Investor Teleconference Presentation Third Quarter 2018 Fastenal Company October 10, 2018 1
Safe Harbor Statement All statements made herein that are not historical facts (e.g., goals regarding Onsite and vending signings as well as expectations regarding FTE, leverage, cash flow, and capital expenditures) are forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Such statements involve known and unknown risks, uncertainties, and other factors that may cause actual results to differ materially. More information regarding such risks can be found in the Form 10-K for Fastenal Company for the year ended December 31, 2017 filed with the Securities & Exchange Commission and our earnings release issued on October 10, 2018. Any numerical or other representations in this presentation do not represent guidance by management and should not be construed as such. The appendix to the following presentation includes a discussion of certain non-gaap financial measures. Information required by Regulation G with respect to such non-gaap financial measures can be found in the appendix. 2
CEO Messages on 3Q18 18% 16% 14% 12% 10% 8% 6% 4% 2% 0% $0.90 $0.80 $0.70 $0.60 $0.50 $0.40 $0.30 $0.20 $0.10 $0.00 Daily Sales Rate (DSR) Growth 13.6% 14.8% 13.2% 13.1% 13.0% 10.6% 6.2% 1.9% 1.6% 1.8% 2.7% EPS (Fully-Diluted) $0.69 $0.50 Strong demand and internal execution of growth drivers drove 13.0% sales growth in 3Q18, consistent with the the first half of 2018 and the sixth straight quarter of sales growth greater than 10%. Excellent leverage of operating expenses generated a higher incremental margin and raised our operating margin 30 bps in 3Q18 to 20.5% year-over-year. EPS grew 38.3% in 3Q18, aided by tax reform. Absent this effect, EPS grew 15.0%, the fastest rate this cycle. Incremental pricing was realized in 3Q18, and largely offset incremental cost increases in the period. We have not recovered the 1H18 price/cost deficit and challenges remain from inflationary pressures and new tariffs on Chinese-sourced goods. Cash generation allowed us to reduce debt and pay a larger dividend in 3Q18. Conversion is being impacted by external pressures on working capital assets. 3
3Q18 Growth Driver Update 150 120 90 60 30 0 8 7 6 5 4 3 2 1 0 Onsite Signings and Active Locations 0 Active Locations Signings Vending Device Signings and Installed Base 2 (in thousands) 88 828 78.706 5.877 900 720 540 360 180 80 70 60 50 40 30 20 10 0 We signed 88 Onsites in 3Q18, +8.6% from 3Q17, and have 828 active sites, +49.2% from 3Q17. Sales growth, excl. transferred branch sales, was roughly 20%. We have signed 269 Onsites YTD, with our pace of signings near the low end of our 2018 goal of 360 to 385 Onsites. We signed 5,877 vending devices in 3Q18, +23.2% from 3Q17; our installed base is +14.0% annually. Product sales through our vending devices grew roughly 20%. We have signed 17,093 vending devices YTD, with our pace of signings in the upper half of our 2018 goal of 21,000 to 23,000 vending devices Total in-market 1 locations were 3,089 at the end of 3Q18, up from 2,973 at the end of 3Q17, with growth in Onsites outpacing a decline in public branches. National Accounts daily sales rose 18.0% in 3Q18 from 3Q17. Non-U.S. daily sales, which are about 15% of total sales, rose 20%-plus in 3Q18 despite forex headwinds. Installed Base Signings 1 In-market locations include public branches (U.S. and ROW) plus Onsites 2 Data excludes ~15K vending devices related to our leased locker program 4
