppliers could be disruptive and could result in our failure to meet short- or long-term goals related to the numbers of FASTVend and FASTBin devices we are able to deploy. Certain circumstances may reduce short-term customer receptivity to adopting our FMI services. For instance, during periods of dramatic change in economic activity, some customers may prioritize managing existing operations over adopting new technologies until business circumstances change.
We may be affected by global climate change or legal, tax, regulatory, or market responses to such change. The concern over climate change has led to legislative and regulatory initiatives aimed at reducing greenhouse gas emissions. Compliance with any new or more stringent laws or requirements, or stricter interpretations of existing laws, could require additional expenditures by us or our suppliers. In addition, many of the regulations that have been issued create mandatory, annual reporting requirements related to carbon emissions and other sustainability-related information that will ultimately be subject to audit. If we are unable to respond to any new regulatory or market changes in a timely fashion or at all in a way that satisfies regulators and/or our suppliers and customers, it could directly or indirectly affect our business, supply chains, financial condition, results of operations, and cash flows. Furthermore, climate change may present additional physical risks to our operations and lead to an increased frequency of unusual or extreme weather conditions, which could disrupt our supply chain or harm or disrupt our operations or those of our customers or suppliers.We may be unable to meet our goals regarding the growth drivers of our business. Our sales growth is dependent primarily on our ability to attract new customers and increase our activity with existing customers within North America and abroad. In recent years, we have increased the resources devoted to developing a multi-dimensional, differentiated service offering, including our Digital Footprint (which incorporates our FMI and eBusiness capabilities), contract accounts, international capabilities, and process and consumption analytics. While we have taken steps to build momentum in the growth drivers of our business, we cannot assure you those steps will lead to sales growth. Failure to achieve any of our goals regarding our Digital Footprint, contract accounts, international capabilities, analytics, or other growth drivers could negatively impact our long-term sales and profit growth. In addition, failure to identify appropriate targets for the growth drivers of our business or failure to persuade the appropriate targets to adopt these offerings once identified may adversely impact our internally developed and/or externally communicated deployment objectives.The ability to identify new products and product lines, and integrate them into our selling efforts and distribution network, may impact our ability to compete, our ability to generate additional sales, and our profit margins. Our success depends in part on our ability to develop product expertise at our selling locations and through our specialist roles and identify future products and product lines that complement existing products and product lines and that respond to our customers' needs. We may not be able to compete effectively unless our product selection keeps up with trends in the markets in which we compete or trends in new products. In addition, our ability to integrate new products and product lines into our selling locations and distribution network could impact sales and profit margins.The ability to adequately protect our reputation may have an adverse impact on operations and profitability. The Fastenal name is valuable to our business, as well as to the implementation of our strategies for expanding our business. Maintaining, promoting, and positioning our brand will depend largely on our ability to provide high quality products, deliver consistent services, and improve our customers' business operations. Further, information on Fastenal, including our products and services, can be more easily accessed and more quickly disseminated through traditional and social media and digital channels. Should we fail to deliver a positive customer experience or should our public image be tarnished by negative publicity, whether or not based in fact, it could jeopardize our reputation and discourage customers from purchasing our products and services, which in turn could adversely affect our ability to grow our sales and profitability.19
Table of ContentsWe may not be able to compete effectively against traditional or non-traditional competitors, which could cause us to lose market share or erode our gross and/or operating income profit and/or percentage. The industrial, construction, and maintenance supply industry, although slowly consolidating, still remains a large, fragmented, and highly competitive industry. Our current or future competitors may include companies with similar or greater market presence, name recognition, and financial, marketing, technological, and other resources, and we believe they will continue to challenge us with their product selection, financial resources, technological advancements, and services. Increased competition from brick-and-mortar retailers could cause us to lose market share, reduce our prices, or increase our spending. Similarly, the emergence of online retailers, whether as extensions of our traditional competition or in the form of major, non-traditional competitors, could result in easier and quicker price discovery and the adoption of aggressive pricing strategies and sales methods. These pressures could have the effect of eroding our gross and/or operating income profit and/or percentage over time.
We may not be successful in integrating acquisitions and achieving intended benefits and synergies. Historically, substantially all of our growth has been organic. However, we have completed several acquisitions over the last decade and expect to continue to pursue strategic acquisitions that we believe will either expand or complement our business in new or existing markets or further enhance the value and offerings we are able to provide to our existing or future potential customers. Acquisitions involve numerous risks and challenges, including, among others, a risk of potential loss of key employees of an acquired business, inability to achieve identified operating and financial synergies anticipated to result from an acquisition, diversion of our capital and our management's attention from other business issues, and risks related to the integration of the acquired business, including unanticipated changes in our business, our industry, or general economic conditions that affect the assumptions underlying the acquisition. Any one or more of these factors could cause us to not realize the benefits anticipated to result from the acquisitions.
Equity Risks
Our stock price will fluctuate, and at times these fluctuations may be volatile . The prices of markets and individual equities tend to fluctuate. These fluctuations commonly reflect events, many of which may be fully or partially outside of our control, that may change investors' perception of our future income growth prospects, including changes in economic conditions, ability to execute business strategy, the impacts of public policy, investor sentiment, competitive dynamics, and many other factors. While the sources of stock price fluctuation can be common across companies, the magnitude of these fluctuations can vary for different companies. This is commonly measured by beta, which is an individual stock's volatility in relation to the overall market. Our stock price has traditionally had a high beta value, which means fluctuations in the price of our shares will often be sharper than what is experienced by broader market indices. We can provide no assurance that the above-average historical volatility of our stock versus the broader market will moderate. Volatility in our stock price could also result in the filing of securities class action litigation, which could result in substantial costs and the diversion of our management's time, attention, and resources.
There can be no assurance that our stock price will continue to reflect the current multiple of income over time. Stock prices, including ours, are commonly thought to be a function of income compounded by a multiple. This is often referred to as a price-to-earnings (P/E) ratio, although other forms of multiples are often utilized by investors to value Fastenal shares. Historically, investors have given our income a higher multiple, or premium, than is typical of the broader industrial sector with which we are typically associated. We believe we have earned this premium by virtue of a long history of superior growth, profitability, and returns. However, to the extent that we fail to successfully execute our growth strategies and/or poorly navigate the risks that surround our business, including those described throughout this section, or to the extent our industry (industrial distribution, or industrial stocks in general) loses favor in the marketplace, there can be no assurance that investors will continue to afford a premium multiple to our income, which could adversely affect our stock price.We cannot provide any guaranty of future dividend payments or that we will continue to purchase shares of our common stock pursuant to our share purchase program. Although our board of directors has historically authorized the payment of quarterly cash dividends on our common stock and indicated an intention to do so in the future, there are no assurances that we will continue to pay dividends in the future or continue to increase dividends at historic rates. In addition, although our board of directors has authorized share purchase programs and we purchased shares in 2022, 2020, and prior years through these programs, we may discontinue doing so at any time. Any decision to continue to pay quarterly dividends on our common stock, to increase those dividends, or to purchase our common stock in the future will be based upon our financial condition and results of operations, the price of our common stock, credit conditions, recommendations of management, and such other factors as are deemed relevant by our board of directors.
20Table of ContentsGeneral Economic and Operating Risks
Operational Risks
Products manufactured in foreign countries may cease to be available, which could adversely affect our inventory levels and operating results. We obtain certain of our products, and our suppliers obtain certain of their products, from China, Taiwan, South Korea, and other foreign countries. Our suppliers could discontinue or experience disruption in selling products manufactured in foreign countries at any time for reasons that may or may not be in our control or our suppliers' control, including foreign government regulations, domestic government regulations, disruption in trade relationships and agreements, political unrest, war, disease, labor availability, or changes in local economic conditions. Additionally, the shipment of goods from foreign countries could be delayed by container shipping companies encountering financial, capacity, or other difficulties. Our operating results and inventory levels could suffer if we are unable to promptly replace a supplier or shipper who is unwilling or unable to satisfy our requirements with another supplier or shipper providing products and services of comparable quality and utility.
A downturn in the economy or in the principal markets served by us and other factors may affect customer spending, which could harm our operating results. In general, our sales are the result of planned and unplanned customer spending on products used in production of final goods, infrastructure construction, and/or the maintenance of facilities. This spending is affected by many factors, including, among others:
• general business conditions;
• business conditions in our principal markets;
• changes in the value of local currencies relative to our functional currency, the U.S. dollar;
• interest rates;
• increases (inflation) or decreases (deflation) in the cost of products from our vendors, transportation services, energy and fuel prices, and electrical power rates;
• liquidity in credit markets;
• taxation;
• government regulations and actions;
• the impact on customer demand or availability of goods and services based on labor shortages or work stoppages;
• unemployment trends;
• terrorist attacks and acts of war;
• impact of higher sustained global temperatures (climate change);
• acts of God, which may include, but are not limited to, weather events, earthquakes, pandemics, etc.; and
• other matters that influence customer confidence and spending.A downturn in either the national or local economies where we operate, or in the principal markets served by us, or changes in any of the other factors described above, could negatively impact sales at our selling locations, sales through our other selling channels, and the level of profitability of those selling locations and other selling channels. In 2025, our results continued to be impacted by soft manufacturing sector business conditions.
Trade policies could make sourcing product from overseas more difficult and/or more costly, and could adversely impact our gross and/or operating profit percentage. We source a significant amount of the products we sell from outside of North America, primarily Asia. We have made significant structural investments over time to be able to source both directly from Asia through our wholly-owned, Asia-based subsidiary, FASTCO Trading Co., Ltd., and indirectly from suppliers that procure product from international sources. This was initially necessary due to the absence of significant domestic fastener production, but over time we have expanded our non-fastener sourcing as well, and at this time it may be difficult to adjust our sourcing in the short term. In light of this, changes in trade policies could affect our sourcing operations, our ability to secure sufficient product to serve our customers and/or impact the cost or price of our products, with potentially adverse impacts on our gross and operating profit percentages and financial results. China represents a significant source of product for North America. In addition, we move and source products within North America. Any trading disruption (tariffs, product restrictions, etc.) between Canada, the U.S., and Mexico, or disruption in their respective trading relationships with other nations can adversely impact our business. Since February 2025, the U.S. government has imposed additional duties and tariffs in an effort to promote U.S. production of goods and improved trade balance with our global trading partners. This environment has been very fluid, resulting in several changes to the duties and tariffs enacted throughout the year. Certain of the duties and tariffs enacted are being challenged from a legal perspective. We are closely monitoring these developments, which could have an adverse impact on our business and financial results. There can be no assurances that these disruptions will not continue or increase in the future, with the previously mentioned countries or additional countries with which we do business. The degree to which these changes in the global marketplace affect our financial results will be influenced by the specific details of the changes in trade policies, their timing and duration, and our effectiveness in deploying tools to address these issues.
21Table of ContentsChanges in energy costs and the cost of raw materials used in our products could impact our net sales, cost of sales, gross profit percentage, distribution expenses, and occupancy expenses, which may result in lower operating income. Our suppliers can experience significant fluctuation over time in the cost of raw materials (e.g., steel, plastic, etc.) used to produce their products. They can also experience significant fluctuation in the cost of energy consumed in their production processes and in the cost of fuel consumed to transport their products. These suppliers typically look to pass their increased costs along to us through price increases. We also consume energy and fuel in our own operations, and can experience direct and significant fluctuation in our own costs. Increases in the cost of fuel or raw materials could be damaging to us, decreases in those costs, particularly if severe, could also adversely impact us by creating deflation in selling prices, which could cause our gross profit to decline, or by negatively impacting customers in certain industries, which could cause our sales to those customers to decline. Failure to fully pass any such increased prices and costs through to our customers or to modify our activities to mitigate the impact would have an adverse effect on our operating income.
We are exposed to foreign currency exchange rate risk, and changes in foreign exchange rates could increase the cost of purchasing products and impact our foreign sales. Given that we were founded and remain based in the U.S. and that we are publicly traded in the U.S., we report our results based on the U.S. dollar. Because the functional currency related to most of our non-U.S. operations is the applicable local currency, we are exposed to foreign currency exchange rate risk arising from transactions in the normal course of business. Fluctuations in the relative strength of foreign economies and their related currencies could adversely impact our ability to procure products at competitive prices and our foreign sales. Historically, our primary exchange rate exposure has been with the Canadian dollar as our Mexican activities are primarily conducted in U.S. dollars and our non-North American operations are relatively small in scale. There can be no assurance that currency exchange rate fluctuations with the Canadian dollar and other foreign currencies will not adversely affect our results of operations, financial condition, and cash flows. While the use of currency hedging instruments may provide us with protection from adverse fluctuations in currency exchange rates, we are not currently using these instruments and we have not historically hedged this exposure. If we decide to do so in the future, we could potentially forego the benefits that might result from favorable fluctuations in currency exchange rates.Our current estimates of total market potential as well as the market potential of our business strategies could be incorrect. We believe we have a significant opportunity for growth based on our belief that North American market demand for the products we sell is estimated to exceed $140 billion. This figure is not derived from an independent organization or data source that aggregates and publishes widely agreed-upon demand and market share statistics. Instead, we have identified this figure based on our own experience in the marketplace for our products and by evaluating estimates from other sources. If we have overestimated the size of our market, and in doing so, underestimated our current share of it, the size of our opportunity for growth may not be as significant as we currently believe. Similarly, we have provided estimates of the opportunities we have with some of our specific growth strategies, such as FMI solutions and Onsite locations. Within North America, we believe the potential market opportunity for industrial vending is approximately 1.7 million devices and we have identified over 13,000 customer locations with the potential to implement our Onsite service model within our traditional manufacturing and construction customer base. We have identified additional markets, such as government, healthcare, and academia, and geographies into which we can sell our FMI solutions, which would increase the number of identified potential FMI solutions or Onsite locations. However, our presence in emerging markets and geographies is not as established as is the case in our traditional markets and geographies, which could extend the sales cycle. As is the case for total market size, we use our own experience and data to arrive at the size of these potential opportunities and not independent sources. These estimates are based on our business model today, and the introduction or expansion of other business strategies could cause them to change. In addition, the market potential of a particular business strategy may vary from expectations due to a change in the marketplace (such as changes in customer concentration or needs), a change in the nature of that business strategy, or weaker than anticipated acceptance by customers of that business strategy. We cannot guarantee that our market potential estimates are accurate or that we will ultimately decide to expand our industrial vending or Onsite service models as we anticipate to reach the full market opportunity.
