Fastenal’s fastener engine reignites — but a one‑cent EPS miss tests investor patience

Fastenal opened the October earnings season with something we haven’t seen in a while for an industrial distributor: double‑digit growth and expanding margins despite a contracting manufacturing backdrop. Third‑quarter net sales rose 11.7% to $2.13 billion, while diluted EPS climbed 12% to $0.29 (split‑adjusted). Yet shares slipped more than 5% in early trading Monday as the result landed a penny shy of consensus, a reminder that expectations have crept higher after a strong year‑to‑date run. Revenue was essentially in line. (seekingalpha.com)

The quarter’s through‑line: Fastenal’s core fastener business finally re‑accelerated, and mix plus execution — not inflation — did the heavy lifting. Gross margin improved 40 basis points to 45.3% even as management said price/cost was neutral, pointing instead to the “fastener expansion” initiative and better supplier programs. Operating margin widened to 20.7%. In other words, the company is growing by doing more of what it’s built for, not by simply charging more. (seekingalpha.com)

For investors, the key tension is whether that operational momentum can outrun the inevitable mix pressures that come with winning larger, lower‑margin accounts. Monday’s selloff suggests a high bar: even a robust quarter can be marked down if it isn’t perfect. (investors.com)

After lagging for much of the post‑pandemic normalization, fasteners outpaced everything else. Daily sales of fasteners jumped 14.4% year over year, lifting the category to 31.0% of total sales (from 30.2% a year ago). Safety products rose 9.8% and other MRO lines increased 10.7%. Management attributed the fastener surge to easier comps, better product availability in distribution centers, and contract wins. Pricing added 240 to 270 basis points to overall growth, but unit volume did the rest — a healthier recipe than pure price. (seekingalpha.com)

The end‑market split corroborates the story. Manufacturing — both heavy and other — grew 12.7% in aggregate; non‑residential construction rose 7.5%; “other” end markets (including government, transport, warehousing, and data centers) advanced 8.9%. That’s notable because the ISM Manufacturing PMI printed 49.1 in September, its seventh consecutive month below 50. Fastenal, a bellwether for U.S. factory activity, is outrunning the tape. (seekingalpha.com)

Contract customers — national and other large accounts — now represent 73.8% of sales, up from 72.0% a year ago, with contract sales up 13.2% versus 7.2% for non‑contract. This is exactly the share‑gain strategy Fastenal has pursued for years, and it’s working. The trade‑off: larger accounts tend to carry lower gross margins. The company held SG&A at 24.6% of sales, but the mix shift is the quiet counterweight to margin expansion going forward. (seekingalpha.com)

Early read: the market is wrestling with that balance. Operating margin expanded, but the EPS shortfall — just one cent — came alongside higher organizational costs and slightly higher net interest expense than last year. None of these are alarming in isolation; they do, however, shrink the room for upside when expectations are tight. (seekingalpha.com)

Fastenal’s long‑running digital buildout kept moving, though the cadence cooled. Weighted FASTBin/FASTVend signings were 7,050 machine‑equivalent units in the quarter, down 3.2% year over year, averaging 110 per day (114 a year ago). The installed base grew 8.7% to 133,910. eBusiness daily sales rose 8%, but eBusiness as a share of sales slipped to 29.1% (from 30.1%), while the broader Digital Footprint — FMI plus non‑FMI eBusiness — inched up to 61.3% (61.1% a year ago). The installed base is doing its job; signings momentum bears watching. (seekingalpha.com)

One useful breadcrumb: management will revamp how it breaks out product sales in November, moving to a framework that distinguishes direct versus indirect materials. If executed well, that could give investors a cleaner lens on where digital tools are most effectively driving share gains — and where they aren’t. (seekingalpha.com)

Freeing up cash remains a quiet strength this year. Operating cash flow rose 30% to $386.9 million — 115% of net income — helped by working‑capital discipline and the reinstatement of bonus depreciation in 2025. Accounts receivable and inventories rose in line with growth (up 12.2% and 10.5%, respectively), and accounts payable increased 14.3%. Capital spending was $54.7 million; for 2025, Fastenal now expects $235 million to $255 million, reflecting hub investments (Utah completed, Atlanta underway), IT and inventory technology. (seekingalpha.com)

The board also declared a $0.22 quarterly dividend payable November 25, maintaining a steady return profile. And for anyone comparing EPS to past periods, remember the two‑for‑one split effective May 21: this year’s per‑share figures are smaller because every share became two. (investor.fastenal.com)

Fastenal’s quarter challenges a simple macro read. The ISM says factories are still contracting; Fastenal says its factory customers are spending more with it. The difference is execution and mix: big, sticky accounts; on‑premise inventory via Onsite‑like programs; and embedded digital tools that make Fastenal difficult to dislodge. That combination is showing up in faster fastener growth and higher gross margins. (prnewswire.com)

But the stock’s reaction underscores the other half of the story. This is a premium multiple built on consistency. Investors are now treating the improved trajectory as a baseline, not a surprise. To keep the rerating intact, Fastenal probably needs to re‑accelerate eBusiness as a share of sales, keep signing devices at or above last year’s pace, and prove that the larger‑customer mix doesn’t cap gross‑margin progress. Monday’s one‑cent miss won’t define the year; how the company sustains today’s operating momentum will. (seekingalpha.com)