# How Fastenal makes money

CXProWealth Business Lens · Fastenal (FAST) · Q3 FY2026

Read from the 10-Q for the period 2026-07-01 to 2026-09-30, filed 2026-10-19 with the SEC (accession 0000815556-26-000049): https://www.sec.gov/Archives/edgar/data/815556/000081555626000049/

Business Lens explains how a company earns, spends and keeps its money, from its own filings. It is insight and context, never a view on the shares, a target, or advice. Figures are raw units as filed; percentages are percentage points.

## Headline figures

- Revenue: $2.5B (+15.5% on the year)
- Operating income: $530.8M (operating margin 21.5%)
- Net income: $401.6M (net margin 16.3%)
- Gross margin: 44.8%
- Free cash flow: $347.6M (14.1% of revenue)
- Cash conversion (operating cash flow / net income): 1.05x
- Capital expenditure: 3.0% of revenue

## Where the money goes (Q3 FY2026)

- Net sales → Cost of sales: $1.4B
- Net sales → Gross profit: $1.1B
- Gross profit → Selling, general, and administrative expenses: $573.9M
- Gross profit → Operating income: $530.8M
- Operating income → Interest expense: $800.0K
- Operating income → Income before income taxes: $530.0M
- Interest income → Income before income taxes: $1.2M
- Income before income taxes → Income tax expense: $129.6M
- Income before income taxes → Net income: $401.6M

## Where the revenue comes from

### Regions (Revenue - Revenues by Geographic Areas (Details))

| Member | Value | Share |
|---|---:|---:|
| Canada and Mexico | $342.1M | 13.9% |
| All other foreign countries | $86.1M | 3.5% |

The members do not sum to total revenue.

## Income statement, as filed

| Line | Q3 FY2026 | Of revenue |
|---|---:|---:|
| Net sales | $2.5B | 100% |
| Cost of sales | $1.4B | 55.2% |
| **Gross profit** | $1.1B | 44.8% |
| Selling, general, and administrative expenses | $573.9M | 23.3% |
| **Operating income** | $530.8M | 21.5% |
| Interest income | $1.2M | 0.0% |
| Interest expense | ($800.0K) | 0.0% |
| **Income before income taxes** | $531.2M | 21.6% |
| Income tax expense | $129.6M | 5.3% |
| **Net income** | $401.6M | 16.3% |
| Basic net income per share (in dollars per share) | $0 | 0.0% |
| Diluted net income per share (in dollars per share) | $0 | 0.0% |
| Basic weighted average shares outstanding (in shares) | 1,147,190,302 |  |
| Diluted weighted average shares outstanding (in shares) | 1,150,102,355 |  |

## History

| Period | Revenue | Operating income | Net income | Operating cash flow | Capital expenditure | Free cash flow |
|---|---:|---:|---:|---:|---:|---:|
| FY2007 | $2.1B | $376.4M | $232.6M | $227.9M | $55.8M | $172.1M |
| FY2008 | $2.3B | $450.2M | $279.7M | $259.9M | $95.3M | $164.6M |
| FY2009 | $1.9B | $295.8M | $184.4M | $306.1M | $52.5M | $253.5M |
| FY2010 | $2.3B | $429.7M | $265.4M | $240.5M | $73.6M | $166.9M |
| FY2011 | $2.8B | $574.6M | $357.9M | $268.5M | $120.0M | $148.4M |
| FY2012 | $3.1B | $673.7M | $420.5M | $396.3M | $138.4M | $257.9M |
| FY2013 | $3.3B | $712.7M | $448.6M | $416.1M | $206.5M | $209.6M |
| FY2014 | $3.7B | $787.6M | $494.2M | $499.4M | $189.5M | $309.9M |
| FY2015 | $3.9B | $828.8M | $516.4M | $550.3M | $155.2M | $395.1M |
| FY2016 | $4.0B | $795.8M | $499.4M | $519.9M | $189.5M | $330.4M |
| FY2017 | $4.4B | $881.8M | $578.6M | $585.2M | $119.9M | $465.3M |
| FY2018 | $5.0B | $999.2M | $751.9M | $674.2M | $176.3M | $497.9M |
| FY2019 | $5.3B | $1.1B | $790.9M | $842.7M | $246.4M | $596.3M |
| FY2020 | $5.6B | $1.1B | $859.1M | $1.1B | $168.1M | $933.7M |
| FY2021 | $6.0B | $1.2B | $925.0M | $770.1M | $156.6M | $613.5M |
| FY2022 | $7.0B | $1.5B | $1.1B | $941.0M | $173.8M | $767.2M |
| FY2023 | $7.3B | $1.5B | $1.2B | $1.4B | $172.8M | $1.3B |
| FY2024 | $7.5B | $1.5B | $1.2B | $1.2B | $226.5M | $946.8M |
| FY2025 | $8.2B | $1.7B | $1.3B | $1.3B | $245.3M | $1.1B |