22Table of Contents
The industrial, construction, and maintenance supply industry is consolidating, which could cause it to become more competitive and could negatively impact our market share, gross profit, and operating income. The industrial, construction, and maintenance supply industry in North America is consolidating, reflecting two factors. First, our customers' needs are evolving to reflect a greater awareness of the total cost and risk of fulfillment and their need to have consistent sources of supply at multiple locations, including outside of North America. Second, providing these capabilities to our customers requires increasing investment in hardware, software, and analytic capabilities that require a certain degree of scale to support. While we believe that in a fragmented market such as exists for industrial supplies these emerging trends favor large distributors such as Fastenal, as the industry consolidates into fewer and larger competitors it may become more difficult to differentiate our product and service offering from that of our competitors. We also continue to see consolidation among our suppliers. This trend could result in fewer and larger suppliers, with greater channel power and negotiating leverage. There can be no assurance we will be able in the future to take effective advantage of the trend toward consolidation within our industry or among our suppliers. In either or both cases, the trend toward consolidation could make it more difficult for us to maintain our growth and/or gross and operating profit. Furthermore, as our industrial customers face increased foreign competition, and potentially lose business to foreign competitors, or shift their operations overseas in an effort to reduce expenses, we may face increased difficulty in growing and maintaining our market share.
The occurrence of a widespread public health crisis could have a material adverse effect on our business, results of operations, and financial condition. A public health crisis, if sufficiently widespread as to affect economic activity, could negatively impact our business. Mitigation efforts and prescriptions may be facilitated by regulatory authorities, which could limit our flexibility to pursue alternative, potentially more favorable, means of limiting these negative impacts. The effects on our business efforts to mitigate the effects of the crisis may include a reduction in demand, inefficiencies due to workplace accommodations, reduced availability of personnel, supply chain disruption, or constraints on product availability, among other difficulties. In any such event, the severity, duration, and extent of the crisis can be difficult to predict, which can make it difficult to anticipate the magnitude and length of the impact on our sales, profits, and/or cash flow. It can also be difficult to anticipate what the effect on business conditions will be as the impacts of any public health crisis fade and mitigating policies are reversed.
Inclement weather and other disruptions to the transportation network could adversely impact our distribution system and demand for our products. Our ability to provide efficient distribution of core business products to our branch network is an integral component of our overall business strategy. Disruptions at distribution centers or shipping ports may affect our ability to both maintain core products in inventory and deliver products to our customers on a timely basis, which may in turn adversely affect our results of operations. In addition, severe weather conditions could adversely affect demand for our products in particularly hard hit regions.
Legal, Regulatory, and Compliance Risks
Failure to maintain an effective system of internal controls over business processes and/or financial reporting could materially impact our business and results. Fastenal's management is responsible for establishing and maintaining effective internal controls designed to provide reasonable assurance regarding the achievement of objectives relating to operations, reporting, and compliance. Any system of internal controls, no matter how well designed and operated, can only provide reasonable, not absolute, assurance that the objectives of the control system are met. Further, the design of a system of controls must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all systems of internal controls, internal controls over business processes and financial reporting may not prevent or detect fraud or misstatements. Any failure to maintain an effective system of internal controls over business processes and financial reporting could limit our ability to report our financial results accurately and timely or to detect and prevent fraud, and could expose us to litigation, economic loss, or adversely affect the market price of our common stock.
Our business is subject to a wide array of operating laws and regulations in every jurisdiction where we operate. Compliance with these laws and regulations increases the cost of doing business and failure to comply could result in the imposition of fines or penalties, damage to our reputation, or the termination of contracts. We are subject to a variety of laws and regulations including without limitation import and export requirements, anti-bribery and corruption laws, product compliance laws, environmental laws, foreign exchange controls and cash repatriation restrictions, advertising regulations, data privacy (including in the U.S., the California Consumer Privacy Act, as amended by the California Privacy Rights Act, and in the European Union, the General Data Protection Regulation 2016, with interpretations varying from state to state and country to country) and cybersecurity requirements (including protection of information and incident responses), regulations on suppliers regarding the sources of supplies or products, labor and employment laws, and anti-competition regulations. In addition, as a supplier to federal, state, and local government agencies, we must comply with certain laws and regulations relating specifically to the formation, administration, and performance of our governmental contracts. We are also subject to governmental audits and inquiries in the normal course of business. Ongoing audit activity and changes to the legal and regulatory environments could increase the cost of doing business, and such costs may increase in the future as a result of changes in these laws and regulations or in their interpretation. While we have implemented policies and procedures designed to facilitate compliance23Table of Contents
with these laws and regulations, there can be no assurance that our employees, contractors, or agents will not violate such laws and regulations, or our policies. Any such violations could result in the imposition of fines and penalties, damage to our reputation, and, in the case of laws and regulations relating specifically to governmental contracts, the loss of those contracts.Tax laws and regulations require compliance efforts that can increase our cost of doing business and changes to these laws and regulations could impact financial results. We are subject to a variety of tax laws and regulation in the jurisdictions in which we operate. Maintaining compliance with these laws can increase our cost of doing business and failure to comply could result in audits or the imposition of fines or penalties. Further, our future effective tax rates in any of these jurisdictions could be affected, positively or negatively, by changing tax priorities, changes in statutory rates, and/or changes in tax laws or the interpretation thereof, including any changes resulting from the new presidential administration in the U.S. In 2025, the One Big Beautiful Bill Act was passed, which contained tax-related provisions. We did not experience, and do not anticipate experiencing in the near future, any meaningful impact to our tax rates from the legislation.Changes in accounting standards and subjective assumptions, estimates, and judgments by management related to complex accounting matters could significantly affect our financial results or financial condition. U.S. generally accepted accounting principles (GAAP) and related accounting pronouncements, implementation guidelines and interpretations with regard to a wide range of matters that are relevant to our business, such as asset impairment, inventories, lease obligations, self-insurance, vendor allowances, tax matters, business combinations, and legal matters, are complex and involve many subjective assumptions, estimates, and judgments. Changes in accounting standards or their interpretation or changes in underlying assumptions, estimates or judgments, could significantly change our reported or expected financial performance or financial condition. The implementation of new accounting standards could also require certain systems, internal processes, internal control, and other changes that could increase our operating costs.
We are subject to litigation risk due to the nature of our business, which may have a material adverse effect on our business. From time to time, we are involved in lawsuits or other legal proceedings that arise from business transactions or the operation of our business. Due to the nature of our business, these proceedings may, for example, relate to product liability claims, commercial disputes, suits arising from our trucking operations, or employment matters. In addition, we could face claims over other matters, such as claims arising from our status as a government contractor, intellectual property matters, or corporate or securities law matters. The defense and ultimate outcome of lawsuits or other legal proceedings may result in higher operating expenses, which could have a material adverse effect on our business, financial condition, or results of operations.
Credit and Liquidity RisksTight credit markets could impact our ability to obtain financing on reasonable terms or increase the cost of existing or future financing and interest rate fluctuations could adversely impact our results. As of December 31, 2025, we had $125.0 of outstanding debt obligations, all in the form of senior unsecured promissory notes issued under our master note agreement (the Master Note Agreement). The notes issued under our Master Note Agreement carry a fixed interest rate and consist of three series and are described in further detail in Note 9 of the Notes to Consolidated Financial Statements in this Form 10-K. We also have borrowing capacity under our revolving credit facility (the Credit Facility) of $835.0, but no loans were outstanding as of December 31, 2025. Loans under the Credit Facility generally bear interest at a rate per annum equal to Daily Simple Secured Overnight Financing Rate (SOFR), the rate on which may vary daily, and mature on September 28, 2027.
We currently have the capacity under the Credit Facility and Master Note Agreement to increase borrowings in the future to finance stock purchases, dividends, capital expenditures, working capital additions, acquisitions, or other investments. Should we seek to increase our borrowings during periods of volatility and disruption in the financial and credit markets, financing may become more costly and more difficult to obtain. This was not a material consideration in 2025. The cost of servicing any existing balances on the Credit Facility could increase if interest rates increase due to the SOFR-based interest rate provided for under the Credit Facility.
Item 7 · Management's Discussion & Analysis
+176 paragraphs −307 paragraphs ~176 changed
FY 2024-12-31 (earlier)
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONSThe 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 consolidated financial statements and should be read in conjunction with those consolidated financial statements. This section of this Form 10-K generally discusses 2024 and 2023 items and year-to-year comparisons for the current year and the prior year. Discussions of 2022 items can be found in 'Management's Discussion and Analysis of Financial Condition and Results of Operations' in Part II, Item 7 of our annual report on Form 10-K for the fiscal year ended December 31, 2023.Business and Operational OverviewFastenal is a North American leader in the wholesale distribution of industrial and construction supplies. We distribute these supplies through a network of more than 3,600 in-market locations. Our largest end market is manufacturing. Sales to these customers include products for both OEM, where our products are consumed in the final products of our customers, and MRO, where our products are consumed to support the facilities and ongoing operations of our customers. We also service general and commercial contractors in non-residential end markets as well as 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 in North America, though we continue to grow our non-North American presence as well.
It is helpful to appreciate several aspects of our marketplace: First, it is big and fragmented. We estimate the North American marketplace for industrial supplies is in excess of $140 billion per year (and we have expanded beyond North America) and no company has a significant portion of this market. Second, many of the products we sell are individually inexpensive, but the cost and time to manage, procure, and transport these products can be quite meaningful. Third, many customers prefer to reduce their number of MRO and OEM suppliers to simplify their business, while also utilizing various technologies and models (including our local branches when they need something quickly or unexpectedly) to improve availability and reduce waste. Lastly, we believe the markets are efficient. In our view, this means that companies who grow market share are those that develop differentiated capabilities that provide the greatest value to the customer.Our approach to addressing these aspects of our marketplace is captured in our motto Growth Through Customer Service ® and our tagline Where Industry Meets Innovation ™ . The concept of growth is simple: find more customers every day that value the services we provide and increase our activity with them. However, execution is hard work. First, we recruit service-minded individuals to support customers and empower them to operate in a decentralized fashion to maximize their flexibility to solve customer problems. We support these customer-facing resources with a supply chain capability that is speedy, efficient, and cost-effective. This has formed the foundation of our high-touch model since inception. Second, we invest in, develop, and deploy capabilities that allow us to illuminate and provide greater control over a customer's supply chain. These capabilities range from service models that take advantage of our local presence and/or our ability to more efficiently manage complex procurement needs, to hardware and software technologies that promote actionable data capture, improve operating efficiencies, and reduce supply chain risk. Third, we strive to generate strong profits, which produce the cash flow necessary to support our growth, our product and technology development, and the needs of our customers.
The ultimate aim of this 'high-touch, high-tech' approach to gaining market share is to allow us to get closer to our customers, going so far as to be right to the point of consumption within customers' facilities. Marrying our presence, capabilities and technologies deepens our relationships and our understanding of our customers' day-to-day opportunities and obstacles. This, in turn, enhances our ability to provide innovative and comprehensive solutions to our customers' challenges. By doing these things every day, Fastenal remains a growth-centric organization.32Table of Contents
Executive Overview
The following table presents a performance summary of our results of operations for the periods ended December 31.2024 2023 YOY Change 2022 YOY Change
Net sales $ 7,546.0 7,346.7 2.7 % $ 6,980.6 5.2 %
Business days 255 253 254
Daily sales $ 29.6 29.0 1.9 % $ 27.5 5.7 %
Gross profit $ 3,401.9 3,354.5 1.4 % $ 3,215.8 4.3 %
% of net sales 45.1 % 45.7 % 46.1 %
SG&A expenses $ 1,891.9 1,825.8 3.6 % $ 1,762.2 3.6 %
% of net sales 25.1 % 24.9 % 25.2 %
Operating income $ 1,510.0 1,528.7 -1.2 % $ 1,453.6 5.2 %
% of net sales 20.0 % 20.8 % 20.8 %
Income before income taxes $ 1,508.1 1,522.0 -0.9 % $ 1,440.0 5.7 %
% of net sales 20.0 % 20.7 % 20.6 %
Net income $ 1,150.6 1,155.0 -0.4 % $ 1,086.9 6.3 %
Diluted net income per share $ 2.00 2.02 -0.6 % $ 1.89 6.7 %Note – Daily sales are defined as the total net sales for the period divided by the number of business days (in the U.S.) in the period.We saw modest economic contraction in our key markets in 2024. The Institute for Supply Management's Purchasing Manager's Index (PMI) for the U.S. averaged 48.3 for the full year and remained below 50, the threshold demarcating manufacturing growth or contraction, in 11 out of 12 months. Business activity as measured by U.S. Industrial Production declined 0.4% in the first 11 months of 2024 over 2023 with markets that are most relevant to us, such as Primary Metal (-1.5%), Fabricated Metals (-0.8%), and Machinery (-2.2%) declining more rapidly than the broad index. This was the primary factor contributing to daily sales growth of 1.9%, slowing from the preceding year. The overall profile of our growth was consistent with 2023: growth was driven by larger, key accounts and Onsite customers and by non-fastener products, particularly safety. We continued to expand our installed base of Onsites and FMI technology and lift the proportion of sales that run through our Digital Footprint. However, the effect of our continued investment in key areas we view as critical to accelerate future growth and the slow growth in sales volume combined to pressure our profitability, reducing operating margin. On the other hand, asset efficiency remained stable from the preceding year and we generated good cash flow.
The table below summarizes our absolute and full-time equivalent (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 active Onsite locations), and weighted FMI devices at the end of the periods presented and the percentage change compared to the end of the prior period.
Q4 2024 Q4 2023 Twelve-month % Change
Selling personnel - absolute employee headcount
16,712 16,512 1.2 %
Selling personnel - FTE employee headcount 15,055 15,070 -0.1 %
Total personnel - absolute employee headcount 23,702 23,201 2.2 %
Total personnel - FTE employee headcount 20,958 20,721 1.1 %
Number of branch locations 1,597 1,597 — %
Number of active Onsite locations 2,031 1,822 11.5 %
Number of in-market locations 3,628 3,419 6.1 %
Weighted FMI devices (MEU installed count) 126,957 113,138 12.2 %
33Table of ContentsDuring the last twelve months, we increased our total FTE employee headcount by 237. Our total FTE selling and sales support personnel decreased by 15. While we added FTE to support growth in our Onsite locations, we reduced personnel at our branch locations, reflecting both shifts to Onsite locations and tight management of headcount given challenging business conditions. We had an increase in our distribution and transportation FTE personnel of 115 to support increased product throughput at our distribution facilities. We had an increase in our remaining FTE personnel of 137, which related primarily to personnel investments in manufacturing, quality control, IT, and business analytics.
