Fastenal Company Q1 FY2026 earnings call

Thanked Fastenal Blue team; recent customer expo was successful, showcased latest solutions, FMI technology, and digital tools. Q1 was strong due to focused execution in industrial economy with challenges. Three strategic drivers for growth: increasing sales effectiveness, expanding customer sites, and growing international markets. Digital initiatives driving measurable results, winning new business and driving profitable growth. Priorities include investing in tools, technology, and analytics to drive operational excellence and deepen customer relationships.

Q1 was a very strong quarter with 12.4% daily sales growth, third consecutive quarter of double-digit growth. Gained share through focused execution: won new business with key accounts, expanded customer site presence, strengthened value-added services. Three strategic drivers: increasing sales effectiveness, with over 3,600 contracts (+8% YOY), ~75% of Q1 sales from these customers; customer site spending $50K+ per month increased 16.3% YOY to over 2,900 sites, accounting for over half of total sales; expanding markets, international business (Europe and Asia) grew almost 24% in March. Digital initiatives: digital footprint daily sales up 13.6%, representing 61.5% of quarter sales; signed close to 7,000 new FMI device agreements, active device base grew nearly 6%, ~45% of Q1 sales through FMI.

Pricing actions will continue, aiming to change the price change trajectory from Q1. Capital allocation focuses on business growth, infrastructure, technology, and shareholder returns. ROIC was 31% on a trailing 12-month basis. Expected net capex for 2026 is approximately $320 million. Returned $296 million to shareholders during the quarter through dividends and share repurchases.

Macro environment uncertainty; tariff-related costs moved through P&L faster than pricing, causing gross margin to be below target; tariff uncertainty delayed customer conversations and pricing actions; fuel and transportation costs and customer rebates were headwinds; customer mix had structural headwind to gross margin.

Q: When you say pricing actions will continue at a slower pace, does that imply sequential gains of 20 basis points or less sequentially quarter to quarter from here, or should we expect that to accelerate? And about the baseline of 5% to 8% ultimate and when to achieve price-cost neutrality.

A: Max said pricing actions will continue, will do everything to not see same sequential move from Q1 to Q2; no reason to believe 5% to 8% estimate changes, feel like around mid-year-ish will start to see plateau.

Q: In the past Fastenal has tried to ramp headcount in anticipation or concurrent with an improving macro backdrop. Should we expect a similar ramp this time?

A: Jeff said technology and solutions added, customer mix made more efficient, SG&A leverage good, so headcount ramp may not correlate same as past.

Q: What are you doing to fix the pricing issue?

A: Fine-tuning things, quantifying, analytics team leading specific outcomes from pricing actions.

Q: Are you seeing suppliers continuing to push pricing? Do you expect higher inflation because of oil?

A: Yes, some products like nitrile gloves price going crazy due to petroleum content, it's a volatile situation.

Q: How do we think about all the changes to IEPA, Section 122, the changes to Section 232 tariffs?

A: IEPA is smaller portion, replaced by 122, refund noise small; 232 does not impact Fastenal.

Q: Are contract signings linked to pricing discussions?

A: More related to current contract customers with set terms, newer business is priced when won.

Q: Update on capital allocation repurchases?

A: Management team wanted to start offsetting dilution, will remain opportunistic.

Q: Fastenal turns inventory slowly, difficult to match price cost now. Is there a reason?

A: Struggles not in fasteners, but in branded presence areas where timeline to understand cost change and FIFO inventory is different.

Q: Does Q2 get worse before it gets better?

A: Dan said Q2 is challenging, but Fastenal team can pull it off.

Q: Incremental margin expectations for this year?

A: No change, enough efficiencies and actions to mitigate gross margin headwind.

Q: Any noncompliance in the industry regarding tariffs on imports?

A: Nothing came to Fastenal's attention.