Latest trend (the newest full year against the year before; a reading, not a forecast):

- Revenue: +8.7% (year before +2.7%): accelerating
- Operating income: +9.6% (year before -1.2%): accelerating
- Net income: +9.4% (year before -0.4%): accelerating
- Free cash flow: +11.0% (year before -24.9%): accelerating

## Operating figures stated in the filing

- Weighted FASTBin/FASTVend signings: 7,484 meus (as of 2026-09-30). "We signed 7,484 weighted FASTBin and FASTVend devices in the third quarter of 2026 ." (Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS)
- Weighted FASTBin/FASTVend signings: 7,050 meus (as of 2025-09-30). "Weighted FASTBin/FASTVend signings (MEUs) 7,484 7,050 6.2 %" (Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS)
- Weighted FASTBin/FASTVend installations: 143,878 meus (as of 2026-09-30). "Weighted FASTBin/FASTVend installations (MEUs; end of period) 143,878 133,910 7.4 %" (Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS)
- Weighted FASTBin/FASTVend installations: 133,910 meus (as of 2025-09-30). "Weighted FASTBin/FASTVend installations (MEUs; end of period) 143,878 133,910 7.4 %" (Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS)
- Digital Footprint share of sales: 61.4% (as of 2026-09-30). "% of sales 61.4 % 61.3 %" (Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS)
- Digital Footprint share of sales: 61.3% (as of 2025-09-30). "% of sales 61.4 % 61.3 %" (Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS)
- Active customer Sites (monthly average): 90,759 sites (as of 2026-09-30). "Grand total 90,759 $ 2,463.3 $ 9,047 98,823 $ 2,133.3 $ 7,149" (Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS)
- Active customer Sites (monthly average): 98,823 sites (as of 2025-09-30). "Grand total 90,759 $ 2,463.3 $ 9,047 98,823 $ 2,133.3 $ 7,149" (Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS)
- Customer Sites with $50k+ monthly sales: 3,288 sites (as of 2026-09-30). "3,288 $ 1,456.6 $ 147,668 2,771 $ 1,141.9 $ 137,363" (Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS)
- Customer Sites with $50k+ monthly sales: 2,771 sites (as of 2025-09-30). "3,288 $ 1,456.6 $ 147,668 2,771 $ 1,141.9 $ 137,363" (Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS)
- Total FTE employee headcount: 21,749 employees (as of 2026-09-30). "Total personnel - FTE employee headcount 21,749 22,230 -2.2 % 21,602 0.7 % 21,568 0.8 %" (Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS)
- Total FTE employee headcount: 21,568 employees (as of 2025-09-30). "Total personnel - FTE employee headcount 21,749 22,230 -2.2 % 21,602 0.7 % 21,568 0.8 %" (Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS)
- Total employees (absolute headcount): 24,679 employees (as of 2026-09-30). "Total personnel - absolute employee headcount 24,679 24,795 -0.5 % 24,489 0.8 % 24,438 1.0 %" (Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS)
- Total employees (absolute headcount): 24,438 employees (as of 2025-09-30). "Total personnel - absolute employee headcount 24,679 24,795 -0.5 % 24,489 0.8 % 24,438 1.0 %" (Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS)

## Key insights

### Bigger accounts cut gross margin but lifted operating margin

Gross margin slipped to 44.8% from 45.3% while operating margin rose to 21.5% from 20.7%, because SG&A grew 9.5% against sales growth of 15.5%.