The table below summarizes the number of branches opened and closed, net of conversions, as well as the number of Onsites activated and closed, net of conversions during the periods presented.
Twelve-month Period
2024 2023
Branch openings 11 10
Branch closures, net of conversions (11) (96)
% of net closures vs. prior year-end number of branch locations -0.7 % -5.7 %
Onsite activations 343 329
Onsite closures, net of conversions (134) (130)
% of net closures vs. prior year-end number of Onsite locations -7.4 % -8.0 %
Our in-market network forms the foundation of our business strategy. In recent years, we have seen a gradual increase in our in-market locations. This has reflected significant growth in Onsites and, to a lesser degree, international branches, which has more than overcome a meaningful decline in our traditional branch network from a strategic rationalization that aligned our physical footprint with changes in our business strategies. Branch closures may occur in the future to reflect normal churn in our business, but the strategic rationalization has concluded. As a result, we expect to see an increase in the rate of in-market location growth as we continue to open Onsites while our traditional branch network remains stable or grows moderately to sustain and improve our North American network, to continue our global expansion beyond North America, and to support our growth drivers. This dynamic played out in 2024.
CURRENT YEAR RESULTS ENDED 2024Results of Operations
The following table sets forth consolidated statements of income information (as a percentage of net sales) for the periods ended December 31:2024 2023Net sales 100.0 % 100.0 %Gross profit 45.1 % 45.7 %SG&A expenses25.1 % 24.9 %
Operating income 20.0 % 20.8 %
Net interest expense 0.0 % -0.1 %
Income before income taxes 20.0 % 20.7 %
Note – Amounts may not foot due to rounding difference.Sales
The table below sets forth net sales and daily sales for the periods ended December 31, and changes in such sales from the prior period to the more recent period:2024 2023
Net sales $ 7,546.0 7,346.7
Percentage change 2.7 % 5.2 %
Business days 255 253
Daily sales $ 29.6 29.0
Percentage change 1.9 % 5.7 %
Daily sales impact of currency fluctuations -0.1 % -0.3 %
34Table of ContentsThe increase in net sales noted above for 2024 was primarily due to higher unit sales of MRO, OEM, and construction supplies. We believe higher unit sales in 2024 were primarily a result of our ability to gain market share, as most measures of industrial activity were flat to down throughout the period. Despite this challenging environment, in 2024 we produced net sales growth of 2.7% and, owing to two more selling days in the period, daily sales growth of 1.9%.
We estimate the disruption to operations and logistics from severe winter weather in January 2024 and hurricanes in September 2024, while meaningful in the months in which they occurred, were not material to net sales for the full year of 2024.
Changes in product pricing did not have a material impact on net sales in 2024.
We effectively increased the penetration of key growth initiatives in 2024, as judged by installations and adoption, which enhanced the value we provide to our customers and supported our growth and efficiency. This was achieved through three areas. First, we signed 358 Onsites in 2024, below our goal of 375 to 400 units but constituting expansion from 2023 (326 signings) and consistent with previous peak signing years in 2019 (362 signings) and 2022 (356 signings). Our installed base of Onsites was 2,031 at the end of December 2024, +11.5% over the preceding year. Second, we signed 27,984 FMI MEUs, meeting our goal at the start of 2024 of 26,000 to 28,000 MEUs and meaningfully above prior year signings of 24,126 MEUs. Our installed base of FMI MEUs was 126,957 at the end of December, +12.2% over the end of December 2023. Third, we expanded the proportion of our sales running through our Digital Footprint. This measure reached 62.5% in November 2024 before easing modestly to 62.1% in December 2024. This was below our goal at the start of 2024 of 66.0%, attributable to lower volume through our FMI devices due to weaker business activity. Even so, it was meaningfully above the prior year level of 56.1% reflecting increasing internal and external adoption of our digital resources. We expect that at some point during 2025 we will achieve having 66% to 68% of our sales volume running through Digital Footprint.
Sales by Product Line
From a product standpoint, we have three categories: fasteners (including fasteners used in OEM and MRO), safety supplies, and other product lines, the latter of which includes eight smaller product categories, such as tools, janitorial supplies, and cutting tools. The percent of sales in the periods below were as follows:
2024 2023
OEM fasteners 19.3 % 20.1 %
MRO fasteners 11.4 % 12.3 %
Total fasteners 30.7 % 32.4 %
Safety supplies 22.2 % 21.2 %
Other product lines 47.1 % 46.4 %
Total non-fasteners 69.3 % 67.6 %
We experienced a shift in mix away from fasteners and toward safety supplies and other product lines. We experienced a slight decline in sales for fasteners in 2024 due primarily to weak business activity during the year. Fasteners are more heavily oriented toward production of final goods than maintenance, which results in greater susceptibility to periods of weaker industrial production. In contrast, safety supplies experienced relatively faster growth. This is a result of lower cyclicality due to the products being used in MRO applications, growth in our installed base of vending devices which disproportionately dispense personal protective equipment (PPE), and strong growth with warehousing customers who are strong consumers of PPE. Other product lines is a mix of OEM- and MRO-oriented products, and relatively strong growth within the latter (e.g., janitorial) was partially offset by relatively slow growth in the former (e.g., tools, cutting tools, material handling). These dynamics produced a meaningful divergence in the daily sales growth rates of our fastener versus our non-fastener product lines in 2024.Annual Sales Changes, Sequential Trends, and End Market Performance
This section focuses on three distinct views of our business – annual sales changes by month, sequential trends, and end market performance. The first discussion regarding sales changes by month provides a good mechanical view of our business. The second discussion provides a framework for understanding the sequential trends (that is, comparing a month to the immediately preceding month, and also looking at the cumulative change from an earlier benchmark month) in our business. Finally, we believe the third discussion regarding end market performance provides insight into activities with our various types of customers.35
Table of ContentsAnnual Sales Changes, by Month
During the months noted below, all of our selling locations, when combined, had a DSR change of (compared to the same month in the preceding year):
Jan. Feb. Mar. Apr. May June July Aug. Sept. Oct. Nov. Dec.2024 1.6 % 2.6 % 1.8 % 0.7 % 1.5 % 3.3 % 0.5 % 2.1 % 3.2 % 2.8 % 3.4 % 0.0 %2023 11.2 % 9.6 % 6.8 % 7.8 % 5.2 % 4.7 % 3.7 % 3.6 % 5.0 % 1.9 % 3.8 % 5.3 %Sequential Trends
We find it helpful to think about the monthly sequential changes in our business using the analogy of climbing a stairway – This stairway has several predictable landings where there is a pause in the sequential gain (i.e., April, July, and October to December), but generally speaking, climbs from January to October. The October landing then establishes the benchmark for the start of the next year.
History has identified these landings in our business cycle. They generally relate to months where certain holidays impair business days and/or seasons impact certain end markets, particularly non-residential construction. The first landing centers on Easter and the Good Friday holiday that precedes it, which in any given year can fall in March or April, the second landing centers on July 4th, and the third landing centers on the approach of winter with its seasonal impact on primarily our non-residential construction business and with the Christmas/New Year holidays. The holidays we noted impact the trends because they either move from month-to-month or because they move around during the week.The table below shows the pattern to the sequential change in our daily sales. The line labeled 'Benchmark' is a historical average of our sequential daily sales change for the trailing five year average that excludes 2020. We have excluded 2020 from the average as the effects of the pandemic created unusual sequential patterns that we do not consider representative of normal trends. We believe this time frame serves to show the historical pattern and could serve as a benchmark. The '2024' and '2023' lines represent our actual sequential daily sales changes. The '24Delta' and '23Delta' lines indicate the difference between the 'Benchmark' and the actual results in the respective year. Under normal circumstances, the sequential trends shown below are directly linked to fluctuations in our end markets. Further, in any given month it is possible to get significant deviation from the benchmark.It is important to note that these benchmarks are historical averages. In a year where demand is strong, our daily sales growth rates will tend to have more months that exceed the benchmark than fall below it. In a year where demand is weak, we will tend to have more months that fall short of the benchmark than exceed it. In both cases, there is a random element that makes it difficult to know how any single month will perform and puts greater relevance on performance trends over multiple periods.
Jan. (1)
Feb. Mar. Apr. May June July Aug. Sept. Oct. Cumulative Change from Jan. to Oct.
Benchmark (2)0.1 % 1.6 % 3.3 % -0.7 % 2.5 % 1.4 % -3.2 % 2.7 % 3.6 % -2.1 % 9.2 %2024 -0.7 % 2.7 % 0.2 % -1.3 % 1.5 % 1.6 % -5.3 % 3.0 % 5.1 % -3.4 % 3.6 %24Delta -0.8 % 1.1 % -3.1 % -0.6 % -1.1 % 0.2 % -2.1 % 0.3 % 1.5 % -1.3 % -5.6 %
2023 -0.4 % 1.7 % 1.0 % -0.2 % 0.7 % -0.2 % -2.6 % 1.3 % 4.0 % -3.0 % 2.3 %
23Delta -0.5 % 0.1 % -2.3 % 0.5 % -1.9 % -1.5 % 0.5 % -1.4 % 0.4 % -0.9 % -6.8 %(1)
The January figures represent the percentage change from the previous October, whereas the remaining figures represent the percentage change from the previous month.
(2)
The benchmark for each month is the average of the previous five years for that month. As COVID-19-related surge sales made sequential averages in 2020 unrepresentative, the benchmark uses a preceding five-year average that excludes 2020.Note – Amounts may not foot due to rounding difference.
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A graph of the sequential daily sales change patterns discussed above, starting with a base of '100' in the previous October and ending with the next October, would be as follows:
End Market PerformanceWe estimate approximately 70% to 75% of our business is with customers engaged in some type of manufacturing, a significant subset of which finds its way into the heavy equipment market. As previously addressed, we believe these markets contracted slightly in 2024. Our manufacturing end markets outperformed primarily due to the relative strength we are experiencing with key account customers with significant managed spend where our service model and technology is particularly impactful. This disproportionately benefits manufacturing customers. The DSR changes to our manufacturing customers, when compared to the same periods in the prior year, were as follows:DSR change - manufacturing customers Q1 Q2 Q3 Q4 Annual2024 2.6 % 2.7 % 3.0 % 3.3 % 2.9 %2023 14.4 % 10.4 % 6.2 % 4.7 % 8.9 %
We estimate approximately 25% to 30% of our business is with customers engaged in a wide range of activities, none of which individually constitute 10% of sales. This includes non-residential construction, reseller, transportation, and government customers. Weakness within our construction end market reflected the ongoing effect of our reduced physical footprint and reduced local inventory tailored to smaller, local contractors. Weakness within our reseller end market reflected efforts in many industries to reduce channel inventories. Strength in our transportation end market reflected strong growth with customers who manage large networks or warehouses, who have increased spend with us due to our ability to meet their needs for rapid fulfillment on a large scale. The DSR changes to our non-manufacturing customers, when compared to the same periods in the prior year, was as follows:DSR change - non-manufacturing customers Q1 Q2 Q3 Q4 Annual2024 0.0 % -1.0 % -1.5 % -0.3 % -0.7 %2023 -3.7 % -5.3 % -1.3 % 0.9 % -2.4 %
37Table of ContentsProduct Performance
Our products fall into two functional subsets: (1) OEM parts which become part of a customer's finished good and (2) MRO which provide for the maintenance, repair, and ongoing operations of a customer's facility.
While certain products in our other product categories have an OEM application, such as welding consumables or metal cutting carbides, the majority of our sales for OEM applications are of fasteners. As a result, the best way to understand the change in our production business is to examine the results in our fastener product line (which represents 30% to 35% of our business). From a company perspective, the DSR changes of fasteners, when compared to the same periods in the prior year, were as follows (note: this information includes all end markets):
DSR change - fasteners Q1 Q2 Q3 Q4 Annual
2024 -4.4 % -3.0 % -4.0 % -1.4 % -3.3 %
2023 7.0 % 0.0 % -2.0 % -2.3 % 0.7 %
We continued to experience a divergence in the performance of our fastener versus our non-fastener product lines in 2024.
This divergence was due in part to relatively weak performance from our fastener product line. Fasteners are more heavily oriented toward production of final goods than maintenance, which results in greater susceptibility to periods of weaker industrial production, such as we experienced in 2024. In addition, due to its greater commodity content and shipping costs, fastener pricing can be more sensitive to cyclical trends. In 2024, weak business activity did contribute to slightly lower pricing for our fastener products.
By contrast, while we do sell significant quantities of MRO fasteners, the best way to understand the change in our MRO business is to examine the results in our non-fastener product lines, which include safety, tools, janitorial, and other products. From a company perspective, the DSR changes of non-fasteners, when compared to the same periods in the prior year, were as follows (note: this information includes all end markets):
DSR change - non-fasteners Q1 Q2 Q3 Q4 Annual
2024 5.2 % 4.2 % 4.7 % 4.3 % 4.6 %
2023 10.3 % 9.2 % 7.5 % 6.6 % 8.4 %
Our non-fastener business is not immune to the impact of industrial cycles, but because it is more dependent on whether a facility is operating than how much product that facility is producing, it does tend to exhibit less volatility in its growth than our fastener business. We also expect growth of our non-fastener products to outperform growth of our fastener products over the course of a cycle. This reflects three things: the non-fastener market is larger than the fastener market, we are under penetrated in the non-fastener market relative to the fastener market, and industrial vending lends itself to sales of non-fastener products. The MRO orientation of our non-fastener category and our capabilities in vending played the greatest roles in the ability of our non-fastener products to outperform fasteners in 2024.Gross Profit
The gross profit percentage during each period was as follows:
Q1 Q2 Q3 Q4 Annual2024 45.5 % 45.1 % 44.9 % 44.8 % 45.1 %2023 45.7 % 45.5 % 45.9 % 45.5 % 45.7 %
Our gross profit, as a percentage of net sales, was 45.1% in 2024 and 45.7% in 2023. Our gross profit percentage was primarily impacted by two factors. First, we experienced unfavorable customer and product mix. This reflects relatively stronger growth from large customers, including Onsite customers, and non-fastener products, each of which tend to have a lower gross profit percentage than our business as a whole. Second, we experienced product margin pressure. In safety, over the course of the year we incurred certain costs to support our customers' short-term operations, but also to prepare for incremental volumes that we expect to materialize in 2025. Other product lines exhibited stability in product margin throughout the year, but did not recover the margin pressure that was experienced in the latter part of 2023 and faced difficult comparisons year-over-year. These factors were only slightly offset by higher price-cost, which reflects the reversal in the first half of 2024 of the negative price-cost experienced in the first half of 2023.SG&A ExpensesSG&A expenses, as a percentage of net sales, increased to 25.1% in 2024 from 24.9% in 2023. We continued to invest in areas, such as Onsite, technology and analytics personnel, and sales-related travel that we view as critical to supporting future growth. We managed expenses not directly related to customer acquisition and growth more tightly, but the overall level of investment produced negative leverage at the growth rates experienced in 2024.
