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As a distributor of a huge variety of industrial products, including fasteners, bolts, nuts, screws, and washers, Fastenal's (FAST) financial results are viewed as a gauge for the health of the U.S. manufacturing economy. Under the weight of high interest rates, macroeconomic uncertainties, and geopolitical tensions, manufacturing activity has been sputtering over the past couple of years, creating low expectations ahead of FAST's Q2 earnings report.

• Against that muted backdrop, FAST delivered better-than-feared Q2 results with both EPS and revenue meeting analysts' estimates, sparking a sharp rally higher in a stock that had sold off by 14% since the company last reported earnings on April 10.
• A key factor that helped FAST to navigate through the challenging market was that it signed 107 new Onsite locations during Q2, bringing its total to 1,934 active sites as of June 30, 2024. Altogether, FAST's Onsite locations, which are set up within or nearby a customers' worksite or facility, generated low-single-digit growth in daily sales.
• From a product standpoint, the safety product line was the clear standout with a daily sales rate (DSR) of +7.1%. This outperformance was mainly due to market share gains within the warehousing end market, in addition to favorable product mix and easier yr/yr comparisons.
• The news isn't as upbeat for the core fastener product line. In Q2, the DSR fell by 3.0% for total fasteners, compared to a 4.2% increase for non-fasteners. Relative to safety products or janitorial supplies, fasteners are more sensitive to changes in industrial production activity since they are generally used in the production of final goods. Furthermore, lower transportation costs caused fastener pricing to decelerate at a faster pace than non-fastener products.
• Price declines and unfavorable product mix contributed to a modest 40 bps yr/yr drop in gross margin to 45.1%. Additionally, stronger growth from large customers -- including Onsite customers -- relative to non-national accounts applied some downward pressure on gross margin. The company's EPS, though, remained essentially flat versus the year-earlier period at $0.51 versus $0.52 in 2Q23.

Overall, FAST's results were good enough to surpass investors' lackluster expectations, but its business is far from booming as manufacturing activity in the U.S. remains subdued.