20% 15% 10% 5% 0% -5% 3Q18 Business Cadence End Market Daily Sales Rate (DSR) Growth 1 16.2% 13.0% Heavy Equipment Total Mftring Construction 14.6% U.S. PMI averaged 59.7 in 3Q18, vs. 58.7 in 2Q18 and 58.6 in 3Q17. U.S. Industrial Production was +4.5% in July/Aug. 2018 vs. 3Q17 and +0.7% vs. 2Q18. Manufacturing was +13.0% in 3Q18 and is exhibiting stable trends at high levels. Most sub-verticals are growing at healthy levels. Non-Residential Construction daily sales were +16.2% in 3Q18, a new cycle high. September's pace eased (+13.7%), but the outlook remains constructive. 20% 15% 10% 5% 0% -5% Product Category Daily Sales Rate (DSR) Growth 14.9% 10.8% Fasteners (34.7% of Sales) Non-Fasteners (65.3% of Sales) Fastener daily sales were +10.8% and non-fastener sales were +14.9% in 3Q18, with both categories exhibiting stable trends Non-National Account sales growth remained in the mid-to-high single digit range in 3Q18. Sales grew at 66.8% of our branches and at 79 of our Top 100 National Accounts in 3Q18. 1 In July 2017, we reclassified certain end market designations. Values shown in the chart at the top of this page will differ from prior presentations. 5
3Q18 Results Summary Annual Rates of Change 3Q18 3Q17 % Chg. Dollar amounts in millions, except per share amounts Net Sales $1,279.8 $1,132.8 13.0% DSR Yr./Yr. % Chg. 13.0% Gross Profit $615.8 $555.9 10.8% Gross Profit Margin 48.1% 49.1% (100) bps Employee-Related Exp. 10.3% Occupancy-Related Exp. 2.3% Selling Transportation Exp. 10.7% Operating Income $262.3 $228.5 14.8% Operating Income Margin 20.5% 20.2% 30 bps EPS (Fully-Diluted) $0.69 $0.50 38.3% Onsite Signings 88 81 8.6% Vending Device Signings 5,877 4,771 23.2% Branch Count 2,261 2,418 (6.5%) In-market location FTE 11,995 11,480 4.5% Total FTE 18,314 17,329 5.7% Operating Cash Flow $184.6 $162.6 13.5% % of Net Earnings 93.4% 113.6% Capital Expenditures (Net) $35.0 $23.7 47.7% Dividends $114.8 $92.0 24.8% Dividends Per Share $0.40 $0.32 25.0% Share Repurchases $25.9 Total Debt $390.0 $440.0 (11.4%) Tot. Debt/Capital 14.4% 17.8% (19.1%) Percentage calculations may not be able to be reproduced due to rounding of dollar values. We realized higher fastener and non-fastener pricing in 3Q18, and estimate overall price realized was 120-170 bps in the period. We did not meaningfully recover the prior period's price/cost deficit and conditions remain broadly inflationary. Gross margin was 48.1% in 3Q18, down 100 bps from 49.1% in 3Q17. The most significant impactors of this decline were product/customer mix and branch freight costs. Beyond these, smaller items like currency and other organizational elements contributed. Our 3Q18 operating margin was 20.5%, +30 bps. Lower gross margin was more than offset by a 130 bps decline in SG&A to 27.6%, a record low for a third quarter. Incremental operating margins were 23.1%. Employee-related costs leveraged as incentive comp growth moderated. Occupancy costs leveraged, with higher vending charges mitigated by flat facility-related costs. We also leveraged general corporate costs. 6
250 225 200 175 150 125 100 75 50 25 0 80 70 60 50 40 30 20 10 0 3Q18 Cash Flow Profile Operating Cash Flow (in millions) 113.6% * Percentages above the bar represent OCF as a % of Net Earnings Net Capital Expenditures and Depreciation (in millions) 2018 Net CapEx Target: ~$152.0M $23.7 93.4% $35.0 We generated 3Q18 operating cash flow of $184.6M, converting 93.4% of our net earnings. This is below our typical third quarter conversion rate owing to a higher than usual working capital build. Accounts receivable were +22.2% reflecting activity levels, our mix of growth, and customers pushing payments out at quarter end. Inventory was +14.1%. Days on hand declined, though the pace moderated owing to the expanding impact of product inflation. Net capital spending in 3Q18 was $35.0. Year-to-date, net capital spending was $88.8, +16.1%. We now anticipate 2018 capital spending of $152.0 (was $158.0) primarily reflecting the likely timing of certain distribution center spending. Our cash generation allowed for a higher dividend in 3Q18 as well as modest debt reduction. Total debt was 14.4% of total capital in 3Q18, below the levels at the end of 2Q18 (16.0%) and 3Q17 (17.8%). Depreciation Net Capital Expenditures 7