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Table of ContentsThe percentage change in employee-related, occupancy-related, and all other SG&A expenses compared to the same periods in the preceding year, is outlined in the table below.
Approximate Percentage of Total SG&A Expenses Twelve-month Period2024 2023
Employee-related expenses 70% to 75% 3.2 % 3.4 %
Occupancy-related expenses 15% to 20% 2.1 % 4.2 %
All other SG&A expenses 10% to 15% 8.1 % 4.2 %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.Our employee-related expenses increased in 2024 from 2023. This was related to: higher base pay and employment taxes as a result of increased FTE during the period and moderate wage inflation; and higher healthcare costs due to growth in the number and size of claims. These factors were partly offset by a decline in bonuses and a decline in profit sharing reflecting slower sales and profit growth versus the prior year.The table below summarizes the percentage change in our FTE headcount at the end of the periods presented compared to the end of the prior period:
Twelve-month Period2024 2023
Selling personnel (1)
-0.1 % 4.1 %
Distribution/Transportation personnel 3.7 % 4.2 %
Manufacturing personnel 3.7 % 0.1 %
Organizational support personnel (2)
6.0 % 8.6 %
Total personnel 1.1 % 4.4 %(1)Of our Selling Personnel, 80%-85% are attached to a specific in-market location.(2)Organizational support personnel consists of: (1) Sales & Growth Driver Support personnel (35% to 40% of category), which includes sourcing, purchasing, supply chain, product development, etc.; (2) IT personnel (35% to 40% of category); and (3) Administrative Support personnel (22% to 27% of category), which includes human resources, FSB, 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 and bins utilized as part of FMI services (we consider this hardware to be a logical extension of our in-market operations and classify the depreciation and repair costs as occupancy expenses).
Our occupancy-related expenses increased in 2024 from 2023. This was related to: moderately higher costs and depreciation for the maintenance, upgrade, and installation of equipment in hub and non-hub facilities; and a slight rise in branch rents, which was more evident in 2024 than in preceding years as we are no longer actively reducing our branch locations and the associated costs.All other SG&A expenses include: (1) selling-related transportation, (2) IT expenses, (3) general corporate expenses, which consists of legal expenses, general insurance expenses, travel and marketing expenses, etc., and (4) sales of property and equipment.Combined, all other SG&A expenses increased in 2024 from 2023. This was related to: selling-related transportation costs were higher reflecting higher lease costs as we refreshed our fleet of pick-ups, which more than offset lower fuel expense; higher expenses related to Fastenal-sponsored trade events, such as our Customer Expo held in April, and general marketing costs; higher spending on IT; and higher general insurance costs.Net InterestWe had higher interest income reflecting the investment of cash balances into higher earning short-term instruments throughout 2024 as part of a program we began in the fourth quarter of 2023. We had lower interest expense in 2024. We carried lower average borrowings relative to 2023 primarily from cash generated from working capital reductions enabling us to reduce outstanding revolver debt under our Credit Facility. The increase in interest income and the reduction in interest expense resulted in net interest expense of $1.9 in 2024 compared to $6.7 in 2023.
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Table of ContentsIncome TaxesWe recorded income tax expense of $357.5 in 2024, or 23.7% of income before income taxes, compared to $367.0 in 2023, or 24.1% of income 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%. Our tax rate in 2024 was below our expected ongoing tax rate due to the tax benefits associated with (1) the exercise of stock options during the period and (2) return to provision adjustments processed during the year.Net Income
Net income, net income per share, the percentage change in net income, and the percentage change in net income per share, were as follows:Dollar Amounts 2024 2023
Net income $ 1,150.6 1,155.0
Basic net income per share 2.01 2.02
Diluted net income per share 2.00 2.02
Percentage Change 2024 2023
Net income -0.4 % 6.3 %
Basic net income per share -0.6 % 6.7 %
Diluted net income per share -0.6 % 6.7 %
2024 2023
Tax Rate 23.7 % 24.1 %
During 2024, net income per share decreased. Volume growth in 2024 was not sufficient to produce SG&A leverage that could offset mix-related gross margin contraction, resulting in operating margin contraction that was only partially offset by our modest growth in sales, lower net interest expense, and a more favorable tax rate.Liquidity and Capital Resources
Net Cash Provided by Operating Activities
Net cash provided by operating activities in dollars and as a percentage of net income were as follows:2024 2023
Net cash provided $ 1,173.3 1,432.7
% of net income 102.0 % 124.0 %
In 2024, we experienced a decrease in our operating cash flow as a percentage of net income. The decrease in operating cash flow, as a percent of net income, primarily reflects our operating assets and liabilities being a use of cash in 2024 as compared to a source of cash in 2023. This was primarily attributable to investing in inventory in 2024 as opposed to reducing inventory in 2023.
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Trade Working Capital Assets
The following table sets forth the dollar and percentage change in accounts receivable, net, inventories, and accounts payable for the period ended December 31:
Twelve-month Dollar Change Twelve-month Percentage Change2024 2024 2024
Accounts receivable, net $ 1,108.6 21.0 1.9 %
Inventories 1,645.0 122.3 8.0 %
Trade working capital $ 2,753.6 143.3 5.5 %
Accounts payable $ 287.7 23.6 8.9 %
Trade working capital, net $ 2,465.9 119.7 5.1 %
Net sales in last three months $ 1,824.5 65.9 3.7 %
Note – Amounts may not foot due to rounding difference.
The increase in our accounts receivable balance in 2024 was primarily attributable to growth in sales to our customers.
Our inventory balances over time will respond to business activity, though various factors produce a looser relationship to our monthly sales patterns than we tend to experience in accounts receivable. One reason for this is because it is cyclical. We source significant quantities of product from overseas, and the lead time involved in procuring these products is typically longer than the visibility we have into future monthly sales patterns. As a result, trends in our inventory will often lag trends in economic conditions. A second reason relates to product cost and the length of our supply chain. A significant proportion of our products, particularly fasteners, are sourced from Asia and transported primarily by ship and rail to our North American network for sale. This requires us to purchase a meaningful quantity of our products months in advance of those products being available for sale in our North American facilities. Product that is in transit is in our inventory but is not available for sale, which can create a lag in our ability to adjust inventory levels or costs in response to rapid changes in economic or cost conditions. A third factor that tends to require incremental inventory increases over time is our growth drivers, including our FMI offerings, Onsite channel, and international expansion, all of which tend to require significant investments in inventory.
The increase in our inventory balance in 2024 was primarily attributable to three factors. First, our inventory increased as a result of growth in sales to our customers and the addition of stock to ensure we can support our customers' future growth. Second, we added $30.0 to $35.0 in stock to improve service to our in-market locations and generate efficiencies in our hubs. Third, we took advantage of year-end opportunities arising from our suppliers' desire to reduce inventory at year-end. These factors were partially offset by the effects of soft underlying business activity and modest product cost deflation.
The increase in our accounts payable balance in 2024 was primarily attributable to an increase in our product purchases as reflected in the growth in inventories.The approximate percentage mix of inventory stocked at our selling locations versus our distribution center and manufacturing locations was as follows at year end:2024 2023
Selling locations 59 % 64 %
Distribution center and manufacturing locations 41 % 36 %Total 100 % 100 %
Lease Obligations
We have facilities, equipment, and vehicles leased under operating leases. A discussion of our lease obligations is contained in Note 8 of the Notes to Consolidated Financial Statements.41Table of Contents
Net Cash Used in Investing Activities
Net cash used in investing activities in dollars and as a percentage of net income were as follows:2024 2023
Net cash used $ 214.5 161.2
% of net income 18.6 % 14.0 %
Our net cash used in investing activities increased in 2024 from 2023. This increase was primarily related to investments for net capital expenditures.
Property and equipment expenditures typically consist primarily of: (1) purchases related to FMI hardware, (2) purchases of property and equipment related to expansion of and enhancements to distribution centers, owned or leased branch properties, and other company facilities, (3) spending on software and hardware for our information processing systems, (4) the addition of fleet vehicles, and (5) the addition of manufacturing 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.
Set forth below is a recap of our 2024 and 2023 net capital expenditures in dollars and as a percentage of net sales and net income:
2024 2023
Manufacturing, warehouse and packaging equipment, industrial vending equipment, and facilities $ 145.8 83.9
Shelving and related supplies for in-market location openings and for product expansion at existing in-market locations 23.5 24.0
Data processing software and equipment 25.5 33.4
Real estate and improvements to branch locations 8.7 7.0
Vehicles 23.0 24.5
Purchases of property and equipment 226.5 172.8
Proceeds from sale of property and equipment (12.4) (12.2)
Net capital expenditures 214.1 160.6
% of net sales 2.8 % 2.2 %
% of net income 18.6 % 13.9 %
Our net capital expenditures in 2024 increased when compared to 2023, though they were below our anticipated range of $235.0 to $255.0 for the year. This was primarily related to two factors. First, there was less demand to install incremental picking modules in our in-market locations than we anticipated. Second, spending on FMI hardware was lower, primarily as a result of lower FASTBin signings and installations than anticipated.
For 2025, we expect our investment in property and equipment, net of proceeds from sales, to be within a range of $265.0 to $285.0, an increase from $214.1 in 2024. This increase reflects three items. First, we expect elevated IT spending as projects that were planned in 2024, but experienced delays, are now expected to occur in 2025. Second, we expect higher distribution center spending to complete our upgraded Utah hub, begin construction on a new Atlanta hub, and improve our picking capacity and efficiency across our hub network. Third, we expect greater outlays for FMI hardware reflecting an increase in our targeted signings.
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Net Cash Used in Financing Activities
Net cash used in financing activities in dollars and as a percentage of income were as follows:2024 2023
Cash dividends paid $ 893.3 1,016.8
% of net income 77.6 % 88.0 %
Total returned to shareholders $ 893.3 1,016.8
% of net income 77.6 % 88.0 %
Proceeds from the exercise of stock options $ (39.6) (30.1)
% of net income -3.4 % -2.6 %
Debt obligations payments (proceeds), net $ 60.0 295.0
% of net income 5.2 % 25.5 %
Net cash used $ 913.7 1,281.7
The decrease in net cash used in financing activities reflects two factors. First, we had lower dividend payments. While we increased regular dividend payments in 2024 by 11.7%, in the fourth quarter of 2023 we paid a special fifth dividend that did not recur in 2024. Second, we used less cash to reduce outstanding debt obligations in 2024 than we did in 2023, primarily because we carried lower balances on our Credit Facility throughout 2024. These uses of cash were only partly offset by an increase in the exercise of stock options.DividendsWe declared a quarterly dividend of $0.43 per share on January 16, 2025. In 2024, we paid aggregate annual dividends per share of $1.56. In 2023, we paid aggregate annual dividends per share of $1.78, which included $1.40 per share in regular quarterly dividends and a $0.38 per share special dividend paid in December 2023.Stock PurchasesWe did not purchase any of our common stock in 2024 or 2023.
We have authority to purchase up to 6,200,000 additional shares of our common stock under the July 12, 2022 authorization. This authorization does not have an expiration date.DebtIn order to fund the considerable cash needed to expand our industrial vending business, expand capacity and increase the use of automation in our distribution centers, and pay dividends, we have borrowed under our Credit Facility and our Master Note Agreement in recent periods.
Our borrowings under the Credit Facility and Master Note Agreement peaked during each quarter of 2024 as follows:
Peak borrowings 2024
First quarter $ 390.0
Second quarter 300.0
Third quarter 305.0
Fourth quarter 300.0
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As of December 31, 2024, we had $0.0 outstanding under the Credit Facility and had contingent obligations from letters of credit outstanding under the Credit Facility in an aggregate face amount of $31.2. As of December 31, 2024, we had loans outstanding under the Master Note Agreement of $200.0. Descriptions of our Credit Facility and Master Note Agreement are contained in Note 9 of the Notes to Consolidated Financial Statements.Material Cash RequirementsOur material cash requirements for known contractual obligations include capital expenditures, debt, and lease obligations, each of which are discussed in more detail earlier in this section. We believe that net cash provided by operating activities will be adequate to meet our liquidity and capital needs for these items in the short-term over the next 12 months and also in the long-term beyond the next 12 months. We also have cash requirements for purchase orders and contracts for the purchase of inventory and other goods and services, which are based on current distribution needs and are fulfilled by our suppliers within short time horizons. We do not have significant agreements for the purchase of inventory or other goods or services specifying minimum order quantities. In addition, we may have liabilities for uncertain tax positions but we do not believe any of these liabilities will be material. A discussion of income taxes is contained in Note 7 of the Notes to Consolidated Financial Statements.Unremitted Foreign IncomeApproximately $197.5 of cash and cash equivalents were held by non-U.S. subsidiaries on December 31, 2024. These funds may create foreign currency translation gains or losses depending on the functional currency of the entity holding the cash. We have considered the financial requirements of each foreign subsidiary and our parent company and will continue to reinvest these funds to support our expansion activities outside the U.S., even after taking into consideration the deemed repatriation and transition tax under the Tax Cuts and Jobs Act. The income tax impact of repatriating cash associated with investments in foreign subsidiaries is discussed in Note 7 of the Notes to Consolidated Financial Statements.Effects of InflationWe observed very modest deflationary conditions in 2024, primarily for fasteners. Most inputs, including steel, energy, and domestic transportation costs, experienced price levels that were stable to slightly down during the year, resulting in sustained slight deflation in our inventory and slightly lower pricing affecting our sales. However, given the immaterial impact of these changes on our financials, we did not institute any broad pricing actions through 2024. The primary exception to the modestly deflationary tenor of the marketplace in 2024 was in transportation costs for imported goods, where we experienced inflation in container rates through much of 2024. We took actions to mitigate these effects in the latter part of the year. The combined net effect on our gross profit percentage of these trends in cost and price inflation was immaterial in 2024.
