Daniel L. Florness
President and Chief Executive Officer at Fastenal
Good morning, everybody, and thank you for our second quarter earnings call. Before I start on Fastenal matters, I'd like to share a message. When I joined Fastenal back in 1996, one of the things that was unique in my joining is that I stepped into the role of Chief Financial Officer, Bob Kierlin offered me the opportunity. And so I joined in an unconventional way and that I didn't start at a branch or in a distribution center and worked my way up through the organization.
And sometimes when you join an organization that promotes from within, you're not sure what kind of reception you'll get when you join. One of the first people I met was Colin Quade [Phonetic], who was Bob Kierlin's sister. She had retired and in her retirement, she worked for Fastenal few years in sales support. One of the nicest ladies I ever met and we lost Colin earlier this year. And I -- to her children and grandchildren, you have my condolences and as well to Bob on the loss of your sister. What a wonderful lady and we were all blessed to know her.
We started back in '67, so our five founders aren't in their 20s anymore. And Van McConnon -- Henry McConnon, he goes by Van, he was our first employee, in fact, I think that's how he earned his stake in Fastenal and did well with that stake and I'm proud of him. He lost his wife Wilma earlier in the year. And the same message. Van was -- could not have been more of a welcoming person to me when I joined the organization. And here's my condolences on the loss of his wife this spring.
With that, I'll move on to the -- on to the Fastenal quarter. Second quarter of '22 was a challenging quarter. Last fall, when we or last December when we had our leadership meetings and our planning discussions for 2023, the ISM had weakened. We knew that 2023 was going to have some slugging aspects to it. We warned -- we cautioned our team. Second quarter and third quarter are going to be tough quarters to get through and prepare yourself, prepare your teams from the standpoint that we're going to have to manage our expenses really well.
We'll have to keep all of our heads screwed on the right way because there has been -- it's been an interesting number of years between tariffs and COVID and congested supply chains and inflation and all this stuff. There's noise, noise, noise, noise, noise. We're going to experience and we have experienced for a number of years and that's a slowing economy and prepare for what that means and get the muscle memory back. But it was a challenging quarter. Our earnings came in at $0.52 [Phonetic], rising about 4.5%. Softer manufacturing activity led our sales -- daily sales growth to decelerate, we grew 5.9% in the second quarter.
We did not leverage. That's an important element of our business. Our sales grew 5.9%. But as we're cycling through some mix changes and Holden will touch on a little more detail. Our gross profit dollars grew about 3.6% and our operating expenses grew 4.1%, and I am not real good with math, but I know that's not a good combination if you want to leverage your earnings. And one of the elements is, we didn't anticipate it softening quite as much as it did. And that 4.1 needed to be a little bit lower, we didn't adjust the variable costs quite quickly enough.
As we've seen in prior time frames when the economy is weakening and it affects our ability to grow that the high amount of working capital on our balance sheet really can influence our ability to generate cash. And given my old role, my old role as CFO, second quarter is a painful quarter for us typically because we have two tax payments. And when you are a profitable organization and you operate a lot of business in the United States, you pay a lot of income tax. And so second quarter hits us really hard.
And normally, we -- for every dollar in earnings, we generate $0.60 to $0.70 in operating cash flow. I don't recall us ever having a second quarter where we generated more cash -- operating cash flow than earnings perhaps, Holden will say an example where we did, but -- maybe it was 2009. But that's a strong cash flow as we've ever seen for this time a year. And it also -- and a chunk of it is from not just what's happening in the economy and the working capital needed to fund receivables and the fund inventory for growth.
In the last several years, as supply chains were really getting congested, the message that I made very clear to our supply chain folks and our teams, we have a covenant with our customer and that is related to supply chain partner. We will not let our customer down in their supply chain. If that means, we need an extra 15 days, and extra 30 days, and extra 45 days of inventory, don't get ahead of yourself, but we need to have inventory to support the business, period.
And when the ports on the West Coast of North America were getting congested, the economy was turning back on, everything was getting congested, we beefed up our inventory. We started -- we were harvesting that. We were doing it in the first quarter. We're doing it this quarter. I think the team has done a wonderful job. It means we have capacity now to look at our balance sheet and say, where does it make sense to make strategic investments in inventory? I'm not saying there's stuff on the table right now, but that discussion can be had, whereas a year ago and two years ago, we couldn't really even think about it, because we were focusing all of our energy on something else.