Appendix Non-GAAP Financial Measures The appendix includes information on our Return on Invested Capital ( ROIC ), which is a non-gaap financial measure. We define ROIC as net operating profit less income tax expense divided by average invested capital over the trailing 12 months. We believe ROIC is a useful financial measure for investors in evaluating the efficiency and effectiveness of our use of capital and believe ROIC is an important driver of shareholder return over the long-term. Our method of determining ROIC may differ from the methods of other companies, and therefore may not be comparable to those used by other companies. Management does not use ROIC for any purpose other than the reasons stated above. The tables that follow on page 9 include a reconciliation of the calculation of our return on total assets ( ROA ) (which is the most closely comparable GAAP financial measure) to the calculation of our ROIC for the periods presented. On December 22, 2017, new tax legislation commonly referred to as the Tax Cuts and Jobs Act (the 'Tax Act') was signed into law. The information presented on the appendix including the impact of the Tax Act noted on page 9 is a non-gaap financial measure. Management believes reporting this measure will help investors understand the effect of tax reform on comparable reported results. 8
Return on Invested Capital* Calculation of Return on Invested Capital TTM 3Q18 (Amounts in millions) TTM 3Q17 Operating Income $ 969.1 861.0 (Income Tax Expense) (222.5) (312.1) Tax Act Adjustment 1 (11.0) 103.0 NOPAT $ 735.6 651.9 Total Current Assets $ 2,077.9 1,853.9 Cash and Cash Equivalents (131.6) (140.2) Accounts Payable (166.6) (132.4) Accrued Expenses (213.2) (193.9) Property & Equipment, Net 886.6 896.8 Other Assets 83.4 65.4 Invested Capital $ 2,536.5 2,349.6 ROIC 29.0% 27.7% 1 Reflects application of our expected post-tax Act tax rate to periods in 2017 and exclusion of one-time discrete items in 2018 for purposes of comparison. *Amounts may not foot due to rounding differences. Reconciliation of ROIC to Return on Assets (ROA) (Amounts in millions) TTM 3Q18 TTM 3Q17 Net Earnings $ 735.5 541.0 Total Assets $ 3,047.8 2,816.0 ROA 24.1% 19.2% NOPAT $ 735.6 651.9 Add: Income Tax Expense 222.5 312.1 Subtract: Tax Act Adj. 1 11.0 (103.0) Operating Income 969.1 861.0 Add: Interest Income 0.4 0.5 Subtract: Interest Expense (11.5) (8.4) Subtract: Income Tax Expense (222.5) (312.1) Net Earnings $ 735.5 541.0 Invested Capital $ 2,536.5 2,349.6 Add: Cash and Cash Equivalents 131.6 140.2 Add: Accounts Payable 166.6 132.4 Add: Accrued Expenses 213.2 193.9 Total Assets $ 3,047.8 2,816.0 9
Sequential Trends* DSR BENCHMARKS Cum. Chg., Cum. Chg., Cum. Chg., Cum. Chg., Jan.** Feb. Mar. Jan. to Mar. Apr. May June Jan. to Jun. July Aug. Sep. Jan. to Sep. Oct. Jan. to Oct. Nov. Dec. BENCHMARK (1.0%) 1.1% 3.9% 5.1% (0.6%) 2.1% 1.9% 8.7% (3.7%) 4.0% 1.7% 10.7% (1.9%) 8.6% (3.8%) (7.1%) 2018 DSR (1.3%) 4.0% 2.1% 6.2% 2.4% 0.6% 3.7% 13.5% (3.6%) 3.8% 3.6% 17.5% Delta v.. Benchmark (0.4%) 2.9% (1.9%) 1.0% 3.1% (1.5%) 1.9% 4.8% 0.0% (0.2%) 1.9% 6.8% 2017 DSR 0.2% 1.5% 3.6% 5.1% 2.2% 1.4% 2.8% 12.0% (2.4%) 2.2% 3.8% 16.0% (2.1%) 13.5% (4.2%) (7.1%) Delta v. Benchmark 1.2% 0.4% (0.4%) 0.0% 2.8% (0.7%) 1.0% 3.3% 1.3% (1.8%) 2.1% 5.3% (0.3%) 4.9% (0.4%) 0.0% 2016 DSR 0.4% (0.8%) 1.5% 0.7% 1.7% 0.6% (0.2%) 2.9% (2.3%) 2.4% 1.5% 4.5% (0.9%) 3.6% (5.5%) (6.6%) Delta v. Benchmark 1.3% (1.9%) (2.5%) (4.4%) 2.3% (1.5%) (2.0%) (5.8%) 1.4% (1.7%) (0.1%) (6.2%) 1.0% (5.1%) (1.7%) 0.5% 2015 DSR (3.6%) (0.1%) 4.2% 4.0% (2.1%) 3.4% 0.9% 6.3% (4.3%) 4.1% (0.9%) 5.0% (2.0%) 2.9% (3.0%) (8.4%) Delta v. Benchmark (2.7%) (1.2%) 0.2% (1.1%) (1.5%) 1.3% (0.9%) (2.4%) (0.6%) 0.1% (2.6%) (5.7%) (0.1%) (5.7%) 0.8% (1.3%) Days Count Total 2018 22 20 22 21 22 21 21 23 19 23 21 19 254 2017 21 20 23 20 22 22 20 23 20 22 21 20 254 2016 20 21 23 21 21 22 20 23 21 21 21 21 255 2015 21 20 22 22 20 22 22 21 21 22 20 21 254 * Acquisition of Mansco lifted the 2017 DSRs for April along with the Jan. to June, Jan. to Sep., and Jan. to Oct. Cumulative Changes by 1.3pps each. ** The January average is based on the historical change in January vs. October. All other months are sequential. Notes: Good Friday was during March in 2018 vs. April in 2017. Amounts may not foot due to rounding differences. 10