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PRIOR YEAR RESULTS ENDED 2023
Results of Operations
The following table sets forth consolidated statements of income information (as a percentage of net sales) for the periods ended December 31:
2023 2022
Net sales 100.0 % 100.0 %
Gross profit 45.7 % 46.1 %
SG&A expenses
24.9 % 25.2 %
Operating income 20.8 % 20.8 %
Net interest expense -0.1 % -0.2 %
Income before income taxes 20.7 % 20.6 %
Note – Amounts may not foot due to rounding difference.
Sales
The table below sets forth net sales and daily sales for the periods ended December 31, and changes in such sales from the prior period to the more recent period:
2023 2022
Net sales $ 7,346.7 6,980.6
Percentage change 5.2 % 16.1 %
Business days 253 254
Daily sales $ 29.0 27.5
Percentage change 5.7 % 15.7 %
Daily sales impact of currency fluctuations -0.3 % -0.5 %
The increase in net sales noted above for 2023 was due to higher unit sales of MRO, OEM, and construction supplies, as well as higher pricing as further set forth below.
We believe higher unit sales in 2023 were primarily a result of our ability to gain market share, as most measures of industrial activity were flat to down throughout the period. Despite this challenging environment, in 2023 we produced net sales growth of 5.2% and, owing to one fewer selling day in the period, daily sales growth of 5.7%. Growth was led by our transportation customers, which includes sales to transportation services customers as the warehousing operations of retailer-oriented customers, and manufacturing end markets, which benefit disproportionately from our shift to a key account model. Our non-residential construction and reseller customers contracted during the period, which we believe is due to our shift to a key account model which tends to de-emphasize walk-in, over-the-counter, and infrequent transactions.
Price contributed 160 to 190 basis points to our net sales growth in 2023. This contribution to growth from price was primarily due to easier comparisons in the first six months of 2023. For instance, in the first six months of 2023 contribution to growth from price averaged 240 to 270 basis points, while in the third and fourth quarters of 2023 contribution to growth from price averaged 110 to 140 basis points and 50 to 80 basis points, respectively.
We increased total Onsite locations, the installed base of FMI devices, and our Digital Footprint in 2023, which enhanced the value we provide to our customers and supported our growth and efficiency. The rate of penetration we achieved with these growth drivers was uneven, however. We signed 326 Onsites in 2023, below our goal at the start of 2023 of 375 to 400 units and slightly below the prior year signings of 356 units. We signed 24,126 FMI MEUs, meeting our goal at the start of 2023 of 23,000 to 25,000 MEUs and meaningfully above the prior year signings of 20,735 MEUs. We expanded the proportion of our sales running through our Digital Footprint to 56.1%, below our goal at the start of 2023 of 65.0% but above the prior year level of 49.3%.
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Sales by Product Line
From a product standpoint, we have three categories: fasteners (including fasteners used in OEM and MRO), safety supplies, and other product lines, the latter of which includes eight smaller product categories, such as tools, janitorial supplies, and cutting tools. The percent of sales in the periods below were as follows:
2023 2022
OEM fasteners 20.1 % 20.4 %
MRO fasteners 12.3 % 13.6 %
Total fasteners 32.4 % 34.0 %
Safety supplies 21.2 % 20.8 %
Other product lines 46.4 % 45.2 %
Total non-fasteners 67.6 % 66.0 %
The shifts in product mix in 2023 compared to 2022 are largely attributable to two factors. First, fasteners are more heavily oriented toward production of final goods than maintenance, which results in greater susceptibility to periods of weaker industrial production. Second, pricing for fasteners has decelerated at a faster pace than non-fastener products. These dynamics produced a meaningful divergence in the daily sales growth rates of our fastener versus our non-fastener product lines in 2023.
Annual Sales Changes, Sequential Trends, and End Market Performance
This section focuses on three distinct views of our business – annual sales changes by month, sequential trends, and end market performance. The first discussion regarding sales changes by month provides a good mechanical view of our business. The second discussion provides a framework for understanding the sequential trends (that is, comparing a month to the immediately preceding month, and also looking at the cumulative change from an earlier benchmark month) in our business. Finally, we believe the third discussion regarding end market performance provides insight into activities with our various types of customers.
Annual Sales Changes, by Month
During the months noted below, all of our selling locations, when combined, had a DSR change of (compared to the same month in the preceding year):
Jan. Feb. Mar. Apr. May June July Aug. Sept. Oct. Nov. Dec.
2023 11.2 % 9.6 % 6.8 % 7.8 % 5.2 % 4.7 % 3.7 % 3.6 % 5.0 % 1.9 % 3.8 % 5.3 %
2022 14.9 % 21.3 % 19.1 % 20.3 % 17.6 % 16.0 % 18.1 % 16.1 % 13.7 % 13.6 % 10.2 % 8.0 %
Sequential Trends
The table below shows the pattern to the sequential change in our daily sales. The line labeled 'Benchmark' is a historical average of our sequential daily sales change for the trailing five year average that excludes 2020. We have excluded 2020 from the average as the effects of the pandemic created unusual sequential patterns that we do not consider representative of normal trends. We believe this time frame serves to show the historical pattern and could serve as a benchmark. The '2023' and '2022' lines represent our actual sequential daily sales changes. The '23Delta' and '22Delta' lines indicate the difference between the 'Benchmark' and the actual results in the respective year. Under normal circumstances, the sequential trends shown below are directly linked to fluctuations in our end markets. Further, in any given month it is possible to get significant deviation from the benchmark.
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It is important to note that these benchmarks are historical averages. In a year where demand is strong, our daily sales growth rates will tend to have more months that exceed the benchmark than fall below it. In a year where demand is weak, we will tend to have more months that fall short of the benchmark than exceed it. In both cases, there is a random element that makes it difficult to know how any single month will perform and puts greater relevance on performance trends over multiple periods.
Jan. (1)
Feb. Mar. Apr. May June July Aug. Sept. Oct. Cumulative Change from Jan. to Oct.
Benchmark (2)
0.2 % 1.5 % 3.8 % -0.5 % 2.7 % 2.0 % -3.1 % 2.9 % 3.6 % -1.9 % 11.2 %
2023 -0.4 % 1.7 % 1.0 % -0.2 % 0.7 % -0.2 % -2.6 % 1.3 % 4.0 % -3.0 % 2.3 %
23Delta -0.6 % 0.1 % -2.9 % 0.2 % -2.0 % -2.1 % 0.5 % -1.6 % 0.4 % -1.1 % -8.8 %
2022 1.7 % 3.1 % 3.6 % -1.2 % 3.2 % 0.2 % -1.6 % 1.3 % 2.7 % -0.1 % 11.7 %
22Delta 1.5 % 1.6 % -0.2 % -0.7 % 0.6 % -1.7 % 1.5 % -1.6 % -0.9 % 1.8 % 0.5 %
(1)
The January figures represent the percentage change from the previous October, whereas the remaining figures represent the percentage change from the previous month.
(2)
The benchmark for each month is the average of the previous five years for that month. As COVID-19-related surge sales made sequential averages in 2020 unrepresentative, the benchmark uses a preceding five-year average that excludes 2020. We also exclude the impact of the 2017 Mansco acquisition.
Note – Amounts may not foot due to rounding difference.
A graph of the sequential daily sales change patterns discussed above, starting with a base of '100' in the previous October and ending with the next October, would be as follows:
End Market Performance
The DSR changes to our manufacturing customers, when compared to the same periods in the prior year, were as follows:
DSR change - manufacturing customers Q1 Q2 Q3 Q4 Annual
2023 14.4 % 10.4 % 6.2 % 4.7 % 8.9 %
2022 23.9 % 23.1 % 22.6 % 16.0 % 21.3 %
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The DSR changes to our non-manufacturing customers, when compared to the same periods in the prior year, was as follows:
DSR change - non-manufacturing customers Q1 Q2 Q3 Q4 Annual
2023 -3.7 % -5.3 % -1.3 % 0.9 % -2.4 %
2022 6.9 % 6.9 % 1.0 % -0.8 % 3.5 %
Product Performance
From a company perspective, the DSR changes of fasteners, when compared to the same periods in the prior year, were as follows (note: this information includes all end markets):
DSR change - fasteners Q1 Q2 Q3 Q4 Annual
2023 7.0 % 0.0 % -2.0 % -2.3 % 0.7 %
2022 24.6 % 21.2 % 18.2 % 9.1 % 18.1 %
From a company perspective, the DSR changes of non-fasteners, when compared to the same periods in the prior year, were as follows (note: this information includes all end markets):
DSR change - non-fasteners Q1 Q2 Q3 Q4 Annual
2023 10.3 % 9.2 % 7.5 % 6.6 % 8.4 %
2022 15.0 % 16.0 % 14.4 % 11.6 % 14.2 %
Gross Profit
The gross profit percentage during each period was as follows:
Q1 Q2 Q3 Q4 Annual
2023 45.7 % 45.5 % 45.9 % 45.5 % 45.7 %
2022 46.6 % 46.5 % 45.9 % 45.3 % 46.1 %
Our gross profit, as a percentage of net sales, was 45.7% in 2023 and 46.1% in 2022. This decrease was primarily related to two factors. First, in 2023 customer and product mix had a negative effect on our gross profit percentage. We continued to experience relatively strong growth from larger customers, including Onsites, and non-fastener products, each of which tend to have a lower gross profit percentage than our business as a whole. Second, we had higher organizational/overhead costs, including from higher inbound freight costs and working capital needs being relieved from inventory and generating higher period costs. These negative effects were partly offset by favorable freight costs, which reflects elevated domestic freight sales leveraging what are relatively stable costs to support our captive fleet, lower expenses related to external freight providers, and lower fuel costs.
SG&A Expenses
Our SG&A expenses, as a percentage of net sales, improved to 24.9% in 2023 from 25.2% in 2022. This primarily reflected improvement, as a percentage of net sales, in employee-related expenses as bonuses and commissions were down as a result of slower sales and profit growth in 2023 versus the prior year.
The percentage change in employee-related, occupancy-related, and all other SG&A expenses compared to the same periods in the preceding year, is outlined in the table below.
Approximate Percentage of Total SG&A Expenses Twelve-month Period
2023 2022
Employee-related expenses 70% to 75% 3.4 % 14.7 %
Occupancy-related expenses 15% to 20% 4.2 % 2.6 %
All other SG&A expenses 10% to 15% 4.2 % 18.5 %
Our employee-related expenses increased in 2023 from 2022. This was related to higher base pay and employment taxes as a result of increased FTE during the period and moderate wage inflation. This was partly offset by a decline in bonuses reflecting slower sales and profit growth versus the prior year.
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The table below summarizes the percentage change in our FTE headcount at the end of the periods presented compared to the end of the prior period:
Twelve-month Period
2023 2022
Selling personnel (1)
4.1 % 7.9 %
Distribution/Transportation personnel 4.2 % 8.4 %
Manufacturing personnel 0.1 % 12.4 %
Organizational support personnel (2)
8.6 % 9.5 %
Total personnel 4.4 % 8.3 %
(1)
Of our Selling Personnel, 80%-85% are attached to a specific in-market location.
(2)
Organizational support personnel consists of: (1) Sales & Growth Driver Support personnel (approximately 35% of category), which includes sourcing, purchasing, supply chain, product development, etc.; (2) IT personnel (35% to 40% of category); and (3) Administrative Support personnel (25% to 30% of category), which includes human resources, FSB, accounting and finance, senior management, etc.
Our occupancy-related expenses increased in 2023 from 2022. This was related to: slightly higher depreciation and expenses related to a higher installed base of our FMI suite of technologies; moderately higher costs and depreciation for the maintenance, upgrade, and installation of equipment in hub and non-hub facilities; and a slight rise in branch rents related to higher inflation and branch size.
Combined, all other SG&A expenses increased in 2023 from 2022. This was related to: higher spending on IT; higher general insurance costs; increased spending on travel and supplies; and higher bad debt expense. These elements were only partly offset by increased contributions from our supplier collaboration programs and increased income from asset sales related to our field truck fleet .
Net Interest
Our net interest expense was $6.7 in 2023 compared to $13.6 in 2022. We carried lower average debt balances in 2023 relative to the prior year, with cash generated from working capital reductions enabling us to reduce outstanding revolver debt under our Credit Facility. This was only partly offset by slightly higher average rates against borrowings under our Credit Facility due to changing interest rate levels in the marketplace. We also generated higher interest income in 2023 relative to the prior year.
Income Taxes
We recorded income tax expense of $367.0 in 2023, or 24.1% of income before income taxes, compared to $353.1 in 2022, or 24.5% of income before income taxes. The decrease in our tax rate in 2023 is due primarily to an increase in the tax benefit associated with the exercise of stock options.
Net Income
Net income, net income per share, the percentage change in net income, and the percentage change in net income per share, were as follows:
Dollar Amounts 2023 2022
Net income $ 1,155.0 1,086.9
Basic net income per share 2.02 1.89
Diluted net income per share 2.02 1.89
Percentage Change 2023 2022
Net income 6.3 % 17.5 %
Basic net income per share 6.7 % 17.7 %
Diluted net income per share 6.7 % 17.8 %
2023 2022
Tax Rate 24.1 % 24.5 %
During 2023, net income per share increased, primarily due to higher sales, lower net interest expense, a lower tax rate, and lower average fully diluted shares outstanding as a result of our buying back shares in 2022.
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Liquidity and Capital Resources
Net Cash Provided by Operating Activities
Net cash provided by operating activities in dollars and as a percentage of net income were as follows:
2023 2022
Net cash provided $ 1,432.7 941.0
% of net income 124.0 % 86.6 %
In 2023, we experienced an increase in our operating cash flow as a percentage of net income. The improvement in operating cash flow in 2023, as a percent of net income, reflects the reduced demand for working capital as a result of an improved supply chain and, to a lesser degree, slower business activity relative to the prior year.