Net sales were $2.46B against $2.13B a year earlier. Gross profit grew 14.4%, slower than sales, so gross margin fell to 44.8% from 45.3%. SG&A grew only 9.5%, to $573.9M, and fell to 23.3% of sales from 24.6%. Operating income grew 20.2% to $530.8M. _(from the filing)_
The clearest way to see the trade: operating income kept 48.0% of gross profit, against 45.7% a year earlier. Each dollar of gross profit cost less to earn, which more than made up for earning slightly less gross profit on each dollar of sales. _(from the filing)_
The filing attributes the gross margin decline to a "continued shift in customer mix toward larger customers" and to price/cost, product costs running ahead of its own prices. It says larger relationships "generate higher absolute profit dollars and are accretive to operating margin through fixed-cost leverage". It credits base pay leverage from labor productivity and fixed occupancy costs for the SG&A improvement. _(from the filing)_
Analysis: this is a deliberate choice, not a slip. The company is selling lower cost to serve rather than higher markup. The trade only pays while volume keeps growing faster than the cost base, which is why the SG&A line, not gross margin, is the one that decides the outcome. _(analysis)_

### Fewer customer Sites, and more large ones

Active Sites fell to 90,759 from 98,823 while Sites buying $50k+ a month rose to 3,288 from 2,771, so growth came from depth, not breadth.

The filing counts customer locations as Sites, a monthly average of active locations. Active Sites were 90,759 against 98,823 a year earlier. Sites with $50k+ in monthly sales were 3,288 against 2,771, rising to 3.6% of active Sites from 2.8%. Net sales still grew 15.5%, to $2.46B, on the smaller base. _(from the filing)_
The filing says its strategy "prioritizes" Sites with large monthly sales potential, and treats $50k+ Sites as a representation of Onsite-like customers. It adds that non-contract customers "tend to be smaller and utilize fewer of our tools and capabilities" and "more closely reflect overall business trends". _(from the filing)_
Analysis: the same customer-mix shift that lowers gross margin is visible here as a count. Caveat: the filing does not say why the number of small Sites fell. A planned retreat from low-value accounts and small buyers leaving for other channels would look the same in this count, and they mean different things for demand. _(analysis)_

### Big-account growth arrives as receivables before cash

Operating cash flow trailed net income in the second quarter, $265.7M against $382.8M, then reached 1.05 times it in the third, as customers on longer terms grew fastest.

In the second quarter, operating cash flow was $265.7M against net income of $382.8M, and free cash flow $201.6M. In the third quarter, operating cash flow was $421.6M against net income of $401.6M, 1.05 times, and free cash flow $347.6M, 86.6% of net income and 14.1% of sales. _(from the filing)_
A year earlier, third-quarter operating cash flow was $386.9M against net income of $335.5M, a wider cushion of cash over profit. So even in a strong quarter, cash ran closer to profit than a year before. The filing attributes this to a larger use of cash for receivables and inventory, with receivables growth tied to "larger customers that tend to carry longer payment terms", and calls it "a common dynamic for a distribution business". _(from the filing)_
Capital spending rose to $74.0M from $60.3M, 3.0% of sales, directed to facility construction, IT and industrial vending equipment. The filing expects higher net capital spending for the full year, for a replacement Atlanta hub, delayed IT projects and trucks. Debt costs are negligible: interest expense was $0.8M against interest income of $1.2M. _(from the filing)_
Analysis: the large-account strategy shows up three times, in gross margin, in operating margin, and here in working capital. The profit improvement is real, but part of it waits in receivables before it becomes cash, so the cash conversion line is the one to compare quarter by quarter. _(analysis)_

### Competitive edge

- **Gross margin fell for years while operating margin held** From FY2018 to FY2025 gross profit grew more slowly than revenue, yet operating income kept pace, rising to $1.66B from $999.2M as revenue reached $8.20B.
- **Vending machines and bins sit inside customers' plants** Weighted device installations reached 143,878 units against 133,910 a year earlier, and the Digital Footprint carried 61.4% of sales.
- **Sales grew 15.5% on almost the same headcount** Full-time equivalent headcount was 21,749 against 21,568 a year earlier, while sales grew 15.5%, and incentive pay moves with profit.

