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Speaker 1: Bloomberg Audio Studios, podcasts, radio news. Fasten All shares rising

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Speaker 1: as much as six point four percent earlier in the session.

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Speaker 1: They're up right now three point four percent. It's a

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Speaker 1: new all time high for the company after they reported

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Speaker 1: net sales for the second quarter that came in in

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Speaker 1: line with estimates from analysts, up eight point six percent

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Speaker 1: over the same period last year. This is a fifty

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Speaker 1: two billion dollar market cap company. They distribute construction and

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Speaker 1: industrial supplies think nuts, bolts, screws, anchors, rivets, and other fasteners,

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Speaker 1: as well as industrial janitorial and safety supplies, cutting tools

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Speaker 1: as well. The company sells to builders, manufacturers, governments, and

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Speaker 1: more so. Really, it's a great read on the entire

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Speaker 1: industrial and manufacturing economy, specifically here in the US. We've

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Speaker 1: got with us the CEO of fasten All, Daniel Flornes.

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Speaker 1: He joins us from Winona, Minnesota. Dan, welcome to Bloomberg

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Speaker 1: Business Week. Daily shares up today, Shares up more than

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Speaker 1: twenty five percent so far this year, new all time high.

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Speaker 1: In the earnings release, though you said that quote the

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Speaker 1: market conditions remain sluggish. What conditions specifically?

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Speaker 2: You know? We sell to a wide range of customers

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Speaker 2: and industries as as you mentioned across North America and

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Speaker 2: in twenty six countries in total, book mostly in North America.

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Speaker 2: Our customer base has been relatively subdued for the last

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Speaker 2: several years. In the fall of twenty twenty two, we

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Speaker 2: saw some indicators saying it was going to slide, and

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Speaker 2: we felt that as we moved into the second and

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Speaker 2: third quarters of twenty twenty three, and it's been really

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Speaker 2: weak since then. About thirty percent of our business is

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Speaker 2: very production centered business within manufacturing.

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Speaker 1: So are there any signs that that part of the

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Speaker 1: business is improving, that those customers are seeing sentiment improve.

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Speaker 1: Are you hearing anything from them?

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Speaker 2: I think the biggest sign that we're seeing is the

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Speaker 2: the knife has stopped dropping. You know, we were trying

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Speaker 2: to catch that falling knife for a two year period.

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Speaker 2: When I talk to our district and regional leadership throughout

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Speaker 2: the throughout the world, the feedback I hear is, you know,

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Speaker 2: they're not talking about this two hundred thousand dollars a

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Speaker 2: month customer whose business is off sixty seventy percent. You

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Speaker 2: have a much more stability now might be stable at

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Speaker 2: a lower level than it would have been two years ago,

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Speaker 2: but it's much more stable and so it allows our

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Speaker 2: inherent growth to shine through.

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Speaker 3: So we've really been in this prolonged downturn, especially in

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Speaker 3: the industrial economy. Are you seeing any particular green shoots

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Speaker 3: or signs of inflection, and if so, which markets are

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Speaker 3: you most optimistic about.

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Speaker 2: Yeah, so we're seeing some green shoots for us, we're

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Speaker 2: seeing some We are seeing some impact and energy. However,

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Speaker 2: I would say that's probably more us taking market share

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Speaker 2: than it is a lift in the tide. But twenty

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Speaker 2: five percent of our business is outside of the industrial

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Speaker 2: and within there we're selling. We're doing quite well. I

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Speaker 2: hear a lot of commentary from our folks with data

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Speaker 2: centered builds with you even warehousing customers. And we've made

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Speaker 2: really good inroads over the last three years into the

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Speaker 2: government sector, and that primarily was an offshoot of COVID.

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Speaker 2: During COVID, when supply chains blew apart, we stepped in

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Speaker 2: to serve a lot of that market when they were

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Speaker 2: not being served, and those folks have remembered that and

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Speaker 2: we've grown our business there.

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Speaker 3: So we need to, of course talk about terrriffs. How

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Speaker 3: have tariffs really changed your thinking about product sourcing? Particularly

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Speaker 3: for fasteners, which we know, of course are primarily sourced

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Speaker 3: in China Asia. What other options are you evaluating to

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Speaker 3: mitigate the tariff impact here?

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Speaker 1: You know?