In the second quarter, we made some leadership changes. First off, Jeff Watts, who has led our international -- who joined Fastenal back in 1996, so he's been here for 27 years and started in our Canadian organization when we were -- when we had just a handful locations in Ontario. He's led our international sales efforts since 2015. And he will oversee all of our sales efforts across the planet. And obviously, we know each other really well. The team in the US -- the international knows him really well, because he has led that team for quite a few years. But the US team is no stranger to a 27-year employee. So we know each other well, but I believe we will have greater coordination on our efforts. And Jeff has a very entrepreneurial approach to how he leads the business. And I welcome him and we look forward to the success he's going to see.
Terry Owen, who has been our -- in a EVP Operations role, we formalized his role and that he is our Chief Operating Officer. And this bullet was added kind of late in the process, I found out yesterday that the team one that I should mention this since we had announced it this quarter. And there is an error in our release, but I'll let you know. And it's probably not material in the true aspects of life. But since Terry has been with 28 years and I know he joined in June of 1999, if I do the math I think it's 24. So sorry, we didn't catch that error in our process. But, in conclusion, cyclical factors aside, the last several years we've taken a lot of steps to improve both our labor and our inventory productivity. And I believe this forms an excellent foundation for our ability to generate long-term share gains in the marketplace.
Switching to the next page, Onsites. I'll state the obvious, 86 Onsites is a disappointing number. Our aspiration internally has been to drive that to a 100 per quarter, 400 per year. That's been our stated aspect mentioned internally. Prior to COVID, we hit 362, and that was a ramp-up from 80 in 2015 to 176 to 270 to 336 to 362 per year. When COVID came along, it really impaired our ability to sign Onsites, because the last thing you want when you're worried about people being around you is inviting a bunch of folks with blue shirts to come in and operate inside your four walls. And so we saw that drop dramatically.
We've recovered to about -- we did 356 signings last year. We broke 102 [Phonetic] out of four quarters. Perhaps some of the leadership changes we made in the last 60 days created some distraction, perhaps we're not as focused as we should be. But that number needs to be 400 a year or more. And right now, we've adjusted our number. We think we'll probably come in similar to last year, somewhere in the 350s. And with that said, the fact that our Onsites are up, we have 15% more Onsites in the year ago. That's a great number. We're just not building the pipeline the way we need to.
FMI Technology, that's a different story. So our goal in Onsites is 100 a quarter. Let's get there and then figure out how we take it to 110, 120, but let's get to 100 first. Same with FMI Technology, it's not 100 a quarter, it's 100 a day. And I'm pleased to say in the fourth quarter -- excuse me, the second quarter, we did 106 per day and that's market share gains. That's us going out and planting new flags in new locations to improve the supply chain for our customer, illuminate the supply chain for our customer and us being a great supply chain partner. That's a huge positive. I believe it tells me the marketplace is conceding this space to us. Maybe I'm wrong on that, but I believe it is, because we are so far out ahead of the marketplace.
Year-to-date, I told the Board yesterday, we're -- with the 106 this quarter -- we had a Board meeting yesterday, with the 106 this quarter, we're at a 100 year-to-date. I misspoke, we're actually at 99, but I'm really pleased with what the Group is doing there. And the 39.8% of our sales went through our FMI platform in the second quarter, news flash, it was 40% in June. So we hit the number, we hit 40%. Now we need to get the 45% and 50%. But continue to see really nice progress there.
ECommerce continues to grow handsomely for us and grew about 45% in the quarter. For us, this has been a different journey than other things because a lot of eCommerce is unplanned spend. If you think about our FMI Technology, that's all about planned spend. That's stuff you're using daily, weekly, every month in your business, and it makes sense to stage it accordingly. eCommerce, a lot of that is stuff that you're having on to order. So it's unplanned. Historically, not a strong suit for us. And I'm pleased to say it's growing to be a bigger piece of our business, as I mentioned, 45%. The EDI portion of it is up 37, and that's typically larger customers. The web portion of it can be large or small, and that's up almost 70.
