Fastenal (FAST) Q3 2026 Earnings Call: Q&A Summary

Q: David Manthey with Baird asked for the definition of the 20 basis points of timing benefits in gross margin and whether fuel prices could widen the 30 basis point price-cost gap in the fourth quarter.

A: Max Tunnicliff (CFO) stated that about half of the timing benefit came from immaterial tariff refunds that will not recur in the fourth quarter, while the other half was a catch-up on volume rebates from suppliers. Regarding fuel, he noted that although the impact is real, the company's captive fleet and routing structure mitigate structural diesel inflation, and he expects sequential price-cost improvement rather than a widened gap.

Q: Thomas Mull with Stephens asked if down 60 basis points year-over-year is the correct baseline gross margin assumption for the fourth quarter after stripping out the 20 basis points of timing help.

A: Max Tunnicliff (CFO) confirmed that around 60 basis points is a good underlying year-over-year baseline, noting that fourth-quarter comps should also factor in a negative 50 basis point timing impact from the fourth quarter of 2025.

Q: Guy Hardwick with Barclays asked whether the large-customer mix headwind will continue to offset price-cost and other tailwinds moving into next year.

A: Max Tunnicliff (CFO) responded that a year-over-year headwind of 50 to 60 basis points from large customer mix is a normal baseline starting point as the strategy continues, though last year's fourth-quarter timing will wash out some of that impact.

Q: Stephen Volkmann with Jefferies noted that September sequential sales underperformed normal seasonality and asked if there were specific areas of weakness to call out.

A: Jeffery Watts (CEO) explained that September daily sales grew 14.4%, representing a moderation from very strong July and August levels rather than a change in strategy, supported by a 27% two-year growth rate. Max Tunnicliff added that ag and food showed some slight weakness, but underlying share gains remain unchanged.

Q: Tingbing Yao with Morgan Stanley asked what is driving the divergence between heavy manufacturing growing north of 20% and slower nonresidential construction, and whether there was anything unusual in September customer ordering patterns.

A: Jeffery Watts (CEO) answered that construction remains healthy overall despite normal project-timing slowdowns from a very strong second quarter. Max Tunnicliff reiterated that September simply represented a moderation from earlier high run rates against lapped pricing.

Q: Thomas Mull with Stephens asked for details on recent press mentions of an AI-related acquisition and how it ties into the broader strategy.

A: Max Tunnicliff (CFO) and Jeffery Watts (CEO) explained that the acquired company is small and immaterial in size, but provides critical orchestration capabilities for the company's internal AI and technology roadmap to accelerate digital growth.

Q: Ryan Merkel with William Blair asked how data centers are impacting demand and inquired about the success of data center pods.

A: Jeffery Watts (CEO) stated that data centers contribute approximately 4 to 5 percentage points of growth, served primarily through construction contractors and manufacturers. Max Tunnicliff added that pods act like on-site locations to handle rapid day-to-day customer demand.

Q: Zack (speaking for Ken Newton with KeyBanc Capital Markets) asked if mid- to high single-digit growth is fair for next year and what incremental margins should look like.

A: Max Tunnicliff (CFO) stated the company holds itself internally accountable for a 10 percentage point top-line improvement goal each year, and confirmed that incremental operating margins during double-digit growth should remain in the mid-20s or higher. Jeffery Watts added that volume and share gains will replace rolling-over pricing tailwinds.

Q: Chris Dankert with D.A. Davidson noted that sales force headcount is down over 400 heads sequentially and asked if additional cuts are planned or if this represents a permanent hygiene reset.

A: Max Tunnicliff (CFO) and Jeffery Watts (CEO) clarified that these figures do not represent cuts or headcount restrictions, but rather structural labor efficiencies driven by new digital tools, role specialization, and internal AI platforms that allow field managers to quote and operate with fewer manual resources.

Q: Guy Hardwick with Barclays asked whether the strong spread between gross profit growth and OpEx growth was driven by headcount reductions and if it represents a sustainable trend.

A: Max Tunnicliff (CFO) stated that the efficiency is a structural improvement in working methods across the sales force and occupancy rather than a one-time blip, leaving additional runway for future productivity.