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Fastenal (FAST +7%), an industrial products distributor, including fasteners, bolts, nuts, screws, and washers, secures healthy gains today after delivering a modest earnings beat in Q3 on in-line revenue growth. Given FAST's vast reach across the U.S. manufacturing sector, boasting a range of differently sized businesses, its quarterly results are a helpful gauge of broader economic activity.

For much of the year, FAST encountered speedbumps, with sluggish business activity persisting long enough to spur an uptick in layoffs, shift reductions, and extended shutdowns. Last quarter, management was candid in describing the manufacturing economy, stating that industrial production continues to decline, with notable weakness across the non-residential construction and reseller end markets.

• These economic headwinds continued into Q3, illuminated by another period of muted growth. Revenue inched just 3.5% higher yr/yr to $1.91 bln and remained virtually flat sequentially. Earnings improved by a penny compared to Q2 but remained flat versus the year-ago period at $0.52 per share.
• The daily sales rate, or DSR, continued to contract across FAST's fasteners business, compressing by 4.0% yr/yr overall despite lapping an 8.5% decline from 3Q23. The non-residential construction and reseller end markets again proved the culprit, experiencing a 5.5% and 6.4% decline, respectively.
• For the past few quarters, there has been a significant divergence between national accounts, FAST's large customers, and non-national accounts, comprising smaller regional and local customers. In Q3, the DSR in national accounts expanded by +5.6% while non-national accounts compressed by 4.1%. This dichotomy has placed modest pressure on margins, with operating margins sliding by around 65 bps yr/yr. It also illuminates the disproportionate impact of the aforementioned economic headwinds on smaller companies.
• However, like last quarter, there were silver linings. Non-fasteners enjoyed a +4.7% bump in DSR, lifted by strength with warehousing customers. Meanwhile, FAST's critical competitive edge, its Onsite locations, found 93 new customers in Q3, resulting in 302 YTD signings. Exiting the quarter, FAST boasted nearly 2,000 active sites, an 11.7% increase yr/yr. Onsite remains vital to FAST's success as it carves out an economic moat since Onsite customers tend to rely less on competition for parts. This is highlighted by a low single-digit jump in Onsite DSR in Q3.

FAST's Q3 report and subsequent response are similar to last quarter's. Manufacturing activity in the U.S. remains subdued, generating some angst amongst investors. However, against this backdrop, FAST's performance was better than feared, supporting its decent gains today.