Fastenal (FAST) Q2 FY26 earnings call: guidance and Q&A

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

Asked Jeff Watts about his strategic priorities and growth engines, contrasting with past CEO eras.

Jeff stated continuity with the existing 3 strategic pillars (sales effectiveness, services, market expansion). He highlighted the accelerating speed of new business attainment due to AI and tools, especially for new contracts and global expansion, as a key focus. Dan added that it's a "Blue team effort" rather than an "era."

“I think what changes is every day, it seems like the AI portion and the tools that we're developing are helping us increase speed. I think one thing that's important as you saw it in June, June kind of shocked us a little bit on our revenue as far as our sequentials go and really digging in, there was some one-off orders that we were able to get that we wouldn't normally have gotten just from new business signing some one-off type orders.”

asked by David Manthey · answered by Jeff Watts

Asked when price/cost neutrality is expected and about Q3 gross margin trajectory.

Max reiterated that chipping away at the 40 bps negative price/cost will continue, but full neutrality is not expected in H2. He noted that gross margin should be "fairly consistent with historical trends," implying a normal sequential decline of 10-20 bps due to customer mix shift, rather than a significant jump or drop.

“At this moment, we don't see a big up or down movement. So the gross margin profile should be fairly consistent with historical trends. And as you probably know, and I'll just remind the audience, because of our, I should say, primarily because of our focus on growing large strategic accounts for all the reasons that probably makes sense, efficiencies and leverage and those types of things, those accounts carry less gross margin as a percentage than our weighted average.”

asked by Ryan Merkel · answered by Max Tunnicliff

Asked for specific items that delevered SG&A, beyond bonuses, given the overall leverage.

Max clarified that SG&A *did* lever by 90 bps. He mentioned fuel costs as a headwind, noting its volatility and impact on the remaining 30% of SG&A (after people costs). He also reiterated bonuses as a factor. Dan added that while fuel is a cost, it positions Fastenal as a better value proposition against competitors who ship small parcels.

“First of all, the fuel component in our SG&A, we don't talk about the amount, but it sits in that remaining 30%. Dan, we've historically in the past referenced 70% of our SG&A are people-related costs. So you do have a component fuel in there that we started to see in Q1 as the as the conflict escalated, we experienced about a month of that headwind, and now we have 3 months of that headwind.”

asked by Thomas Moll · answered by Max Tunnicliff

Followed up on Jeff's comment about expanding markets globally, linking it to his international experience.

Jeff described the international business as being in the "beginning stages of exponential growth." He emphasized the need to speed up the transition of tools and potentially use M&A to build supply chains faster internationally, noting that Fastenal's integrated platform is unique in the industry.

“I mean right now, I would say we're just in the beginning stages of exponential growth. And we have such a talented team think the focus we need to look at as a company is speeding up the transition of certain tools that we need, that we were lucky with Canada and Mexico. We kind of got to piggyback on the supply chain of the United States business unit when we first got going we look at international.”

asked by Thomas Moll · answered by Jeff Watts

Asked if Fastenal's pricing strategy has changed, and if they prioritize volumes over price/cost, given their ability to drive higher prices.

Dan emphasized the balance between growth and incremental margins. He stated that while they love growth, incrementals matter, and they strive for discipline to avoid sacrificing one for the other. He acknowledged taking lower-margin sales for strategic customers but stressed the long-term discipline for ROIC and future growth.

“My point of running through all that is we love growth, but right behind it is incremental. So you got to find a balance in that every day. because that balance gives you discipline throughout your organization. that you're not sacrificing one for the other.”

asked by Christopher Snyder · answered by Daniel Florness

Asked about the impressively constrained FTE growth, whether it's a new normal, and the energy required for double-digit growth.

Dan explained that FTE growth is a natural outcome of executing in 240 business units, not constrained. He noted that productivity gains from AI tools and a reloaded part-time workforce (which builds a talent pipeline) allow for slower FTE additions. He doesn't expect low single-digit FTE growth to last forever with 15% revenue growth but thinks it can continue for "a little while."

“What you're seeing is this is the natural number that's falling out based on executing in 240 business units across the planet. And I'm surprised at the number because I figured if you can get 10% productivity gains, that's pretty good. And so I would have seen it closer to 4 or 5 at the field of just based on that logic.”

asked by Chris Tanker · answered by Daniel Florness