Key Words: Inflation has shifted to ‘brutally high’ from ‘massive’ in three months, according to Fastenal CEO

There isn’t just a ton of inflation, it’s starting to actually hurt people.

That’s according to Lars Florness, the chief executive of Fastenal Co., which makes supplies used by construction and industrial manufacturers.

In the conference call with analysts following Fastenal’s third-quarter results early Tuesday, Florness said, according to a FactSet transcript, that product and shipping cost inflation the company and its peers were facing “isn’t just high”:

““It’s brutally high. The chaos and…the impact, not just from a financial perspective, but from a toll that takes on our human capital, is immense.””

— Fastenal Chief Executive Lars Florness

Florness said the company is still dealing with the issues, just as it did last year, but it is starting to take weigh on the company, its employees and its customers. He said he’s had a lot of talks with customers about the disruption the cost and price changes are having on business, which is draining a lot of the energy from fundamental growth drivers.

That is noticeable change in tone from comments made just three months ago in the post-second-quarter earnings conference call.

“There’s a ton of inflation going on,” Florness said back then. But he also said that price increases the company had implemented had largely matched the increased costs.

“And so, massive inflation going on,” Florness said on July 13, according to a FactSet transcript. “We’ve been largely able to move with that.”

Fastenal shares

rose 3.2% in afternoon trading Tuesday.

Earlier Tuesday, Fastenal had reported third-quarter net income that rose to $243.5 million, or 42 cents a share, from $221.5 million, or 38 cents a share, in the same period a year ago. That matched the FactSet consensus for earnings per share of 42 cents.

Sales grew 10.0% to $1.55 billion, topping the FactSet consensus of $1.54 billion. That outpaced the 7.9% growth in the costs of sales, as a result of raised prices.

The company said the over impact of increased pricing on sales rose to 230 to 260 basis points from 80 to 110 basis points in the second quarter.

“We continue to experience pressure related to material and transportation cost inflation. This is true across our offering, but is particularly acute for fasteners and overseas shipping,” the company said in a statement. “We will continue to take actions as necessary to mitigate the impact of product and transportation cost inflation in the fourth quarter of 2021.”

Meanwhile the pace of wage inflation increased, as the year-over-year rise in employee-related expenses was 16.8%, after a rise in 11.5% in the second quarter. Employee base pay rose as a result of higher full-time equivalent (FTE) hours worked and higher wages. The company said employee health insurance costs also rose as employees and their families became more comfortable seeking health care as COVID-19 concerns started to subside.

Fastenal’s stock has slipped 0.2% over the past three months but have climbed 10.4% year to date. In comparison, the SPDR Industrial Select Sector exchange-traded fund

has rallied 12.9% this year while the S&P 500 index

has advanced 16.0%.

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