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Speaker 2: So back in twenty eighteen, we did some short term

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Speaker 2: moves of our supply chain, but it was fairly limited

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Speaker 2: because you just can't change There's so much QC involved

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Speaker 2: with vetting out cut suppliers that you couldn't move it

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Speaker 2: fast enough. What we had done quietly over the last

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Speaker 2: five six years is continue in that progress because the

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Speaker 2: tariffs that were put in place in twenty eighteen were

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Speaker 2: sticking and we expected more of it to happen, and

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Speaker 2: we wanted to better diversify the supply chain for our customer.

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Speaker 2: We did look at a lot of options. There aren't

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Speaker 2: a lot of options within North America. We looked at

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Speaker 2: some options of doing some manufacturing ourselves. The problem is

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Speaker 2: the economics still didn't work. So it was really for

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Speaker 2: us more about diversifying supplier base in general.

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Speaker 1: Are the economics of that going to work now in

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Speaker 1: this new tariff regime? I think during the first Trump

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Speaker 1: administration the goal was to move things out of China,

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Speaker 1: but as many companies are learning right now, it doesn't

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Speaker 1: matter if it's China, Vietnam, or India. If it's not

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Speaker 1: in the United States, there is going to be a

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Speaker 1: terrify on it. At least that's what it seems like

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Speaker 1: is going to be the case.

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Speaker 2: Yeah, economics still do not work, and uh and and

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Speaker 2: and part of the challenge there isn't just the economics,

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Speaker 2: it's the amount of time. When we were researching it

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Speaker 2: very in depth two and a half years ago, one

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Speaker 2: of the one of the challenges is it's easy to

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Speaker 2: find a site. It's relatively easy to get a building

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Speaker 2: up and get a supply chain set up. When I

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Speaker 2: say relatively easy, I mean timeframe of what it takes

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Speaker 2: to do it. The most challenging aspect was the equipment,

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Speaker 2: the production equipment of how many how many months it

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Speaker 2: would take to get that And so that aspect really

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Speaker 2: pushed us to look more at geographic dispersion of supply

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Speaker 2: chain sourcing because because the economics are are still very challenging.

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Speaker 1: So how much of what you sell right now is

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Speaker 1: actually made in the US?

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Speaker 2: If I look across what we're sourcing, what our supply

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Speaker 2: our branded suppliers are sourcing. We've always estimated less than

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Speaker 2: fifty percent is coming from the US.

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Speaker 1: And is that going to stay stable in this new

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Speaker 1: tarif regime.

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Speaker 2: I suspect it will.

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Speaker 3: Okay, So I know fast and all raised prices back

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Speaker 3: in April, especially as a result of tariffs. Historically, I

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Speaker 3: mean the company has been able to pass on pricing costs.

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Speaker 3: What should even the feedback here from customers? Has there

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Speaker 3: been much pushback in terms of the ability and appetite

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Speaker 3: for customers, frankly to take on additional pricing, especially as

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Speaker 3: we head into the second half of the year.

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Speaker 2: First off, we sell into a very competitive market. There

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Speaker 2: is always pushback. The real challenge in the equation is

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Speaker 2: his communication. And one thing that helps in our supply chain,

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Speaker 2: we're directly sourcing from the manufacturer that's producing the product,

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Speaker 2: more so than most of our competitors in the market place,

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Speaker 2: just because of our scale and so we have the

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Speaker 2: ability to see into the future farther than a lot

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Speaker 2: of our competitors, and it puts us in a position

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Speaker 2: to communicate very well. It puts us in a position

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Speaker 2: to take steps as the inventory is turning. Unfortunately, the

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Speaker 2: one unfortunate part of that it also can create a

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Speaker 2: fatigue for your customer, and I would say our customer

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Speaker 2: is at the fatigue point right now of where it has.

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Speaker 2: It's become challenging, but it always is and it's all

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Speaker 2: about communication and trust.

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Speaker 1: We're speaking with fastin now. CEO Dan Flornes Company reported

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Speaker 1: earnings earlier, shares our higher reach a new record today.

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Speaker 1: Shares up right now by about three point seven percent.

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Speaker 1: I want to talk a little bit about the One

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Speaker 1: Big Beautiful Bill Act that became law on the fourth

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Speaker 1: of July this year. In the press release for your earnings,

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Speaker 1: you didn't mention it, but big picture, what does it

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Speaker 1: mean for your customers and for your business?