Trade Working Capital Assets
The following table sets forth the dollar and percentage change in accounts receivable, net, inventories, and accounts payable for the period ended December 31:
Twelve-month Dollar Change Twelve-month Percentage Change
2023 2023 2023
Accounts receivable, net $ 1,087.6 74.4 7.3 %
Inventories 1,522.7 (185.3) -10.8 %
Trade working capital $ 2,610.3 (110.9) -4.1 %
Accounts payable $ 264.1 9.2 3.6 %
Trade working capital, net $ 2,346.2 (120.1) -4.9 %
Net sales in last three months $ 1,758.6 63.0 3.7 %
Note – Amounts may not foot due to rounding difference.
In 2023, the annual growth in net accounts receivable is primarily attributable to three factors. First, our receivables increased as a result of growth in sales to our customers. Second, we continue to experience a shift in our mix due to relatively stronger growth from national account customers, which tend to carry longer payment terms than our non-national account customers. Third, and to a lesser degree, customers have historically delayed payments at the end of years that are economically challenged, and we saw that effect in 2023.
In 2023, our inventories decreased, reflecting the absence of supply chain disruptions from the prior year. Our response at the time was to deepen our inventory as a means of maintaining high service to our customers, particularly for imported inventory. Dissipation of these disruptions has allowed us to shorten our product ordering cycle. It is also likely that slower business activity reduced the level of inventory our customers required us to maintain to meet their production needs.
In 2023, the annual growth in accounts payable was primarily attributable to our product purchases increasing to support the growth in our business. The growth in our accounts payable balance is below the growth in our sales, which reflects the dissipation of supply chain disruptions from the prior year. This allowed us to shorten our product ordering cycle in 2023 versus 2022.
The approximate percentage mix of inventory stocked at our selling locations versus our distribution center and manufacturing locations was as follows at year end:
2023 2022
Selling locations 64 % 58 %
Distribution center and manufacturing locations 36 % 42 %
Total 100 % 100 %
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Net Cash Used in Investing Activities
Net cash used in investing activities in dollars and as a percentage of net income were as follows:
2023 2022
Net cash used $ 161.2 163.0
% of net income 14.0 % 15.0 %
Our net cash used in investing activities in 2023 was comparable to 2022 and primarily related to investments for net capital expenditures.
Set forth below is a recap of our 2023 and 2022 net capital expenditures in dollars and as a percentage of net sales and net income:
2023 2022
Manufacturing, warehouse and packaging equipment, industrial vending equipment, and facilities $ 83.9 97.8
Shelving and related supplies for in-market location openings and for product expansion at existing in-market locations 24.0 21.5
Data processing software and equipment 33.4 30.6
Real estate and improvements to branch locations 7.0 12.4
Vehicles 24.5 11.5
Purchases of property and equipment 172.8 173.8
Proceeds from sale of property and equipment (12.2) (11.4)
Net capital expenditures 160.6 162.4
% of net sales 2.2 % 2.3 %
% of net income 13.9 % 14.9 %
Our net capital expenditures in 2023 were comparable to 2022, though they were below our original expectations for net capital investment during the year. The slower business environment in 2023 reduced the need to purchase certain equipment at the pace originally anticipated. We also saw the timing of certain outlays pushed out and, to a lesser extent, longer lead times on certain materials. It does not reflect the cancellation of any significant initiatives.
Net Cash Used in Financing Activities
Net cash used in financing activities in dollars and as a percentage of income were as follows:
2023 2022
Cash dividends paid $ 1,016.8 711.3
% of net income 88.0 % 65.4 %
Purchases of common stock — 237.8
% of net income — % 21.9 %
Total returned to shareholders $ 1,016.8 949.1
% of net income 88.0 % 87.3 %
Proceeds from the exercise of stock options $ (30.1) (9.2)
% of net income -2.6 % -0.8 %
Debt obligations payments (proceeds), net $ 295.0 (165.0)
% of net income 25.5 % -15.2 %
Net cash used $ 1,281.7 774.9
The increase in net cash used in financing activities reflects higher dividend payments, including a supplemental payment in December of 2023, and a reduction in our outstanding debt obligations. These uses of cash were only partly offset by the absence of common stock purchases that we made in the prior year and, to a lesser degree, the exercise of stock options.
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Dividends
We declared a quarterly dividend of $0.39 per share on January 17, 2024. In 2023, we paid aggregate annual dividends per share of $1.78. This included $1.40 per share in regular quarterly dividends and a $0.38 per share special dividend paid in December 2023 reflecting what was at the time our high cash balances, as well as our favorable outlook for future cash generation. In 2022, we paid aggregate annual dividends per share of $1.24.
Stock Purchases
In 2023, we did not purchase any of our common stock. In 2022, we purchased 5,000,000 shares of our common stock at an average price of approximately $47.58 per share.
We have authority to purchase up to 6,200,000 additional shares of our common stock under the July 12, 2022 authorization. This authorization does not have an expiration date.
Debt
Our borrowings under the Credit Facility and Master Note Agreement peaked during each quarter of 2023 as follows:
Peak borrowings 2023
First quarter $ 565.0
Second quarter 470.0
Third quarter 350.0
Fourth quarter 330.0
Effects of Inflation
In 2023, we observed easing in inflationary pressures for metals (especially steel), energy, and transportation services (especially overseas containers and shipping) resulting in stable costs for most of our product offering. As a result, we did not institute any broad pricing actions through 2023 and we saw our contribution to growth in daily sales due to price moderate throughout the year. The exception to this stability was cost deflation for imported goods, which resulted in modest price deflation specifically in our fastener product line over the course of the year. The net effect on our gross profit percentage of these trends in cost and price inflation was immaterial in 2023.
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Table of ContentsCritical Accounting Estimates
In preparing our consolidated financial statements in conformity with U.S. GAAP, we must make decisions that impact the reported amounts of assets, liabilities, sales, and expenses, and the related disclosures. Such decisions include the selection of the appropriate accounting principles to be applied and the assumptions on which to base accounting estimates. In reaching such decisions, we apply judgments based on our understanding and analysis of relevant circumstances, historical experience, and actuarial valuations. Actual amounts could differ from those estimated at the time the consolidated financial statements are prepared.
Our most significant accounting policies, including Revenue Recognition and Inventories, are described in Note 1 of the Notes to Consolidated Financial Statements. Some of those significant accounting policies require us to make difficult, subjective, or complex judgments, or estimates. An accounting estimate is considered to be critical if it meets both of the following criteria: (i) the estimate requires assumptions about matters that are highly uncertain at the time the accounting estimate is made, and (ii) different estimates reasonably could have been used, or changes in the estimate that are reasonably likely to occur from period to period may have a material impact on the presentation of our financial condition, changes in financial condition, or results of operations. Our most critical accounting estimates include the following:Allowance for Credit Losses – This reserve is for accounts receivable balances that are potentially uncollectible. The allowance for credit losses is based on an income statement approach which adjusts the ending balance sheet to take into consideration expected losses over the contractual lives of the receivables, considering factors such as historical data as a basis for future expected losses. If business or economic conditions change, our estimates and assumptions may be adjusted as deemed appropriate. Historically, actual required reserves have not varied materially from estimated amounts and our estimation and assumption methods have not materially changed during 2024.
Inventory valuation – Adjustments to the valuation of inventory are based on an analysis of inventory trends including reviews of inventory levels, sales information, and the on-hand quantities relative to the sales history for the product. Our methodology for estimating whether adjustments are necessary is continually evaluated for factors including significant changes in product demand, market conditions, condition of the inventory, or liquidation value. If business or economic conditions change, our estimates and assumptions may be adjusted as deemed appropriate. Historically, actual required adjustments have not varied materially from estimated amounts and our estimation and assumption methods have not materially changed during 2024.
General insurance reserves – These reserves are for general claims related to workers' compensation, property and casualty losses, and other general liability self-insured losses. The reserves are based on an analysis of reported claims and claims incurred but not yet reported related to our historical claim trends. We perform ongoing reviews of our insured and uninsured risks and use this information to establish appropriate reserve levels. We analyze historical trends, claims experience, and loss development patterns to ensure the appropriate loss development factors are applied to the incurred costs associated with the claims made. Historically, actual required reserves have not varied materially from estimated amounts and our estimation and assumption methods have not materially changed during 2024.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 Consolidated Financial Statements.53Table of Contents
FY 2025-12-31 (later)
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONSThe 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 consolidated financial statements and should be read in conjunction with those consolidated financial statements. This section of the Form 10-K generally discusses 2025 and 2024 items and year-to-year comparisons between the years. Discussions of 2023 comparisons can be found in our 2024 Annual Report filed with the SEC.Business and Operational OverviewFastenal is a global leader in the wholesale distribution of industrial and construction supplies. We distribute these supplies through a network of approximately 1,600 branch locations. Our largest end market is manufacturing. Sales to these customers include products for both direct materials, where our products are consumed in the final products of our customers, and indirect materials, where our products are consumed to support the facilities and ongoing operations of our customers. We also service general and commercial contractors in non-residential end markets as well as farmers, truckers, railroads, oil exploration companies, oil production and refinement companies, mining companies, federal, state, and local government entities, schools, warehouse and storage, data centers, and certain retail trades. Geographically, our selling locations and customers are primarily located in North America, though we continue to grow our non-North American presence as well.
It is helpful to appreciate several aspects of our marketplace: First, it is big and fragmented. We estimate the North American marketplace for industrial supplies is in excess of $140 billion per year (and we have expanded beyond North America) and no company has a significant portion of this market. Second, many of the products we sell are individually inexpensive, but the cost and time to manage, procure, and transport these products can be quite meaningful. Third, many customers prefer to reduce their number of indirect and direct suppliers to simplify their business, while also utilizing various technologies and models (including our local branches when they need something quickly or unexpectedly) to improve availability and reduce waste. Lastly, we believe the markets are efficient. In our view, this means that companies who grow market share are those that develop differentiated capabilities that provide the greatest value to the customer.Our approach to addressing these aspects of our marketplace is captured in our motto Growth Through Customer Service ® and our tagline Where Industry Meets Innovation ™ . The concept of growth is simple: find more customers every day that value the services we provide and increase our activity with them. However, execution is hard work. First, we recruit service-minded individuals to support customers and empower them to operate in a decentralized fashion to maximize their flexibility to solve customer problems. We support these customer-facing resources with a supply chain capability that is speedy, efficient, and cost-effective. This has formed the foundation of our high-touch model since inception. Second, we invest in, develop, and deploy capabilities that allow us to illuminate and provide greater control over a customer's supply chain. These capabilities range from service models that take advantage of our local presence and/or our ability to more efficiently manage complex procurement needs, to hardware and software technologies that promote actionable data capture, improve operating efficiencies, and reduce supply chain risk. Third, we strive to generate strong profits, which produce the cash flow necessary to support our growth, our product and technology development, and the needs of our customers.
The ultimate aim of this 'high-touch, high-tech' approach to gaining market share is to allow us to get closer to our customers, going so far as to be right to the point of consumption within customers' facilities. Marrying our presence, capabilities and technologies deepens our relationships and our understanding of our customers' day-to-day opportunities and obstacles. This, in turn, enhances our ability to provide innovative and comprehensive solutions to our customers' challenges. By doing these things every day, Fastenal remains a growth-centric organization.The global economy continues to experience elevated levels of volatility and uncertainty, including within the commodity, labor, and transportation markets, driven by a combination of geopolitical developments and macroeconomic factors. Recent imposition of new and expanded tariffs have further contributed to disruptions in global capital markets and global supply chains. These developments may impact our operations, financial condition, and results of operations. We are actively monitoring economic conditions in the U.S. and internationally, including the potential ramifications of evolving trade policies, changes in interest rates, foreign currency exchange rate fluctuations, inflationary pressures, and the risk of a global or regional economic recession. In response to these factors, we have implemented various strategies designed to mitigate certain adverse effects of changing inflationary conditions and supply chain challenges, while continuing to maintain market price competitiveness and price/cost neutrality. Historically, our broad and diverse customer base combined with our ability to innovate with our customers have provided a degree of resilience during periods of economic contraction in the industrial market. However, the ultimate impact of ongoing macroeconomic conditions, including recent tariff-related developments, remains uncertain and cannot be predicted at this time.
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Executive Overview
The following table presents a performance summary of our results of operations for the periods ended December 31.2025 2024 YOY Change
Net sales $ 8,200.5 7,546.0 8.7 %
Business days 254 255
Daily sales $ 32.3 29.6 9.1 %
Gross profit $ 3,691.2 3,401.9 8.5 %
% of net sales 45.0 % 45.1 %
SG&A expenses $ 2,035.5 1,891.9 7.6 %
% of net sales 24.8 % 25.1 %
Operating income $ 1,655.7 1,510.0 9.6 %
% of net sales 20.2 % 20.0 %
Income before income taxes $ 1,655.0 1,508.1 9.7 %
% of net sales 20.2 % 20.0 %
Net income $ 1,258.4 1,150.6 9.4 %
Diluted net income per share $ 1.09 1.00 9.2 %Note – Daily sales are defined as the total net sales for the period divided by the number of business days (in the U.S.) in the period.Market conditions were sluggish in our key markets in 2025. The Institute for Supply Management's Purchasing Manager's Index (PMI) for the U.S. averaged 48.9 for the full year and remained below 50, the threshold demarcating manufacturing growth or contraction, in 10 out of 12 months. Business activity as measured by U.S. Industrial Production increased 1.2% in the first 11 months of 2025 over 2024. In 2025, the market provided minimal contribution, tariff related pricing contributed 170 to 200 basis points, and the primary factor contributing to our daily sales growth of 9.1% was share gains. In 2025, our growth was the result of improved customer contract signings with large key account customers and fastener products. We continued to expand our installed base of FMI technology and lift the proportion of sales that run through our Digital Footprint. In a fluid tariff environment, our gross profit was well managed. We improved our profitability, which resulted in higher incentive compensation and we invested in technology solutions to drive efficiency; however, we leveraged our SG&A expenses resulting in a 20 basis point improvement in operating margin. Asset efficiency improved from the preceding year and we generated good cash flow.
The table below summarizes our absolute and full time equivalent (FTE; based on 40 hours per week) employee headcount, number of branch locations, number of customer sites summarized by monthly spend band, and weighted FMI devices at the end of the periods presented and the percentage change compared to the end of the prior period.
