Skip to content
    FAST
    Earnings call· Jun 2026(Q2 FY26)

    FASTENAL Q2 FY26 earnings call FAST

    Jul 14, 2026 Source

    Executive summary

    Fastenal Q2 FY26 — Strong Daily Sales Growth and Operating Margin Expansion

    Fastenal delivered a strong Q2 FY26, driven by robust daily sales growth and effective execution of its key account strategy, leading to significant share gains. Despite gross margin pressures from price/cost headwinds, the company achieved operating margin expansion and strong ROIC, demonstrating the durability of its business model. Management remains focused on strategic investments in technology and disciplined capital allocation to sustain growth and profitability.

    Highlights

    5

    • Daily sales grew 14.7% in Q2, extending the path built in Q1.

    • Operating margin expanded by 5 basis points year-over-year.

    • Return on invested capital (ROIC) increased 180 basis points on a trailing 12-month basis, reaching the low 30s.

    • Customer sites spending $50,000+ per month grew 16.5% with revenues up over 26%.

    • Digital footprint DSR grew 16.2%, now representing 61.6% of total sales.

    Concerns

    3

    • Gross margin contracted approximately 75 basis points year-over-year, with price/cost representing a 40 basis point headwind.

    • Q2 operating cash flow conversion rate was lower than last year at approximately 70% of net income, primarily due to higher accounts receivable.

    • Digital footprint sales estimate for FY26 is 63-64%, modestly below original target of 66%.

    Guidance & targets

    6
    CategoryTargetConfidence
    Digital footprint share of total sales
    63% to 64%
    medium materiality
    Medium
    Net capital expenditures
    ~$320 million
    medium materiality
    High
    Annual dividend per share
    $1.00
    medium materiality
    Medium
    Gross margin profile
    Fairly consistent with historical trends
    medium materiality
    High
    Price/cost neutrality
    Not completely closed in H2 FY26
    high materiality
    Medium
    Incremental operating margin
    Improvement towards mid-20s, not reaching mid-20s in Q3
    high materiality
    Medium

    Operational metrics

    23
    Daily sales growth
    14.7%YoY
    Q2 FY26

    daily sales grew 14.7% in the quarter, extending the path we built in Q1.

    Pricing realization
    2.9%
    Q2 FY26

    we realized approximately 2.9% in the quarter or about 4.5% on a stack basis versus roughly 3.5% in Q1.

    Contract count
    7%YoY growth
    Q2 FY26

    our contract count in Q2 was up over 7% year-over-year

    Large customer sites ($50K+/month)
    16.5%YoY growth
    Q2 FY26

    a number of customer sites spending $50,000 or more per month grew 16.5% over last year, with revenues growing over 26%.

    Digital footprint DSR
    16.2%
    Q2 FY26

    Digital footprint DSR grew 16.2% in Q2

    E-business DSR
    12.6%
    Q2 FY26

    e-business DSR grew 12.6%

    FMI technology signings
    8.3%YoY growth
    Q2 FY26

    FMI technology signings were up 8.3% at 109 weighted devices signed per day in Q2, just under 7,000 total for the quarter versus $101 per day or just under 6,500 in total same time period last year.

    U.S. PMI average
    53%up from 52% last quarter
    Q2 FY26

    U.S. PMI averaged slightly above 53% for the quarter, up from 52% last quarter.

    Heavy manufacturing sales share
    44%
    Q2 FY26

    Heavy manufacturing represented 44% of total sales, an average daily sales growth in that segment was 18%

    Construction activity growth
    17%for the second quarter in a row
    Q2 FY26

    Construction grew approximately 17% for the second quarter in a row

    Gross margin contraction
    75 bpsYoY
    Q2 FY26

    At the gross margin line, we contracted approximately 75 basis points year-over-year with price costs representing roughly 40 basis points headwind.

    Price/cost position improvement
    10 bpsfrom Q1 FY26
    Q2 FY26

    On price/cost, we improved approximately 10 basis points from the first quarter.

    SG&A as % of sales
    23.5%compared to 24.4% in Q2 FY25
    Q2 FY26

    SG&A improved to 23.5% of sales compared to 24.4% in the same quarter last year

    Return on invested capital (ROIC) increase
    180 bpsincrease YoY
    Q2 FY26 (TTM)

    return on invested capital increased 180 basis points on a trailing 12-month basis, reflecting strong sales growth, good cost control and disciplined capital allocation. In total, our P&L performance shows that we can invest for growth while staying focused on profitability even as our mix strategically shifts toward larger and more complex accounts.

    Net capital spending
    $60 million
    Q2 FY26

    Net capital spending this quarter was approximately $60 million

    Capital spend as % of sales
    3.5%
    FY26

    our expected CapEx range represents approximately 3.5% of sales, reflecting our continued focus on investing to grow the business. To put this in context, our average capital spend relative to sales over the past 5 years was approximately 2.5 percentage points compared to roughly 4 in the preceding 10-year period

    Capital returned to shareholders
    $305 million
    Q2 FY26

    We returned $305 million to shareholders during the quarter, mostly through dividends alongside modest share repurchases. Together, these returns represented approximately 80% of net income

    Operating income growth
    $65.7 million33% increase from Q2 FY25 ($49.2M)
    Q2 FY26

    In the second quarter of 2025, our operating earnings grew -- and I calculated this morning. So if I'm wrong by $1 million or $2 million, I apologize. It's how good my skills are with my phone calculator. But I think we grew $49.2 million in operating income. In the second quarter of 2026, we grew 65.7%. That's a 33% increase in our pretax dollar growth

    Operating income growth
    $65.7 million45% increase from Q1 FY26 ($45.3M)
    Q2 FY26

    In the first quarter of this year, our operating earnings grew $45.3 million. In the second quarter, again, we grew 65.7%. That's a 45% increase in the dollar growth.

