Below are the transcripts from the Q3 earnings call.
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OPERATOR
Greetings and welcome to the Fastenal 2025 Q3 Earnings Results Conference call. At this time, all participants are in listen only mode. A question and answer session will follow the formal presentation and you may be placed into question queue at any time by pressing Star1 on your telephone keypad. We ask that you please ask one question and one follow up, then return to the queue. If anyone require operator assistance,, please press Star zero on your telephone keypad. As a reminder, this conference is being recorded. It’s now my pleasure to introduce your host, Dre Schreiber, Director of Investor Relations. Please go ahead, Dre.
Director of Investor Relations
Welcome to the Fastenal 2025 Third Quarter Earnings Conference call. This call will be hosted by:
Dan Flornas, our Chief Executive Officer
Jeff Watts, our President and Chief Sales Officer, and
Cheryl Lisowski, our Interim Chief Financial Officer, Chief Accounting Officer and Treasurer.
The call will last for up to one hour and we’ll start with a general overview of our quarterly results and operations, with the remainder of the time being open for questions and answers. Today’s conference call is proprietary Fastenal presentation and is being recorded by Fastenal. No recording, reproduction, transmission or distribution of today’s call is permitted without Fastenal’s consent. This call is being audio simulcast on the Internet via the Fastenal Investor Relations homepage investors.fastenal.com A replay of the webcast will be available on the website until December 1, 2025 at midnight central.
As a reminder, today’s conference call may include statements regarding the Company’s future plans and prospects. These statements are based on our current expectations and we undertake no duty to update them. It is important to note that the Company’s actual results may differ materially from those anticipated. Factors that could cause actual results to differ from anticipated results are contained in the Company’s latest earnings release and periodic filings with the securities and Exchange Commission. And we encourage you to review those factors carefully. I would now like to turn the call over to Mr. Jeffrey Watts, please.
Jeff Watts (CSO)
Thank you. Good morning everyone and thank you for joining us today. To start, Q3 was a strong quarter and more importantly, it was a consistent one. And we delivered double digit growth. We expanded margins and continued to gain share in a flat market. And that’s not easy to do. And it speaks to the strength of our strategy and the execution of our teams. But before jumping into it, I’d like to extend a big thank you to our entire Blue Team for the hard work this quarter. You know, when I travel to branches and on sites and DCs. I’m always struck by the pride and energy in our people, and I’m happy to say that the Fastenal culture of service, the legacy Bob Kurland left us, is alive and well. So to every employee, thank you for your focus and commitment. The work you do every day in front of our customers and behind the scenes, it’s what’s really driving this performance. Also, to all of our employees, In Canada, I just wanted to wish them a happy Thanksgiving and I hope you are getting to spend some quality time with your friends and family. Now let’s get started and turn to slide number three. In the third quarter we delivered net sales of $2.13 billion, which is an 11.7% increase over Q3 of last year. This is our second consecutive quarter above the $2 billion mark, which demonstrates the effectiveness of our plan and Fastenal’s growing partnership with our customers. It’s also worth mentioning that the growth this quarter came with the same number of selling days, so it’s a clean comparison. And overall, again, it’s a strong result.
Now, let’s discuss the cadence of the growth through the quarter. One thing we pride ourselves on at Fastenal is solid execution quarter in and quarter out, and Q3 is a good example of this. Despite a couple of timing quirks, we pretty much met or beat our typical seasonal patterns each month. In July, we saw daily sales growth of 12.8% with a sequential dip from June of about 2.7%. That’s actually better than our historical benchmark, which typically sees about a 3.5% drop from June. So July came in stronger than expected. Now one nuance here is the timing of July 4th holiday and landed on a Friday this year, which is important as it pulled some activity into that first week of July. If we were to fall on a Wednesday or Thursday, kind of like it did last year, we wouldn’t see that same activity. And our vending data confirmed this. We saw about an 8% increase in vending activity that week compared to when the holiday falls. Midweek didn’t materially impact the quarter, but it did shift some inter month cadence. When you add in what we saw in August September, our Q3 daily sales growth actually came in a bit stronger than our benchmark would have predicted. That was around 11.2, which is an encouraging sign. And looking at the year to date, picture our daily sales from January through September. They’re up 15.9% compared to historical benchmark about 9.5. Now that’s a big delta.
