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Fastenal (FAST +2%) is overcoming a lethargic start today after missing earnings estimates on mild revenue growth in Q4. The industrial products distributor, supplying fasteners, screws, bolts, etc., to manufacturers and construction companies, exited the previous quarter noticing moderate upward momentum as September showed notable improvements over July and August. However, this momentum was stunted during Q4, giving way to the volatile economic backdrop. Industrial activity remained sluggish in the quarter, particularly among many of FAST's largest customers, which enacted sharp production cuts during the final two weeks of December.

• FAST warned of production halts during its Q3 earnings call in October, cautioning that while regional managers expressed an improved tone compared to the previous quarter, many markets remained weak. The company added that elevated uncertainty persisted over how plant shutdowns may unfold during the holiday season due to structural economic weaknesses, such as the PMI (Purchasing Managers' Index) constantly signaling a worrying manufacturing trend. FAST also noted that it did not anticipate much change in underlying business activity in Q4.
• These predictions materialized in Q4, reflected in FAST's muted headline results, including flat EPS growth yr/yr at $0.46 and revenue growth of 3.7% to $1.82 bln, falling just short of estimates. FAST's daily sales rate (DSR) improved by 2.1%, lower from the company's September DSR of 3.2%. However, it did represent a 20 bp bump from Q3's 1.9%. Non-fasteners' DSR improved by 4.3%, offsetting a 1.4% drop in fasteners' DSR and pushing the total rate positive in the quarter. Also noteworthy was the pace of decline in the company's fastener line eased.
• National accounts -- categorized as organizations with a national, multi-site presence -- observed a 4.2% uptick in DSR during Q4, while the rate contracted by 1.0% in non-national accounts -- regional, local, and government customers. Due to the ongoing divergence between the two types of accounts, plant shutdowns by national customers disproportionately hurt FAST.
• However, on the bright side, FAST signed 56 new Onsite locations, which is a key differentiating factor that allows the company to establish a presence directly or near a customer's facility. While the number brought FAST shy of its FY24 goal, signing 358 instead of its 375-400 target, it still represented a decent 10% jump from FY23 and stayed consistent with the annual signings during 2019 and 2022.

Muted industrial activity remained the theme in Q4, carrying over from the last quarter. However, unlike the upbeat response despite shaky economic conditions following Q3 results, investors are a little more apprehensive today. We believe this is mostly attributed to the soft top and bottom-line performance from FAST in the quarter more so than commentary surrounding relatively weak end market demand, particularly since management's comments were largely unchanged from last quarter. Still, FAST has proven its resilience to concerning comments in the past, making it worth keeping on the radar for a potential bounce.