Fastenal (NASDAQ:FAST) reported a strong second quarter of 2026, with executives pointing to double-digit daily sales growth, share gains, operating leverage and strong cash generation during what marked Dan Florness’ final earnings call as chief executive officer.
President and Chief Sales Officer Jeff Watts opened the call by recognizing Florness’ three decades with the company, first as chief financial officer and later as president and CEO. Watts said Florness had been “the steady voice explaining our business” through multiple economic cycles, recessions, the pandemic, trade shifts and stock splits.
Sales Growth Broad-Based Across Markets
Watts said Fastenal’s growth continued to come from three strategic pillars: increasing sales effectiveness, enhancing services and expanding its addressable market. He pointed to key account wins, expanded Fastenal-managed inventory, digital engagement and new customer sites as contributors to the quarter’s performance.
Contract count rose more than 7% year over year in the second quarter, while the number of customer sites spending at least $50,000 per month grew 16.5%, with revenues from those sites up more than 26%. Watts described that as “durable, high-quality revenue,” driven by larger customers, deeper contracts and higher productivity per site.
CFO Max Tunnicliff said the industrial environment remained stable and modestly positive. He noted that the U.S. PMI averaged slightly above 53 during the quarter, up from 52 in the prior quarter, while industrial production was slightly positive year over year in April and May.
Tunnicliff said the 14.7% daily sales growth, up from 12.4% in the first quarter, reflected new customer wins, greater share of wallet with existing customers, pricing actions and improved industrial production. He said the improvement was not concentrated in any single market.
- Heavy manufacturing represented 44% of total sales and grew 18% on an average daily sales basis.
- Construction grew about 17% for the second consecutive quarter, with strength in electrical, utility, infrastructure and data center-related activity.
- Non-manufacturing end markets contributed gains across transportation, warehousing and other industrial services.
- Direct and indirect materials both grew in the mid-teens, with direct materials slightly outpacing indirect.
Tunnicliff said certain markets tied to discretionary consumer spending continued to lag, but overall demand conditions were stable to modestly positive.
Digital and Inventory Services Continue to Expand
Watts said Fastenal’s Digital Footprint daily sales rate grew 16.2% in the quarter, outpacing total company daily sales growth. Digital Footprint represented 61.6% of total sales, up 60 basis points from a year earlier. He said the company now expects Digital Footprint to account for 63% to 64% of 2026 sales, modestly below its original 66% target, because non-digital sales are also growing as Fastenal wins larger customer sites.
Within digital, eBusiness daily sales grew 12.6%. Fastenal-managed inventory sales represented 44.6% of total sales, also up about 60 basis points from a year earlier. FMI technology signings totaled just under 7,000 weighted devices in the quarter, or 109 weighted devices signed per day, compared with just under 6,500 total devices and 101 per day a year earlier.
Watts said those technology metrics are leading indicators, adding that devices installed today are “deposits into next quarter’s sales, into next year’s retention, and into the operational rigor and efficiency that show up in our margin structure.”
Margins Pressured by Price-Cost, Mix and Freight
Tunnicliff said Fastenal maintained operating margin, including a 5-basis-point improvement, despite inflation-related pressures. Gross margin contracted about 75 basis points year over year, with price-cost accounting for roughly 40 basis points of headwind. He said that represented a roughly 10-basis-point improvement from the first quarter.
Other gross margin pressures included customer mix, transportation costs and customer rebates. Tunnicliff said the ongoing shift toward larger customers is intentional and strategically important, even though those accounts typically carry lower gross margin percentages. He said larger customers generate attractive incremental profit dollars, improve fixed-cost leverage and support operating margin over time.
SG&A improved to 23.5% of sales from 24.4% a year earlier, reflecting cost control and operating leverage. Tunnicliff said that leverage more than offset gross margin headwinds, while the company continued investing in technology, analytics and sales support.
In response to analyst questions, Tunnicliff said Fastenal is still working toward price-cost neutrality but does not expect the remaining headwind to disappear immediately. He said the company would continue “chipping away” at the negative price-cost position while balancing pricing actions with strong growth.
Cash Flow, Capital Spending and Shareholder Returns
Operating cash flow was $266 million, representing about 70% of net income. Tunnicliff said the conversion rate was affected by higher accounts receivable, mainly due to June sales improving 20% year over year. Inventory efficiency helped offset working capital needs associated with growth.
Net capital spending was approximately $60 million in the quarter. Fastenal continues to expect about $320 million in net capital expenditures for full-year 2026, focused on distribution hub capacity, automation, IT infrastructure and FMI hardware. Based on current consensus revenue estimates referenced by Tunnicliff, the expected capital spending range represents about 3.5% of sales.
Fastenal returned $305 million to shareholders during the quarter, primarily through dividends, along with modest share repurchases. Tunnicliff said the company’s capital allocation priorities remain investing in the business, returning excess cash to shareholders and maintaining a conservatively capitalized balance sheet.
Florness Highlights Discipline and Transition
Florness said the company benefited from six months of PMI readings above 50 and from leadership changes made in 2023 and 2024. He credited Watts and the sales organization for improved execution, while noting that gross margin trends had been a concern entering the quarter.
Florness said the company’s gross margin improved sequentially during the quarter despite additional headwinds, but he added that he would have preferred stronger incremental margins. He also highlighted return on invested capital, saying Fastenal’s ROIC had returned to the low 30s after being in the mid-20s two decades ago.
Discussing the future under Watts, management said the company’s strategy will remain centered on sales effectiveness, service enhancement and market expansion. Watts said he does not expect major changes to Fastenal’s culture, citing decentralized decision-making, P&L accountability and promoting from within. He said the company is using new tools, including artificial intelligence, to accelerate quoting, implementation of large account business and international growth.
Florness closed by thanking participants and employees, saying he was “excited to see where Jeff and the team take this business in the future.”
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.