And to give you a magnitude of how that's changed, and again, we're not great at this piece of the business, but we can be. But with that said, in 2015, when I stepped into this role, the web portion of it was less than 2% of sales and we were at $3.8 billion, $3.9 billion company back then. So it's about 75 million going through web sales back in 2015. In 2023, in the second quarter, it was 6.5% of sales. So, right now we're on a 12-month run-rate of about 7.5 billion. So that's a business that's approaching 500 million. And we're not that good at it, but we can be. And so it's 6.5 times bigger than it was a handful of years ago and obviously it's been accelerated by the events of last few years, COVID is a perfect example. What really accelerated is people do -- some people are working remotely, some people are ordering a lot more stuff electronically. We're seeing that in our numbers and we're getting better at it every day.
And when you push the FMI Technology and the eCommerce together and you think about our digital footprint that was 55.3% of sales in the second quarter of '23, it was 47.9% a year ago. We thought we could get to 65% this year. We've tweaked at the 60%. I don't know if I completely agree with our language there about FASTStock conversions. I think it's really -- part of it is the case of we're doing more and more every day, but some of the activity -- because a lot of the FASTStock, for example, is going into Fastenal installs. It's going into OEM production, or it's going into MRO production. And we're doing more transactions every day. However, the transactions are a little bit smaller because industrial production is slowing down in our business. And so we might be doing more orders, they're just fewer of them. And I'll cite you a few statistics.
In January of 2022, our FASTStock, we did 234,000 scans of orders through our tool, which is 11,100 every day. So our employees are going out with an Android device and scanning 11,100 planograms every day and generating about a $250 order. Actually, it was closer to $260. And then in January of this year, that 11,100 had grown to 14,700. And between January and June that 14,700 scans per day is now 16,300. That's a combination of market share gains and conversion of -- instead of going out with the yellow notepad, we're going out with an Android device in scanning bins. And so that's a huge win in our system from efficiency, it's a huge win from a standpoint of ability to take market share.
But looking at the numbers, our average order size was $258 in calendar 2022. In January, that number had dropped to $246. So it was down about 4.7%. Now I think there's enough transactions going on there that that's probably more a tone of the economy than anything else because when you're doing 300,000 a month, it's not a mix thing. Between January and June, the $246 order dropped to about $222, so it's down $24, which is 9.6%. That's primarily activity that's declining in the industrial marketplace. And there might be an element between January and June of a little bit of deflation because there is some fasteners in there, but it's mostly about activity.
Just thought I'd share those start to get into the weeds. And I will share one last thing before I turn it over to Holden. And that is, again, this FASTStock tool, this Android device that we have out there. In October of -- excuse me, in the fall -- in the summer and fall of 2019, we did a beta version out in the Southern California of that device and worked through some bugs, worked through some bugs and started rolling it out to regions late in the year with a planned two-year roll-out. COVID-hit and we accelerated that roll-out, and we rolled it out across the company by June of 2020. So we rolled -- we had a six -- a two-year roll-out in six months. And today, that's about 12% of our revenue.
In October of this year, we plan to roll-out what we call our order pad, which will be on the same device, it will be an internal-facing device and used it in beta for -- in the October time frame. If all goes well, our goal would be to roll it out in Q4. And essentially, it's a tool for our personnel when they're out visiting a customer, not only can I take a recurring order, I could easily take a customer asking for something, or I can do a search on it, and I can respond to the customer right in front of them. That's a capability we've never had. And we plan to have -- we expect to have that by the end of this year for 2024.
A second piece -- that's an internal facing app. We've also developed an external facing app called FASTScan. It's with beta customers right now. Our goal is in August to have that out in the Apple store and the Google Play for customers. If they choose to download that and that would be a bin stock app for customers, primarily smaller customers or customers that might be a few hours from a facility in Montana or in Western Canada where they can do some bin stock scans themselves, transmit the orders so when we visit we aren't surprised by a stock out. And it makes for a better supply chain for that customer base. That will be, again, coming out in August.
And depending on what we -- the success we find with our order pad, our goal would be next summer to roll that out in the customer-facing app as well. Again, we're not great at the web portion of our business. It's a $0.5 billion business within Fastenal now, but we can be, and we're building tools to do that because we think that's a better reaction to some of the buying habits that's going on in the marketplace.
With that, I'll turn it over to Holden.