But even when we consider the weather related issues stated in January and the price cost through September, we were still showing double digit sequential growth well ahead of our historic pattern. I think the big takeaway is our underlying growth remains strong and steady. We have a phrase we use internally, plan the work and work the plan. And the team did exactly that in Q3 and it shows in the results. And when we’re looking at where the growth came from, the broader market wasn’t much help. The industrial economy remains sluggish, essentially flat. I think the PMI averaged about 48.6 in the quarter which indicates contraction. But I think I’d characterize our growth as mostly self help and market share gains rather than any particular macro lift. Pricing did contribute roughly 2.5 percentage points to growth somewhere in that 240270 basis points a bit lighter than we anticipated earlier in the year. But I think Cheryl is going to dive into this a little bit more detail later in the presentation. I would just add though that our Team has done an excellent job communicating with customers on pricing. The one thing I hear consistently from customers is the appreciation of Fastenal’s transparency and partnership in managing these cost changes. We’re not just passing on increases, we’re working side by side with our customers to find solutions or alternatives and efficiencies. That kind of responsiveness, it builds trust and it’s a big reason we’re continuing to gain shareholders. Aside from price, the rest of our Growth, roughly 8 to 9 points, came from volume and share gains and we saw meaningful wins with key accounts, a steady stream of new contract signings and deeper penetration in existing accounts. Our national accounts and on site signings over the past year are now ramping up in revenue and it showed this quarter. In fact, our national account sales were up double digits in Q3, slightly higher than the company reflecting those new contracts really coming into fruition. And we turn to slide 4 in terms of our customer category results from our strategy, we continue to see success with large accounts. Our aim has been to deepen relationship with big customers and in Q3 it showed the number of active customer sites spending over 10,000 per month. With us those sites grew over 8.1% and those spending over 50,000 per month, what we call on site like locations. The number of Those sites grew 15.4%. Those are significant gains in penetration. In fact, some long standing customers are now utilizing us in more plants for more product categories than ever before. I was just down in Texas for some regional VP meetings and I had a regional. Tell me a story. You know, a major manufacturer in his area has been a Fastenal customer for 20 years. Just expanded Fastenal’s program from two sites with them to five sites, essentially making us the primary supplier nationally. That didn’t just happen by accident. It was our team proving themselves and offering new solutions and new product lines. It’s a great example of earning more with existing customers by enhancing our services. I also wanted to highlight the growth we’re seeing in what we call non traditional markets and that speaks to expanding our total market in the quarter. For example, our business with health care, education, government customers grew nicely and our sales to warehousing and logistics companies, you know, they were up significantly. These segments are outside of heavy manufacturing and they help diversify our base. We’ve also signed several new on site contracts with universities and school districts this year. It’s an area we targeted after the pandemic. Those are now kicking in and contributing to growth and the resilience in our mix. As Dan noted earlier in the year, institutions and warehouses, they might not boom like manufacturing, but they don’t bust as hard either. I’m paraphrasing. So bringing them into the fold makes us a stronger company long term. The bottom line is our strategy is delivering. We set out to align the organization behind those three pillars. Increasing sales effectiveness, enhancing our services and market expansion. In Q3 we can see tangible results. Faster growth in our core product fasteners, more spend from big customers and entering the new pockets of business. Moving on to slide 5. When I look at slide 5, a few takeaways from me on this slide. First, as we continue to speak about alignment in our strategy, but most of that has been around just our sales departments. I think pointing out that this is a company wide strategy. It’s very important and our fastener expansion initiative is a good example of this. This was a company wide effort. Not just a product push, but a coordinated strategy across sales, supply chains and operations. We improved availability in our DCs, we aligned our teams around some key SKUs and most importantly, we made it easier for our customers to get what they needed. And the result? Fastener sales grew over 15% September, outpacing overall company growth. And it resulted in a meaningful lift. Not just sales, but the gross margin as well. This is what company alignment looks like and it’s driving results. Second thing from this slide, you know, for me Q3 was a quarter of profitable growth. We achieved double digit top line growth in A soft market and converted to even faster bottom line growth. Net income up 12.6%. EPS up 12.3%. Margins expanded and costs were well managed, resulting in a 20.7% operating margin. That’s really the scenario we aim for. The only cost of this success was really high performance pay and our team definitely earned that. Definitely not going to get in the way of that. This combination of