    Total labor costs
    ~$400 million
    Q2 FY26

    if you add up all of our labor costs in the second quarter, base, bonus, social taxes, health insurance, our school of business, you add all that up, we spent about $400 million. So we spent about $1.6 billion a year in people costs.

    June sales growth
    20%YoY
    June 2026

    primarily driven by our strong June sales improvement of 20% year-over-year.

    Incremental operating margin
    21.5%
    Q2 FY26

    Q2 is -- this is hope, but we seeing 21.5% on our P&L with this much growth is not -- I would just say we hope that's our low point

    Dividend per share
    $0.26
    Q2 FY26

    raising it to 26% would get us to $1 for the year.

    Industry KPIs

    7
    MetricValueDetails
    Daily sales rate14.7%%
    End market growth mix18%%
    ROIC capital intensity180 bpsbps
    Price realization vs cost2.9%%
    Market volume mro market benchmark53%%
    Contract vs spot large customer mix7%%
    Digital vending managed inventory penetration61.6%%

    Risks & headwinds

    5
    Price/cost headwindsOngoing, not expected to be fully neutral in H2 FY26.

    40 basis points headwind to gross margin in Q2 FY26.

    Mitigation: Continued pricing actions and focus on pricing discipline to manage towards neutrality over time.

    Customer mix shift towards larger customersOngoing strategic shift.

    Contributes to gross margin contraction (part of 75 bps YoY contraction).

    Mitigation: Drives higher volumes, fixed cost leverage, and improved asset utilization, leading to operating margin expansion despite lower gross margin percentage.

    Higher accounts receivableQ2 FY26.

    Primary driver for lower Q2 operating cash flow conversion (70% of net income).

    Mitigation: Strong June sales improvement of 20% YoY.

    Fuel and transportation costsQ2 FY26, ongoing.

    Headwind to SG&A and gross margin.

    Mitigation: Managed well despite volatility; positions Fastenal as a better value proposition due to competitors' higher shipping costs.

    Digital footprint sales estimate modestly below original targetFY26.

    FY26 estimate 63-64%, below original 66%.

    Mitigation: Not due to slowing digital adoption, but faster growth in non-digital sales (denominator effect) from overall share gains.

    Q&A highlights

    7

    Asked for clarification on Q2 contribution margin drivers and persistence of headwinds into H2, aiming for stronger contribution margins.

    Max explained that the 40 bps price/cost headwind accounts for 3-4 percentage points on incremental margins. While they made progress (10 bps improvement from Q1), full neutrality is not expected in H2. Bonuses also impacted, but are a normal part of growth. He expects incrementals to improve as price/cost closes.

    “But that negative 40 basis points that we still sit with today, if you think about that from an incremental perspective, is going to be 3 or 4 percentage points on the incremental. So you get to the mid-20s when that net negative goes away, number one.”

    asked by David Manthey · answered by Max Tunnicliff

    2 min read7 chapters

    Detailed Narrative

    01

    Leadership Transition and Strategic Continuity

    Dan Florness concluded his final earnings call as CEO, marking three decades of leadership. Jeff Watts, President and Chief Sales Officer, emphasized that the company's core strategy, built on increasing sales effectiveness, enhancing services, and expanding markets, will remain unchanged. The transition is focused on accelerating existing strategic pillars rather than introducing new ones, leveraging technology and AI for speed.

    02

    Market Outperformance and Share Gains

    Fastenal's Q2 performance demonstrated significant market outperformance, with daily sales growth of 14.7% despite only modest improvements in broader market conditions (U.S. PMI slightly above 53%). This growth was primarily driven by share gains, new contract wins, and deeper penetration across end markets, rather than a strong market tailwind.

    03

    Strategic Customer Focus

    The company's key account strategy is yielding results, with contract count up over 7% year-over-year. The number of customer sites spending $50,000 or more per month grew 16.5%, and revenues from these sites increased over 26%. This shift towards larger customers, while potentially moderating gross margins, is accretive to operating margin due to higher volumes and fixed cost leverage.

    04

    Technology and Digital Adoption

    Fastenal continues to enhance services through technology. Digital footprint DSR grew 16.2%, now comprising 61.6% of total sales. FMI technology signings increased 8.3% to 109 weighted devices per day, with FMI sales now representing 44.6% of total sales. These technology metrics are viewed as leading indicators for future sales, retention, and operational efficiency.

    05

    Financial Discipline and Capital Allocation

    The company demonstrated strong financial discipline, with Return on Invested Capital (ROIC) increasing 180 basis points on a trailing 12-month basis to the low 30s. Operating cash flow was $266 million (70% of net income), and $305 million was returned to shareholders through dividends and share repurchases. Capital expenditures for FY26 are expected to be $320 million, focused on hub capacity, FMI devices, automation, and IT infrastructure.

    06

    Gross Margin and Price/Cost Dynamics

    Gross margin contracted 75 basis points year-over-year, with a 40 basis point headwind from price/cost. While progress was made in Q2 (10 basis points improvement from Q1), management does not expect to achieve full price/cost neutrality in the second half of FY26. The ongoing shift towards larger customers also contributes to lower gross margin percentages but drives absolute profit growth.

    07

    SG&A Leverage and Productivity

    SG&A improved to 23.5% of sales, leveraging 90 basis points year-over-year. This was achieved despite higher bonus payouts due to strong profit growth and ongoing investments in technology and sales support. The company attributes this leverage partly to increased productivity from AI tools and a reloaded part-time workforce pipeline.

    AI-generated summary of the company’s earnings call. Not investment advice.