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Speaker 2: You know, big picture sort it means for our customers

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Speaker 2: is if you look at some of the depreciation rules

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Speaker 2: and the timing, it's it's it makes it very advantageous

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Speaker 2: to make capital investment. And so that's that's the biggest

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Speaker 2: piece that we see impacting our customers because our customers have,

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Speaker 2: especially on the manufacturing side, an incredible amount of infrastructure

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Speaker 2: that they're investing in, and so anything that allows them

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Speaker 2: to depreciate faster and to improve their return profile is

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Speaker 2: advantageous for our marketplace. And that's a that's a key

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Speaker 2: element that we talked about in the release.

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Speaker 1: I know that you talked a little bit about to

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Speaker 1: US manufacturing your own products in the US and your

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Speaker 1: suppliers doing it, But I'm wondering about your customers and

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Speaker 1: the way that these so called America First policies might

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Speaker 1: help them reshore manufacturing back to the US. Are you

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Speaker 1: seeing any evidence or hearing discussion of your customers beginning

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Speaker 1: to move manufacturing back to the US.

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Speaker 2: You know, I would say it fairly limited, but again,

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Speaker 2: that's not something that happens in six months that you

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Speaker 2: set up. We've had some customers set up assembly operations,

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Speaker 2: which you can do in a much shorter timeframe as

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Speaker 2: opposed to peer production where you're manufacturing components yourself or

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Speaker 2: you're changing your supply chain to more domestic type supply.

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Speaker 2: But what we've seen is a lot more willingness of

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Speaker 2: making investment even beyond the manufacturing capacity in the short

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Speaker 2: term fast.

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Speaker 3: And I was refocused on growing with larger customers. What

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Speaker 3: are the key drivers there in What additional investments do

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Speaker 3: you need to make to enable growth with those customers.

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Speaker 2: Yeah, so a position we've put ourselves in for a

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Speaker 2: number of years is we have very aggressively made investments,

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Speaker 2: and this was starting back fifteen plus years ago of

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Speaker 2: slowly building an infrastructure to move the supply chain and

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Speaker 2: closer and closer to the point of use. And what

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Speaker 2: that involved for US is investing in a tremendous amount

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Speaker 2: of vending infrastructure and in more recent years a lot

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Speaker 2: more RFID type infrastructure to measure product movement within a

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Speaker 2: facility so that you don't have to to with human

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Speaker 2: capital physically observe product being diminished. You can monitor it

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Speaker 2: electronically and remotely. And so we've made extremely large investments

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Speaker 2: over the last ten plus years in vending technology, and

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Speaker 2: I'm pleased to say that vending technology is all manufactured

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Speaker 2: in the United States.

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Speaker 1: Yeah. I was surprised when I went to your website

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Speaker 1: earlier today as I was preparing for this, to see

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Speaker 1: those those vending machines. It's not something that I've run

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Speaker 1: into and certainly in my life, but it's pretty cool

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Speaker 1: to see that.

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Speaker 2: Not just it's a snack machine.

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Speaker 1: Yeah, that's that's what I was thinking. It's like, it's

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Speaker 1: a snack machine, but you can't eat what's in there,

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Speaker 1: so exactly. Okay, Hey, we've got about a minute left,

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Speaker 1: and I just want to talk numbers real quick. Gross

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Speaker 1: profit up forty five points to forty five point three percent,

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Speaker 1: up from forty five point one percent over the second

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Speaker 1: quarter of last year. You said it was partially offset

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Speaker 1: by higher import duty costs and higher fleet and transport costs.

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Speaker 1: Are those costs in your view going to stabilize.

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Speaker 2: The uh? They're going to continue to rise because because

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Speaker 2: of the way our supply chain works, we carry a

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Speaker 2: fair amount of inventory because we have such dispersion in

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Speaker 2: our locations, so we carry quite a few months of inventory.

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Speaker 2: So that's going to keep ratcheting up as we're on

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Speaker 2: a fiful basis inventory. So is that inventory continues to turn,

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Speaker 2: that willatina ratchet up a little bit as we move

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Speaker 2: into the third and fourth quarters and into twenty twenty six.

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Speaker 2: What really helped us during the quarter and what drove

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Speaker 2: the improvement our gross margin? Set aside teriffs for a second, right,

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Speaker 2: We've put in place a faster expansion starting last summer

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Speaker 2: to widen our inventory, and that's really what drove our

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Speaker 2: margin this quarter.

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Speaker 1: Dan Florinas, CEO of fasten All, really appreciate you joining us.

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Speaker 1: Shares up today New All time highs three point eight

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Speaker 1: percent right now,