Employee Statistics Absolute Count HEADCOUNT STATISTICS 3Q18 3Q17 Change 4Q17 Change Branches/Onsites 13,749 13,298 3.4% 13,424 2.4% Non-Branch Selling 1,767 1,668 5.9% 1,711 3.3% Selling Personnel 15,516 14,966 3.7% 15,135 2.5% Distribution 3,677 3,479 5.7% 3,575 2.9% Manufacturing 2 733 636 15.3% 652 12.4% Administrative 1,256 1,161 8.2% 1,203 4.4% Non-Selling Personnel 5,666 5,276 7.4% 5,430 4.3% Total Personnel 21,182 20,242 4.6% 20,565 3.0% FTE Count 1 3Q18 3Q17 Change 4Q17 Change 11,995 11,480 4.5% 11,549 3.9% 1,721 1,638 5.1% 1,676 2.7% 13,716 13,118 4.6% 13,225 3.7% 2,716 2,502 8.6% 2,525 7.6% 681 604 12.7% 619 10.0% 1,201 1,105 8.7% 1,150 4.4% 4,598 4,211 9.2% 4,294 7.1% 18,314 17,329 5.7% 17,519 4.5% NOTES: 1 FTE Full-Time Equivalent. FTE is based on 40 hours per week. 2 Our internal manufacturing (9 locations) and industrial services (12 locations) division, which accounts for approximately 4% of our total revenue and 9% of our fastener revenue, has grown its sales approximately 16% in 3Q18 versus 3Q17 and approximately 24% in 3Q18 versus 4Q17. This division also added 37 fulltime and 5 part-time employees in 3Q18 related to a small bolt-on acquisition. 11
In-Market Location Statistics BRANCH STATISTICS 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 New Branch openings 1Q 53 33 29 37 28 11 9 2 17 5 0 2Q 59 9 16 38 25 22 8 6 10 5 5 3Q 28 3 45 19 20 11 5 5 8 5 3 4Q 21 24 37 28 7 9 2 28 5 3 Cumulative 161 69 127 122 80 53 24 41 40 18 8 Closed/Converted Branches Closed Branches Closed (Curr. Quarter) 0 (1) 0 (11) (6) (2) (41) (9) (65) (36) (30) Closed (Annual) (8) (10) (7) (28) (16) (16) (73) (50) (144) (130) (122) Converted Branches (Annual) Branch-to-Customer Only (2) (1) (1) 0 0 (2) (2) (6) (16) (8) (8) Customer Only-to-Branch 0 0 2 1 3 0 1 0 1 0 0 Cumulative (10) (11) (6) (27) (13) (18) (74) (56) (159) (138) (130) Branch Count 2,311 2,369 2,490 2,585 2,652 2,687 2,637 2,622 2,503 2,383 2,261 Active Onsites 214 264 401 605 828 TOTAL IN-MARKET LOCATIONS 2,311 2,369 2,490 2,585 2,652 2,687 2,851 2,886 2,904 2,988 3,089 NOTES: As of September 30, 2018, includes 1,966 branches in the U.S., 185 in Canada, and 110 in the rest of the world. Branch Count includes all locations that sell to multiple customer accounts (traditional branches, overseas branches, and strategic accounts branches). It excludes locations that sell to single customer accounts (strategic accounts sites and Onsite locations). Onsite location information prior to 2014 is intentionally omitted. While such locations have existed since 1992, we did not specifically track their number until we identified our Onsite program as a growth driver in 2014. 12
End Market Profile End Market Mix -- 2017 Other, 5.3% Transportation, 2.3% Gov't/Education, 3.7% Reseller, 9.1% Manufacturing, 41.1% Construction, 13.0% Mfg - Heavy Equip., 25.4% MAJOR SEGMENT GROWTH Full (Daily Sales rates) Jan. Feb. Mar. Apr. May June July Aug. Sep. Oct. Nov. Dec. Year Manufacturing 2018 13.3% 15.9% 14.0% 14.4% 11.9% 14.0% 11.5% 13.3% 14.7% 13.5% (incl. Heavy Equip.) 2017 3.6% 6.4% 8.4% 9.2% 10.3% 14.9% 14.4% 14.6% 16.9% 15.7% 17.2% 16.2% 12.3% Construction 2018 7.9% 10.5% 10.9% 13.1% 15.9% 17.4% 16.4% 18.5% 13.7% 13.9% 2017 0.1% 4.8% 6.6% 5.8% 6.0% 5.7% 5.7% 5.0% 4.9% 6.0% 10.8% 11.9% 6.1% 13