FASTENAL CO earnings calls

gross margin timing and outlook

Q (David Manthey · Baird): Two questions: what do you mean by the 20 basis points of timing — is that catching up past accruals or pulling Q4 into Q3? And if fuel stays at current levels, could the 30-basis-point price/cost gap get larger in Q4?

A: There is no management answer recorded in this transcript for this question.

September growth moderation

Q (Stephen Volkmann · Jefferies): Why did September sequential change underperform normal seasonality, and was there any weakness in parts of the business driving that?

A: September was still strong at 14.4% but below July and August. Management said the longer-term trends remain healthy — 2-year growth of 27% and January–September sequential growth over 18% — and underlying contract sales and large customer sites continue to grow, so they view September as a moderation from very strong levels rather than a change in customer activity or strategy.

"September still was a strong month at 14.4%, but it was below July and August." — Jeffery Watts (CEO)

gross margin baseline and small AI buy

Q (Thomas Moll · Stephens): First, is ~60 bps down year-over-year a reasonable baseline for Q4 after removing timing? Second, can you explain the recent AI-related acquisition and how it fits strategy?

A: Management said around 60 basis points is a good underlying year-over-year point to consider and discussed how timing from prior quarters can affect comparisons. They described the AI-related deal as small and not material to disclose broadly, and said it brings orchestration around AI and tech that will help the company grow faster on the technology side.

"And so yes, the around 60 bps is a good underlying point on a year-over-year basis to consider." — Max Tunnicliff (CFO)

data centers and pods; price/cost outlook

Q (Ryan Merkel · William Blair): How are data centers affecting demand and are you having success with data center pods? Also, what do you think price/cost looks like in Q4 and could you be neutral by Q1 '27?

A: Management said data centers are a meaningful contributor and estimated they account for about 4% to 5 percentage points of growth, with work spanning contractors and manufacturers. Pods are described as near-customer, Onsite-like solutions to keep up with fast demand; on price/cost, they said progress is being made and the goal is to reach neutrality as quickly as possible, with the analyst's timing view described as reasonable.

"I mean overall, obviously, the data centers are a meaningful contributor to our sales." — Jeffery Watts (CEO)

manufacturing vs construction divergence

Q (Tingbing Yao · Morgan Stanley): Why did heavy manufacturing keep growing strongly while non-residential construction slowed quarter-over-quarter? And were there any unusual customer ordering patterns that explain the softer September exit?

A: Management said construction did slow from a very strong Q2 but still remains healthy and they are not seeing anything that changes their broader view on construction. They said manufacturing demand remains very strong and that there were no unusual ordering patterns in September; they noted they are lapping some pricing from last year but see overall sequential strength January to September.

"I wouldn't say that there was a big slowdown in construction by any means." — Jeffery Watts (CEO)

next-year comps and incrementals

Q (Zachary Sherman · KeyBanc): With tougher comps next year, is mid- to high single-digit growth fair to assume, and if so what should incremental margins look like for Fastenal?

A: Management avoided specific top-line guidance but said pricing tailwinds will slow and growth will increasingly come from volume and share gains; internally they aim for a 10 percentage point top-line improvement but did not present that as guidance. They said when growing double digits, incremental operating margins should be in the mid-20s, and that as pricing rolls off it will be replaced by volume and share.

"on the incremental operating margin level, we continue to believe that our business, when we're growing double digits, should be in the mid-20s, if not higher" — Max Tunnicliff (CFO)

sales headcount drop and SG&A leverage

Q (Christopher Dankert · D.A. Davidson): Sales force headcount is down over 400 versus June. Is this cuts, more to come, or just reorganization? And what tools caused this efficiency?

A: Management said this is not a headcount cut program but the result of efficiency gains from role specialization, automation, AI, and focus on large customers, enabling growth without headcount rising as fast. They gave an example that new tools and AI have reduced quoting time dramatically (from days to minutes), and emphasized they will add labor where needed rather than starve the business.

"a lot of the new tools we've got in instead of taking maybe 5, 6 days of sourcing and quoting, that same tool now using AI and some of our internal technology, it may take 15 minutes." — Jeffery Watts (CEO)

mix headwind and OpEx/headcount trend

Q (Guy Drummond Hardwick · Barclays): Should we assume a 50–60 bps mix headwind from large-customer growth into Q4 and next year? And to what extent did lower OpEx growth come from headcount reductions and is that a lasting trend?

A: Management said their deliberate strategy of focusing on the biggest customers typically results in a year-over-year gross margin headwind around 50 to 60 basis points, and noted Q4 2025 timing should offset that in comparisons. On OpEx, they said the largest drivers of improvement were headcount and occupancy, and that the efficiency gains are structural, not a one-time blip, with more runway to optimize footprint and tools while still growing the business.

"That's a very deliberate strategy that will usually result in a year-over-year impact of around 60 basis points, 50 basis points in that ballpark." — Max Tunnicliff (CFO)