Q4 2025 Q4 2024 Twelve-month % Change
Selling personnel - absolute employee headcount (1)
17,166 16,669 3.0 %
Selling personnel - FTE employee headcount (1)
15,439 15,014 2.8 %
Total personnel - absolute employee headcount 24,489 23,702 3.3 %
Total personnel - FTE employee headcount 21,602 20,958 3.1 %
Number of branch locations 1,595 1,597 -0.1 %
Number of $50k+ customer sites 2,657 2,330 14.0 %
Number of $10k+ customer sites 11,712 10,837 8.1 %
Number of $5k-$10k customer sites 7,067 6,948 1.7 %
Number of <$5k customer sites 73,357 82,650 -11.2 %
Weighted FMI devices (MEU installed count) 136,638 126,957 7.6 %
(1)
In the fourth quarter of 2024, we realigned certain employees as a result of a routine review of our organizational structure. While there was no change to total absolute or total FTE headcount, it produced minor shifts between headcount categories. Historical numbers have been adjusted to reflect this realignment.
31Table of ContentsDuring the last twelve months, we increased our total FTE employee headcount by 644. Our total FTE selling personnel increased by 425 to support growth and sales initiatives to target customer acquisition. We had an increase in our distribution and transportation FTE personnel of 59 to support increased product throughput at our distribution facilities. W e had an increase in our remaining FTE personnel of 160, which related primarily to personnel investments in IT, quality control, and supply chain support.
CURRENT YEAR RESULTS ENDED 2025Results of Operations
The following table sets forth consolidated statements of income information (as a percentage of net sales) for the periods ended December 31:2025 2024Net sales 100.0 % 100.0 %Gross profit 45.0 % 45.1 %SG&A expenses24.8 % 25.1 %
Operating income 20.2 % 20.0 %
Net interest 0.0 % 0.0 %
Income before income taxes 20.2 % 20.0 %
Note – Amounts may not foot due to rounding.Sales
The table below sets forth net sales and daily sales for the periods ended December 31, and changes in such sales from the prior period to the more recent period:2025 2024
Net sales $ 8,200.5 7,546.0
Percentage change 8.7 % 2.7 %
Business days 254 255
Daily sales $ 32.3 29.6
Percentage change 9.1 % 1.9 %
Daily sales impact of currency fluctuations 0.0 % -0.1 %
The increase in net sales noted above for 2025 was primarily due to higher unit sales of Direct (OEM/Production) materials, Indirect (MRO/Facilities Maintenance) materials, and construction supplies. We believe higher unit sales in 2025 were primarily a result of our ability to gain market share, as most measures of industrial activity were flat to slightly up throughout the period. Despite this challenging environment, in 2025 we produced net sales growth of 8.7% and, owing to one less selling day in the period, daily sales growth of 9.1%.
We estimate the disruption to operations and logistics from severe winter weather in January 2025, while meaningful in the month of January, was not material to net sales for the full year of 2025.
Changes in product pricing resulted in 170 to 200 basis points of growth in net sales in 2025.
We effectively increased the penetration of key growth initiatives in 2025, as judged by installations and adoption, which enhanced the value we provide to our customers and supported our growth and efficiency. This was achieved through three areas. Fi rst, we signed 25,892 FMI MEUs, meeting our goal of 25,000 to 26,000 MEU. Our installed base of FMI MEUs was 136,638 at the end of 2025, an increase of 7.6% over th e end of 2024. Second, we expanded the proportion of our sales running through our Digital Footprint. This measure reached 62.4% in December 2025. This was below our goal at the start of 2025, which was between 66% and 68%, attributable to lower volume through our FMI devices due to the business disruption associated with a rapidly changing tariff environment. Even so, it improved from the prior year level of 60.4% reflecting increasing internal and external adoption of our digital resources. We expect that during 2026 we will achieve 66% of our sales volume running through our Digital Footprint. Lastly, we achieved meaningful growth in both our average spend per customer site and the number of customer sites spending $5k or more per month.
From a product portfolio standpoint, we classify our offerings into three primary categories: fasteners, safety supplies, and other product lines. The 'other product lines' category encompasses eight smaller product segments, including tools, janitorial supplies, and cutting tools.
32Table of ContentsPrior to the fourth quarter of 2025, our fastener reporting focused on the segmentation of original equipment manufacturing (OEM) and maintenance, repair, and operations (MRO) fasteners. In 2024, we enhanced our analytical capabilities through significant investments in our customer master data management system, which has enabled us to deliver more granular insights into our customer site performance starting in 2025.
With continued investment in these improvements throughout 2025, starting in the fourth quarter of 2025, we are able to share a more comprehensive breakdown of our direct (OEM/production) business and our indirect (MRO/facilities maintenance) business. This extends beyond fasteners to include a broader range of product categories and gives more accurate insights into our product sales.
Direct materials are products that become incorporated into a finished good or directly support a customer's production processes. This category includes items such as production fasteners, cutting tools, abrasives, certain types of non-fasteners, hardware, and other goods essential to manufacturing throughput.
Indirect materials support customers' facility operations, maintenance, and safety needs but are not directly traceable to a finished good. These include fasteners, maintenance tools, safety solutions, janitorial supplies, and other items that sustain facility uptime and operational continuity.
The DS R change when compared to the same period in the prior year and the percent of sales in the period were as follows:
Twelve-month DSR Change Twelve-month % of Sales
2025 2024 2025 2024
Direct fasteners/hardware 9.8 % -1.8 % 20.7 % 20.6 %
Direct cutting tools and abrasives 10.2 % 3.9 % 5.2 % 5.2 %
Direct non-fasteners/hardware 12.0 % 6.7 % 12.8 % 12.4 %
Total direct materials 10.6 % 1.6 % 38.7 % 38.2 %
Indirect fasteners/hardware 8.9 % -4.5 % 9.8 % 9.8 %
Indirect safety 9.4 % 7.0 % 21.5 % 21.4 %
Indirect non-fasteners/hardware & non-safety 8.1 % 2.0 % 30.0 % 30.6 %
Total indirect materials 8.7 % 2.6 % 61.3 % 61.8 %
Direct materials growth outpaced overall company growth, driven by improved availability, expanded contract penetration, and the successful implementation of new programs with large manufacturing customers that benefits direct materials more heavily oriented toward production of final goods. Increased adoption of our tailored production‑line solutions contributed meaningfully to mix improvement and strengthened our position with customers.
Indirect materials growth improved, supported by ongoing demand for safety and facility‑maintenance solutions. Our digital tools and inventory management programs continued to enhance customer efficiency and contributed to improved performance in this category, led by safety which benefited from growth with warehousing customers who are strong consumers of personal protective equipment.Annual Sales Changes, Sequential Trends, and End Market Performance
This section focuses on three distinct views of our business – annual sales changes by month, sequential trends, and end market performance. The first discussion regarding sales changes by month provides a good mechanical view of our business. The second discussion provides a framework for understanding the sequential trends (that is, comparing a month to the immediately preceding month, and also looking at the cumulative change from an earlier benchmark month) in our business. Finally, we believe the third discussion regarding end market performance provides insight into activities with our various types of customers.Annual Sales Changes, by Month
During the months noted below, all of our selling locations, when combined, had a DSR change of (compared to the same month in the preceding year):
Jan. Feb. Mar. Apr. May June July Aug. Sept. Oct. Nov. Dec.2025 1.9 % 5.0 % 8.3 % 6.5 % 9.3 % 9.8 % 12.8 % 11.8 % 10.2 % 11.3 % 11.8 % 10.7 %2024 1.6 % 2.6 % 1.8 % 0.7 % 1.5 % 3.3 % 0.5 % 2.1 % 3.2 % 2.8 % 3.4 % 0.0 %33
Table of ContentsSequential Trends
We find it helpful to think about the monthly sequential changes in our business using the analogy of climbing a stairway – This stairway has several predictable landings where there is a pause in the sequential gain (i.e., April, July, and October to December), but generally speaking, climbs from January to October. The October landing then establishes the benchmark for the start of the next year.
History has identified these landings in our business cycle. They generally relate to months where certain holidays impair business days and/or seasons impact certain end markets, particularly non-residential construction. The first landing centers on Easter and the Good Friday holiday that precedes it, which in any given year can fall in March or April, the second landing centers on July 4th, and the third landing centers on the approach of winter with its seasonal impact on primarily our non-residential construction business and with the Christmas/New Year holidays. The holidays we noted impact the trends because they either move from month-to-month or because they move around during the week.The table below shows the pattern to the sequential change in our daily sales. The line labeled 'Benchmark' is a historical average of our sequential daily sales change for the trailing five year average that excludes 2020. We have excluded 2020 from the average as the effects of the pandemic created unusual sequential patterns that we do not consider representative of normal trends. We believe this time frame serves to show the historical pattern and could serve as a benchmark. The '2025' and '2024' lines represent our actual sequential daily sales changes. The '25Delta' and '24Delta' lines indicate the difference between the 'Benchmark' and the actual results in the respective year. Under normal circumstances, the sequential trends shown below are directly linked to fluctuations in our end markets. Further, in any given month it is possible to get significant deviation from the benchmark.It is important to note that these benchmarks are historical averages. In a year where demand is strong, our daily sales growth rates will tend to have more months that exceed the benchmark than fall below it. In a year where demand is weak, we will tend to have more months that fall short of the benchmark than exceed it. In both cases, there is a random element that makes it difficult to know how any single month will perform and puts greater relevance on performance trends over multiple periods.
Jan. (1)
Feb. Mar. Apr. May June July Aug. Sept. Oct. Cumulative Change from Jan. to Oct.
Benchmark (2)0.2 % 1.3 % 2.9 % -1.5 % 2.7 % 0.9 % -3.5 % 2.5 % 4.0 % -2.2 % 7.1 %
2025 -1.6 % 5.8 % 3.3 % -2.9 % 4.1 % 2.0 % -2.7 % 2.1 % 3.6 % -2.5 % 13.1 %
25Delta -1.8 % 4.5 % 0.4 % -1.4 % 1.4 % 1.1 % 0.8 % -0.4 % -0.4 % -0.3 % 6.0 %2024 -0.7 % 2.7 % 0.2 % -1.3 % 1.5 % 1.6 % -5.3 % 3.0 % 5.1 % -3.4 % 3.6 %24Delta -0.9 % 1.4 % -2.7 % 0.1 % -1.2 % 0.7 % -1.8 % 0.4 % 1.2 % -1.2 % -3.5 %(1)
The January figures represent the percentage change from the previous October, whereas the remaining figures represent the percentage change from the previous month.
(2)
The benchmark for each month is the average of the previous five years for that month. As COVID-19-related surge sales made sequential averages in 2020 unrepresentative, the benchmark uses a preceding five-year average that excludes 2020.Note – Amounts may not foot due to rounding.
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A graph of the sequential daily sales change patterns discussed above, starting with a base of '100' in the previous October and ending with the next October, would be as follows:
End Market PerformanceWe estimate approximately 71% to 76% of our business is with customers engaged in some type of manufacturing, a significant subset of which finds its way into the heavy equipment market. The manufacturing environment remained sluggish in 2025. O ur manufacturing end markets outperformed primarily due to the relative strength we are experiencing with key account customers with significant managed spend where our service model and technology is particularly impactful. This disproportionately benefits manufacturing customers. The DSR changes to our manufacturing customers, when compared to the same periods in the prior year, were as follows:DSR change - manufacturing customers Q1 Q2 Q3 Q4 Annual2025 6.8 % 9.2 % 12.7 % 12.8 % 10.4 %2024 2.6 % 2.7 % 3.0 % 3.3 % 2.9 %We estimate approximately 24% to 29% of our business is with customers engaged in a wide range of activities, none of which individually constitute 10% of sales. This includes non-residential construction, reseller, transportation, warehouse and storage, data centers, and g overnment/education customers. Our construction end market experienced growth starting in the second quarter of 2025 and reflected increased adoption of our solutions. Weakness within our reseller end market reflected efforts in many industries to reduce channel inventories. Our transportation end market growth moderated during the year but continued to reflect share gains with customers who manage large networks or warehouses. The DSR changes to our non-manufacturing customers, when compared to the same periods in the prior year, was as follows:DSR change - non-manufacturing customers Q1 Q2 Q3 Q4 Annual2025 -0.6 % 6.7 % 8.4 % 6.3 % 5.2 %2024 0.0 % -1.0 % -1.5 % -0.3 % -0.7 %35Table of ContentsGross Profit
The gross profit percentage during each period was as follows:
Q1 Q2 Q3 Q4 Annual2025 45.1 % 45.3 % 45.3 % 44.3 % 45.0 %2024 45.5 % 45.1 % 44.9 % 44.8 % 45.1 %Our gross profit, as a percentage of net sales, was 45.0% in 2025 and 45.1% in 2024. Our fastener expansion project and other supplier-focused initiatives offset the gross margin headwind of a continued shift toward larger customers, which typically generate higher volume at lower gross margins.SG&A ExpensesSG&A expenses, as a percentage of net sales, decreased to 24.8% in 2025 from 25.1% in 2024. We continued to invest in areas such as role specialization, technology, analytics personnel, and sales-related travel that we view as critical to supporting future growth. We managed expenses not directly related to customer acquisition and growth, which allowed us to leverage SG&A expenses in 2025.The percentage change in employee-related, occupancy-related, and all other SG&A expenses compared to the same periods in the preceding year, is outlined in the table below.
Approximate Percentage of Total SG&A Expenses Twelve-month Period2025 2024
Employee-related expenses 70% to 75% 9.0 % 3.2 %
Occupancy-related expenses 15% to 20% 5.2 % 2.1 %
All other SG&A expenses 10% to 15% 2.5 % 8.1 %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.Our employee-related expenses increased in 2025 from 2024. This was related to: improvement in our sales and profitability generating significantly higher bonuses and commissions; higher base pay as a result of increased FTE during the period and moderate wage inflation; higher employment taxes; higher healthcare costs due to growth in the number and size of claims; and an increase in profit sharing expense reflecting improved sales and profit growth versus the prior year.The table below summarizes the percentage change in our FTE headcount at the end of the periods presented compared to the end of the prior period:
Twelve-month Period2025 2024 (1)
Selling personnel (2)
2.8 % 0.0 %
Distribution/Transportation personnel 2.0 % 2.5 %
Manufacturing personnel 2.4 % 8.0 %
Organizational support personnel (3)
6.9 % 5.2 %
Total personnel 3.1 % 1.1 %(1)In the fourth quarter of 2024, we realigned certain employees as a result of a routine review of our organizational structure. While there was no change to total absolute or total FTE headcount, it produced minor shifts between headcount categories. Historical numbers have been adjusted to reflect this realignment.(2)Of our Selling Personnel, 80%-85% are attached to a specific selling location.
