Fastenal NASDAQ: FAST reported what executives described as a “very strong” start to 2026, driven by continued share gains, expanding onsite and digital programs, and improving operating leverage. On the company’s first-quarter earnings call, President and Chief Sales Officer Jeff Watts said daily sales rose 12.4% to $34.9 million per day, marking a third consecutive quarter of double-digit daily sales growth, while operating margin improved to 20.3%, up 20 basis points from a year earlier.
Watts said the quarter’s performance came despite a “somewhat challenging” industrial economy. He pointed to U.S. manufacturing PMI averaging about 52.6 as an improvement but “still moderate overall,” and emphasized that Fastenal’s results reflected execution rather than a broad macro tailwind.
Key account momentum and customer-site expansion
Watts said Fastenal continued to build out its national account platform, adding a “healthy number” of new contracts during the quarter and remaining on track for a goal of roughly 250 new signings in 2026. Total contracts rose nearly 8% year-over-year to just over 3,600, and Watts said about 75% of first-quarter sales came from contract customers.
Customer-site activity also increased, with Watts noting that sites spending $50,000 or more per month rose 16.3% year-over-year to just over 2,900. He said those locations posted 21% revenue growth and now represent “just over half” of total company sales. Watts added that average monthly sales at the $50,000-plus sites increased by $5,700 per site per month as Fastenal both added new sites and sold more into existing ones.
Chief Executive Officer Dan Florness highlighted improving traction in non-residential construction, an end market he said had lagged for several years as Fastenal shifted toward being a broader supply chain partner. Florness said non-res construction grew 17% in the first quarter and represents about 8% of company revenue, adding that the rebound supports the view that Fastenal’s supply chain approach can work across industries.
Digital mix rises and FMI adoption continues
Watts said Fastenal’s “digital footprint” continued to outpace the broader business, with daily sales through digital channels up 13.6%. Digital channels represented 61.5% of first-quarter sales, and he said the company remained on track to reach its digital mix goals by year-end.
Fastenal also accelerated deployment of its Fastenal Managed Inventory (FMI) technology. Watts said the company signed close to 7,000 new FMI device agreements in the quarter, about 110 per day and an 8% increase over last year. He added that the active device base expanded nearly 6% and that roughly 45% of first-quarter sales ran through FMI, up 150 basis points year-over-year.
E-business daily sales rose almost 7%, according to Watts, and electronic transactions made up close to 30% of total sales. Watts said Fastenal expects digital adoption to keep rising as customers integrate procurement systems with the company.
Margins: SG&A leverage offsets gross margin pressure
Chief Financial Officer Max Tunnicliff said the industrial environment “showed signs of stabilizing,” with U.S. PMI averaging about 52 for the quarter and industrial production slightly positive year-over-year in January and February. He said growth was broad-based and not concentrated in any single customer type or end market, while customers largely viewed trade and tariff uncertainty as a cost and planning issue rather than a demand issue.
By end market, Tunnicliff said heavy manufacturing represented 44% of sales and grew at a near mid-teens rate. Construction growth was 17%, which he characterized as a strong turnaround from prior quarters. He also cited improving demand across other non-manufacturing end markets including transportation, warehousing, data centers, and industrial services.
On profitability, Tunnicliff said Fastenal was about 40 basis points below its internal gross margin target in the quarter because pricing actions did not keep pace with cost increases. He said tariff-related costs moved through the income statement faster than the company’s pricing, and gross margin was down 50 basis points year-over-year. Fastenal realized approximately 3.5% pricing year-over-year, compared with 3.3% in the fourth quarter, which Tunnicliff said was “not enough to offset inflation.”
Tunnicliff said customer mix remained a structural headwind to gross margin because growth skewed toward larger customers that typically carry lower margins, though he emphasized those accounts can be positive to operating margin because of fixed-cost leverage and efficiency. He said benefits from Fastenal’s fastener expansion project continued to provide a partial offset to gross margin pressure, but those benefits are expected to anniversary early in the second quarter.
At the operating margin line, Tunnicliff said results improved because of SG&A leverage. SG&A declined to 24.3% of sales from 25.0% a year earlier, reflecting cost discipline and leverage that more than offset higher incentive compensation and ongoing investments in technology, analytics, and sales support.
Pricing execution, tariffs, and the pace of recovery
Management spent much of the question-and-answer session addressing the gap between pricing and cost. In response to questions about when price-cost neutrality could be achieved, Tunnicliff said the company did not have a reason to change its prior cumulative pricing estimate of 5% to 8%, and he said that “around mid-year-ish” the company expects to see some plateauing in costs, though it still has work to do to recover ground lost in the first quarter.
Florness said the first quarter had been “a slog,” citing uncertainty around tariff developments as well as “fatigue” following months of pricing actions across supply chains. He said part of the effort is helping customers evaluate trade-offs, including substitution between branded and alternative products.
Asked why pricing execution has been harder even though Fastenal historically has benefited from visibility into future costs, Florness said the current challenges are not in fasteners. Instead, he pointed to areas with more branded exposure. “Our Safety margin is challenged” and “our Cutting Tool margin is challenged,” he said, due to how quickly branded suppliers’ cost increases can move through FIFO inventory compared with fasteners, where the company holds more inventory and can plan price actions further out.
On the tariff landscape, Tunnicliff said IEPA has been a smaller portion of Fastenal’s total tariff exposure and is “largely replaced by 122 anyway,” limiting direct P&L impact, though he acknowledged the uncertainty creates “noise” that slows pricing discussions. Tunnicliff also said Section 232 does not impact Fastenal, adding that any discussion about changes “does not impact us.”
Florness said he expects the second quarter to remain challenging but expressed more confidence looking into the second half as pricing actions take effect over time, noting some changes were implemented March 1, April 1, and are scheduled for May 1 and June 1, in part due to contractual timing.
Cash flow, capital spending, and shareholder returns
Tunnicliff said operating cash flow was approximately $378 million, representing 111% of net income. Net capital spending was about $58 million in the first quarter, aimed at hub and automation capacity, FMI hardware capabilities, and IT infrastructure. He reiterated Fastenal’s expectation for approximately $320 million of net capital expenditures in 2026 as the company invests at the higher end of its historical range.
Fastenal returned $296 million to shareholders during the quarter through dividends and what Tunnicliff described as “a small amount of share repurchases,” totaling 87% of net income. Asked about the repurchases, Tunnicliff said the company began buying shares to offset dilution, adding that management would remain opportunistic.
On incremental margin expectations, Tunnicliff said the company continues to believe “high 20s” incremental margins are achievable, citing structural SG&A efficiencies and actions intended to mitigate gross margin headwinds.
About Fastenal NASDAQ: FAST
Fastenal NASDAQ: FAST is a wholesale distributor of industrial and construction supplies, best known for its broad assortment of fasteners such as bolts, nuts, screws and anchors. Founded in Winona, Minnesota, Fastenal has grown from a regional supplier into a national and international distributor serving a wide range of end markets, including manufacturing, construction, maintenance, repair and operations (MRO), and government customers. The company is publicly traded and operates through a network of locally staffed branches combined with national distribution capabilities.
Product offerings extend beyond fasteners to include tools, safety and personal protective equipment, power transmission components, cutting and welding supplies, janitorial and material handling items, and other industrial consumables.
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