Fastenal sales rise 15.5% as large customers drive faster profit growth

Fastenal's third-quarter sales rose 15.5%, and profit grew faster, as the industrial and construction supplies distributor won more business from large manufacturers and held expenses well below the pace of sales growth, the company said Wednesday.

Big accounts drove the growth

Net sales rose to $2.46 billion from $2.13 billion a year earlier, with the same 64 business days in both quarters. Growth picked up from 14.7% in the second quarter. Higher prices added about 2.4 percentage points, the company said, and executives on the earnings call said that contribution is now shrinking as Fastenal laps the price increases it pushed through in 2025.

Most of the gain came from large customers. Daily sales to contract customers, which include national multi-site accounts, rose 18.8% and reached 76.5% of revenue. Sales to non-contract customers, which Fastenal says track the broader market more closely, grew 7.8%. The average number of customer sites spending at least $50,000 a month rose to 3,288 from 2,771, and sales through those sites climbed to $1.46 billion from $1.14 billion.

Heavy manufacturing, now 44.6% of sales, grew 20.2%. Non-residential construction rose 12%. Chief Executive Jeff Watts said data-center work accounts for "about 4 to 5 percentage points" of the company's growth by its internal estimate, mostly through contractors and manufacturers supplying those builds.

Lower gross margin, higher operating margin

Selling to bigger customers costs Fastenal on gross margin, which slipped to 44.8% from 45.3%. The company said customer mix took about 50 basis points off and the gap between its prices and its own costs took about 30 more. Direct sourcing savings, supplier rebates and tariff refunds offset part of that. About 20 basis points of the help was timing, and Chief Financial Officer Max Tunnicliff said roughly half of that came from tariff refunds that he does not expect at any material level in the fourth quarter.

Expenses did the rest. Selling, general and administrative costs rose 9.4% to $573.9 million, falling to 23.3% of sales from 24.6%. Operating income climbed 20.2% to $530.8 million, lifting the operating margin to 21.5% from 20.7%. Net income rose 19.7% to $401.6 million, or 35 cents a share, from 29 cents.

Part of the leverage came from a smaller sales force. Full-time-equivalent selling staff fell 2.9% from the end of June to 15,332. Asked about it on the call, Tunnicliff said, "I definitely wouldn't use the term cut because our business is a growth business," and described the change as structural, built on role specialization, automation and artificial intelligence tools. Watts said a quote that once took five or six days of sourcing can now take 15 minutes with one of the company's AI-assisted tools.

September cooled a little

The quarter ended softer than it started. September sales rose 14.4% to $825.4 million, after gains of 15.5% in July and 16.6% in August, Modern Distribution Management reported. Average daily sales rose 1.6% from August, short of the 4% increase Fastenal has historically seen between those months. "September still was a strong month at 14.4%, but it was below July and August," Watts said, adding that the company is starting to lap earlier price increases.

Fastenal also trimmed its 2026 goal for signings of its FASTBin and FASTVend inventory devices to 27,000 to 29,000 weighted units, from 28,000 to 30,000. It signed 7,484 in the quarter.

Cash and capital

Operating cash flow rose 9% to $421.6 million, about 105% of net income, down from 115.3% a year earlier as receivables grew with sales to larger customers that pay on longer terms. Fastenal returned $328.4 million to shareholders, $298.2 million in dividends and $30.2 million in buybacks, and kept its 2026 forecast for net capital spending at $310 million to $330 million. Debt stood at $100 million.

Why the quarter matters

Fastenal reports early in the earnings season and publishes sales every month, so its results give an early look at demand from U.S. factories and contractors. Tunnicliff said the U.S. manufacturing purchasing managers' index averaged nearly 55 in the quarter. Fastenal's own numbers point the same way, but they also show how much of its growth comes from winning business from large customers rather than from the market as a whole.

Results topped forecasts. Analysts had expected earnings of 34 cents a share on revenue of $2.44 billion, according to Investing.com. The stock was down 0.23% at $51.31 in morning trading, then turned higher, trading up about 1.5% at $52.21 at 1:22 p.m. ET, near its 52-week high of $52.92.