(3)
Organizational support personnel consists of: (1) Sales Support personnel (37% to 42% of category), which includes sourcing, purchasing, supply chain, product development, etc.; (2) IT personnel (34% to 39% of category); and (3) Administrative Support personnel (22% to 27% of category), which includes HR, FSB, 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 and bins utilized as part of FMI services (we consider this hardware to be a logical extension of our operations and classify the depreciation and repair costs as occupancy expenses).
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Our occupancy-related expenses increased in 2025 from 2024. This was related to: inflation in branch rent expense, increased FMI depreciation as the number of installed devices increased; higher costs and depreciation for the maintenance, upgrade, and installation of equipment in hub and non-hub facilities; and an increase in property taxes.All other SG&A expenses include: (1) selling-related transportation, (2) IT expenses, (3) general corporate expenses, which consists of legal expenses, general insurance expenses, travel and marketing expenses, etc., and (4) sales of property and equipment.Combined, all other SG&A expenses increased in 2025 from 2024. This was related to the following increases: higher spending on IT, increased sales expense associated with signing and im plementing customer sites, and selling-related transportation costs increased and were only partially offset by lower fuel expense. The increases were partially offset by increases in shared marketing initiatives with our suppliers and lower general insurance costs.Net InterestInterest income slightly increased in 2025 and we had lower interest expense in 2025. We carried lower average borrowings relative to 2024 primarily from cash generated from higher net earnings enabling us to reduce outstanding revolver debt under the Credit Facility. The slight increase in interest income and the reduction in interest expense resulted in net interest expense of $0.7 in 2025 compared to $1.9 in 2024.Income TaxesWe recorded income tax expense of $396.6 in 2025, or 24.0% of income before income taxes. Income tax expense was $357.5 in 2024, or 23.7% of income 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 Income
Net income, net income per share, the percentage change in net income, and the percentage change in net income per share, were as follows:Dollar Amounts 2025 2024
Net income $ 1,258.4 1,150.6
Basic net income per share 1.10 1.00
Diluted net income per share 1.09 1.00
Percentage Change 2025 2024
Net income 9.4 % -0.4 %
Basic net income per share 9.2 % -0.6 %
Diluted net income per share 9.2 % -0.6 %
2025 2024
Tax Rate 24.0 % 23.7 %
During 2025, net income per share increased. Volume growth in 2025 was sufficient to produce SG&A leverage that could offset mix-related gross margin contraction, resulting in operating margin expansion.Liquidity and Capital Resources
Net Cash Provided by Operating Activities
Net cash provided by operating activities in dollars and as a percentage of net income were as follows:Five-Year Average (1)
2025 2024
Net cash provided $ 1,083.8 $ 1,295.9 1,173.3
% of net income 104.8 % 103.0 % 102.0 %
(1) Five-year average includes 2020 to 2024.
In 2025, we experienced a slight increase in our operating cash flow as a percentage of net income. The increase in operating cash flow, as a percent of net income, primarily reflects our operating assets and liabilities being a slightly less use of cash in 2025 as compared to 2024. This was attributable to an increase in accounts receivable reflecting increased sales activity, partially offset by a lower investment in inventory at the end of the period.
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Trade Working Capital Assets
The following table sets forth the dollar and percentage change in accounts receivable, net, inventories, and accounts payable for the period ended December 31:
Twelve-month Dollar Change Twelve-month Percentage Change2025 2025 2025
Accounts receivable, net $ 1,245.3 136.6 12.3 %
Inventories 1,748.0 103.0 6.3 %
Trade working capital $ 2,993.3 239.6 8.7 %
Accounts payable $ 316.8 29.1 10.1 %
Trade working capital, net $ 2,676.5 210.5 8.5 %
Net sales in last three months $ 2,027.4 202.9 11.1 %
Note – Amounts may not foot due to rounding.
Th e increase in our accounts receivable balance in 2025 was primarily attributable to growth in sales to our customers.
Our inventory balances over time will respond to business activity, though various factors produce a looser relationship to our monthly sales patterns than we tend to experience in accounts receivable. One reason for this is because it is cyclical. We source significant quantities of product from overseas, and the lead time involved in procuring these products is typically longer than the visibility we have into future monthly sales patterns. As a result, trends in our inventory will often lag trends in economic conditions. A second reason relates to product cost and the length of our supply chain. A significant proportion of our products, particularly fasteners, are sourced from Asia and transported primarily by ship and rail to our North American network for sale. This requires us to purchase a meaningful quantity of our products months in advance of those products being available for sale in our North American facilities and the cost of these products can be meaningfully impacted by changes in tariffs. Product that is in transit is in our inventory but is not available for sale, which can create a lag in our ability to adjust inventory levels or costs in response to rapid changes in economic or cost conditions. A third factor that tends to require incremental inventory increases over time is our growth drivers, including our FMI offerings, customer contract signings, and international expansion, all of which tend to require significant investments in inventory.
The increase in our inventory balance in 2025 was primarily attributable to four factors. First, our inventory increased as a result of growth in sales to our customers and the addition of stock to ensure we can support our customers' future growth. Second, we added stock to improve service to our selling locations and generate efficiencies in our hubs. Third, we took advantage of year-end opportunities arising from our suppliers' desire to reduce inventory at year-end. Fourth, incremental tariffs enacted in 2025 meaningfully increased the cost of certain inventory.
The increase in our accounts payable balance in 2025 was primarily attributable to an increase in our product purchases as reflected in the growth in inventories.The approximate percentage mix of inventory stocked at our selling locations versus our distribution center and manufacturing locations was as follows at year end:2025 2024
Selling locations 54 % 59 %
Distribution center and manufacturing locations 46 % 41 %Total 100 % 100 %
Lease Obligations
We have facilities, equipment, and vehicles leased under operating leases. A discussion of our lease obligations is contained in Note 8 of the Notes to Consolidated Financial Statements.38Table of Contents
Net Cash Used in Investing Activities
Net cash used in investing activities in dollars and as a percentage of net income were as follows:Five-Year Average (1)
2025 2024
Net cash used $ 193.8 $ 231.0 214.5
% of net income 19.3 % 18.4 % 18.6 %
(1) Five-year average includes 2020 to 2024.
Our net cash used in investing activities increased in 2025 from 2024. This increase was primarily related to investments for net capital expenditures.
Our capital spending typically falls into five categories: (1) purchases related to FMI hardware, (2) purchases of property and equipment related to expansion of and enhancements to distribution centers, owned or leased branch properties, and other company facilities, (3) spending on software and hardware for our information processing systems, (4) the addition of fleet vehicles, and (5) the addition of manufacturing 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.
Set forth below is a recap of our 2025 and 2024 net capital expenditures in dollars and as a percentage of net sales and net income:
2025 2024
Manufacturing, warehouse and packaging equipment, industrial vending equipment, and facilities $ 160.1 145.8
Shelving and related supplies for selling location openings and for product expansion at existing selling locations 27.3 23.5
Data processing software and equipment 34.7 25.5
Real estate and improvements to branch locations 6.9 8.7
Vehicles 16.3 23.0
Purchases of property and equipment 245.3 226.5
Proceeds from sale of property and equipment (14.8) (12.4)
Net capital expenditures (1)
230.6 214.1
% of net sales 2.8 % 2.8 %
% of net income 18.3 % 18.6 %
(1) Amounts may not foot due to rounding.
Our net capital expenditures in 2025 increased when compared to 2024, though they were below our anticipated range of $235.0 to $255.0 for the year. The increase in capital spend from 2024 primarily related to an incr ease in spending for FMI hardware to support growth in our installed base and IT. We were below our anticipated range due to delayed projects that are expected to resume in 2026. Our five-year average of investment in property and equipment, as a percentage of net sales is 2.5%.
For 2026, we expect our investment in property and equipment, net of proceeds from sales, to be within a range of $310.0 to $330.0, an increase from $230.6 in 2025. The expected growth on a year-to-year basis reflects three items. First, we expect increased spending to replace our Atlanta hub facility and improve our picking capacity and efficiency across our hub network. Second, we expect increased trucking spend. Third, we expect elevated IT spending as projects that were expected in 2025 experienced delays and are expected to continue throughout 2026.
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Net Cash Used in Financing Activities
Net cash used in financing activities in dollars and as a percentage of income were as follows:2025 2024
Cash dividends paid $ 1,004.2 893.3
% of net income 79.8 % 77.6 %
Total returned to shareholders $ 1,004.2 893.3
% of net income 79.8 % 77.6 %
Proceeds from the exercise of stock options $ (24.3) (39.6)
% of net income -1.9 % -3.4 %
Debt obligations payments (proceeds), net $ 75.0 60.0
% of net income 6.0 % 5.2 %
Net cash used $ 1,054.9 913.7
The increase in net cash used in financing activities reflects two factors. First, we had higher dividend payments. We increased regular dividend payments in 2025 by 12.4%. Sec ond, we used more cash to reduce outstanding debt obligations in 2025 than we did in 2024. These uses of cash were only partly offset by a decrease in the exercise of stock options.DividendsWe declared a quarterly dividend of $0.240 per share on January 16, 2026. In 2025, we paid aggregate annual dividends per share of $0.875. In 2024, we paid aggregate annual dividends per share of $0.780.Stock PurchasesWe did not purchase any of our common stock in 2025 or 2024.
We have authority to purchase up to 12,400,000 shares of our common stock under the July 12, 2022 authorization. This authorization does not have an expiration date.DebtIn order to fund the considerable cash needed to expand our industrial vending business, expand capacity and increase the use of automation in our distribution centers, and pay dividends, we have borrowed under the Credit Facility and our Master Note Agreement historically.
Our borrowings under the Credit Facility and Master Note Agreement peaked during each quarter of 2025 as follows:
Peak borrowings 2025
First quarter $ 320.0
Second quarter 365.0
Third quarter 265.0
Fourth quarter 185.0
As of December 31, 2025, we had $0.0 outstanding under the Credit Facility and had contingent obligations from letters of credit outstanding under the Credit Facility in an aggregate face amount of $29.7. As of December 31, 2025, we had loans outstanding under the Master Note Agreement of $125.0. Descriptions of the Credit Facility and Master Note Agreement are contained in Note 9 of the Notes to Consolidated Financial Statements.Material Cash RequirementsOur material cash requirements for known contractual obligations include capital expenditures, debt, and lease obligations, each of which are discussed in more detail earlier in this section. We believe that net cash provided by operating activities will be adequate to meet our liquidity and capital needs for these items in the short-term over the next 12 months and also in the long-term beyond the next 12 months. We also have cash requirements for purchase orders and contracts for the purchase of inventory and other goods and services, which are based on current distribution needs and are fulfilled by our suppliers within short time horizons. We do not have significant agreements for the purchase of inventory or other goods or services specifying minimum order quantities. In addition, we may have liabilities for uncertain tax positions but we do not believe any of these liabilities will be material. A disc ussion of income taxes is contained in Note 7 of the Notes to Consolidated Financial Statements.
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Table of ContentsUnremitted Foreign IncomeApproximately $177.5 of cash and cash equivalents were held by non-U.S. subsidiaries on December 31, 2025. These funds may create foreign currency translation gains or losses depending on the functional currency of the entity holding the cash. We have considered the financial requirements of each foreign subsidiary and our parent company and will continue to reinvest these funds to support our expansion activities outside the U.S., even after taking into consideration the deemed repatriation and transition tax under the Tax Cuts and Jobs Act. The income tax impact of repatriating cash associated with investments in foreign subsidiaries is discussed in Note 7 of the Notes to Consolidated Financial Statements.Effects of InflationWe observed inflationary conditions in 2025, primarily related to the implementation of incremental tariffs on imported products. Steel and aluminum products and derivatives had the highest increases. We implemented pricing actions to address the incremental tariffs beginning in the second quarter of 2025. T he combined net effect on our gross profit percentage of these trends in cost and price inflatio n was immaterial in 2025.Critical Accounting Estimates
In preparing our consolidated financial statements in conformity with U.S. GAAP, we must make decisions that impact the reported amounts of assets, liabilities, sales, and expenses, and the related disclosures. Such decisions include the selection of the appropriate accounting principles to be applied and the assumptions on which to base accounting estimates. In reaching such decisions, we apply judgments based on our understanding and analysis of relevant circumstances, historical experience, and actuarial valuations. Actual amounts could differ from those estimated at the time the consolidated financial statements are prepared.
Our most significant accounting policies, including Revenue Recognition and Inventories, are described in Note 1 of the Notes to Consolidated Financial Statements. Some of those significant accounting policies require us to make difficult, subjective, or complex judgments, or estimates. An accounting estimate is considered to be critical if it meets both of the following criteria: (i) the estimate requires assumptions about matters that are highly uncertain at the time the accounting estimate is made, and (ii) different estimates reasonably could have been used, or changes in the estimate that are reasonably likely to occur from period to period may have a material impact on the presentation of our financial condition, changes in financial condition, or results of operations. Our most critical accounting estimates include the following:Inventory valuation – We record inventory at the lower of cost or net realizable value. We record valuation adjustments for excess, slow-moving, and obsolete inventory that are equal to the difference between the cost and estimated net realizable value for that inventory. Valuation adjustments are estimated using an evaluation of product demand, market conditions, condition of the inventory, or liquidation value. As the inventory valuation requires significant judgment, we deem it a critical accounting estimate. Historically, actual valuation adjustments have not varied materially from estimated amounts. We do not believe there is a reasonable likelihood of a material change in the estimates or assumptions we used to value our inventory in 2025.
General insurance reserves – We record reserves for general claims related to workers' compensation, property and casualty losses, and other general liability self-insured losses. These reserves are based on reported claims and estimated claims incurred but not yet reported, using historical claim trends, loss development patterns, management’s understanding of current environment and economic factors, and data provided by external specialists and insurance carriers. We update annual booking rates using historical claims data and reassess the reserve throughout the year. As the estimation of insurance reserves requires significant judgment, we deem it a critical accounting estimate. Historically, actual reserve adjustments have not varied materially from estimated amounts. We do not believe there is a reasonable likelihood of a material change in the estimates or assumptions we use to value our insurance reserves in 2025.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 Consolidated Financial Statements.41Table of Contents