growth, profitability and returns is exactly what we set out to deliver. It speaks to the strength of our strategy and more importantly, to the execution of the blue team. It also gives us confidence as we head into the end of the year, knowing that we’re growing the right way, profitably and sustainably, while creating value for our customers, our employees and our shareholders. Now moving on to slide six, which highlights our digital engines. You know, this is an area where we’ve been investing for years. And in Q3 we saw continued momentum. We averaged about 110 FMI signings per day, slightly below last year’s pace, but still an extremely strong level of activity. That’s over 7,000 weighted fastbin and fastband devices signed in the quarter, bringing our total installed base to over 134. Just under 134,000 devices globally, up 8.7% year over year. The sales through FMI Technology represented 45.3% of our total sales in the quarter. This was 43% a year ago. And when you look at the daily sales through FMI, they grew just shy of 18% year over year, well above company average and a clear sign that now this program is not just expanding, it’s accelerating. On the E business side, we saw 8% growth in daily sales. This includes both E procurement, E commerce activity. All this number is not where we want it. We believe the relaunch of Fastenal.com, will help improve this growth as we move into 2026. When you combine FMI and E business, our digital footprint accounted for 61.3% of total sales in the quarter. And it reflects our long term strategy to drive growth through technology, automation and customer integration. And further, you know, it really furthers our motto of growth through customer service. So before I hand it off, Sheryl, maybe a quick summary. You know, we’re winning with large customers, we’re deepening customer relationships with technology and onsite, and we’re aligning around the right priorities. We did it by investing in the right things, you know, our customers, technology and the development of our people. I’m very proud of the teams and how they’ve embraced and executed the strategy over the last year and I believe we’re really starting to fire on all cylinders. We’re aligned, we’re adaptive, and we’re customer driven. With that, I’ll pass over to Cheryl.
Sheryl Lisowski (CFO)
Thanks Jeff, and good morning everyone. Now I’ll turn to Slide 7 sales in the third quarter of 2025 were up 11.7%. That’s our strongest quarterly daily sales rate since the first quarter of 2023, despite sluggish end market demand and caution related to trade policy and tariff margin pressures, government shutdowns and the potential for longer than normal holiday shutdowns in the fourth quarter due to the Christmas holiday falling in the middle of the week, regional and other sales leadership expectations are generally favorable for continued strong growth due to share gains in the absence of much external help. The improvement in our sales reflects two other variables. First, even as the market has stabilized, our comparisons have gotten easier, particularly in the cyclical parts of our business. This factor helped produce our third quarter of growth for fastener since 1Q23 and acceleration in manufacturing end markets. Second, contributions from our strong contract signings since early 2024 continue to build. We continue to experience a healthy pace and mix of signings in the third quarter of 2025 and our total national, regional and government contracts grew in the high single digits. The quarterly sales growth rate is a fair representation of our performance and we did see acceleration through the period. It was another solid stealth help driven result in a soft market. The pricing outlook warrants some discussion. Year to date, significant tariffs have been applied to products from China as well as steel, including steel derived products like fasteners. On a global basis. We continue our long term trend on diversifying our supply chain where possible to the size and timing of our suppliers pricing actions and we added some inventory to our own balance sheet. That said, supply chains have gotten more expensive and a part of our response over time has been incremental pricing. We have been proactively engaging with our customers for several months. We measured price on the sale of identical parts to the same customers in both periods. This represents approximately 50% of our business and we refer to refer to this as like for like pricing during the third quarter we implemented one pricing action in the month of August which addressed the reciprocal tariffs, that were finalized in July of 2025. Our previously stated goal was for price to contribute 3 to 5% by the end of the third quarter of 2025. The phased approach to this rollout resulted in 240 to 270 basis points of additional impact in the third quarter with momentum building as we ended the quarter, additional pricing actions will be necessary in the fourth quarter of 2025 with the potential to increase the impact of pricing on like for like parts to be in a range of 3.5 to 5.5% depending on where the tariff litigation ultimately settles and the pace and execution of our actions. Our revised goal for pricing on like for like parts in the fourth quarter of 2025 reflects a reduction from our previously stated goal of 5 to 8%. The other 50% of parts sold to customers exist in the current period but do not exist in the prior period, making it hard to measure price impact on that group. That said, it has to be acknowledged that had we sold that part to that customer in the prior period, it would have been likely sold for less due to inflation. Therefore, in periods of inflation there is an inherent price ...