### What to watch

- **Sales growth leans on pricing and manufacturing demand** The filing credits contract signings, product pricing and a modest rise in industrial production for 15.5% growth; the last two can reverse with the cycle.
- **Product costs and tariffs keep pressing on gross margin** Gross margin was 44.6% in the second quarter and 44.8% in the third, against 45.3% a year earlier, with price/cost and tariffs still named pressures.
- **The full-year device signings goal was lowered** Signings rose to 7,484 from 7,050 a year earlier, yet the filing cut its full-year signings goal, and future contract sales start with signings.

## Investor view

**Fastenal gave up gross margin to win large accounts, and operating income rose 20.2% as fixed costs spread wider**

### How it makes money

Fastenal buys industrial and construction supplies and resells them, mostly to manufacturers, serving customer locations the filing calls Sites from branches and from inventory kept in or near them. In the quarter, net sales were $2.46B and cost of sales $1.36B, 55.2% of sales, leaving gross profit of $1.10B, a gross margin of 44.8%. _(from the filing)_
Running the network takes most of the rest. SG&A was $573.9M, 23.3% of sales, and operating income $530.8M, an operating margin of 21.5%. After income tax expense of $129.6M, net income was $401.6M, 16.3% of sales. Financing barely registers: $0.8M of interest expense against $1.2M of interest income. _(from the filing)_
Much of the selling is automated on the customer's floor. Vending machines and smart bins, counted as weighted FASTBin/FASTVend installations, stood at 143,878 machine equivalent units at quarter end, against 133,910 a year earlier. The Digital Footprint, sales through those devices plus eProcurement and eCommerce, was 61.4% of sales. The filing calls the approach a "high-touch, high-tech" partnership. _(from the filing)_
The business is mostly North American. Canada and Mexico contributed $342.1M, 13.9% of net sales, and all other foreign countries $86.1M, 3.5%. Manufacturing is the largest end market, with non-residential construction, government, transportation, warehousing and data centers among the rest. _(from the filing)_

### What shifted

Net sales grew 15.5% from $2.13B a year earlier. The filing credits the "contribution from improved customer contract signings", product pricing, and "a modest improvement in industrial production". Direct materials, the products that go into customers' finished goods, grew faster than maintenance and facility supplies, led by fasteners and manufacturing customers. _(from the filing)_
Cost of sales grew 16.4%, faster than sales, so gross margin slipped to 44.8% from 45.3%. The filing names two causes: a "continued shift in customer mix toward larger customers", which carry lower gross margins, and price/cost, product costs rising ahead of Fastenal's own prices. Direct sourcing savings, supplier rebates and tariff refunds partly offset them. _(from the filing)_
The leverage came below gross profit. SG&A grew 9.5% against sales growth of 15.5%, so its share of sales fell to 23.3% from 24.6%. Operating income grew 20.2% to $530.8M and operating margin rose to 21.5% from 20.7%. The filing says "base pay leveraged through increased labor productivity", while bonuses and commissions grew faster than sales and occupancy costs leveraged on a fixed base. _(from the filing)_
Net income rose 19.7% to $401.6M and diluted earnings per share to $0.35 from $0.29. Income tax expense grew 23.3%, faster than pre-tax income, as the tax rate moved to 24.4% from 23.9%. Interest expense halved to $0.8M from $1.6M, which the filing attributes to lower debt balances. _(from the filing)_
Operating cash flow was $421.6M against $386.9M a year earlier, 1.05 times net income, and free cash flow $347.6M, 14.1% of sales. Capital spending rose to $74.0M from $60.3M, 3.0% of sales, directed to facility construction, IT and industrial vending equipment. Receivables and inventory absorbed more cash, which the filing calls "a common dynamic for a distribution business". _(from the filing)_

### Risks in the filing

The quarterly report says there have been no material changes to the risk factors in the most recent annual report. Its forward-looking statement names the main exposures directly: economic downturns, weakness in manufacturing or commercial construction, competitive pressure on selling prices, and changes in the mix of products, customers or geographies. _(from the filing)_
Tariffs carry particular uncertainty. The Supreme Court invalidated the tariffs imposed under the International Emergency Economic Powers Act, and new tariffs followed under other statutes. Fastenal says it is not the importer of record for most products it sells, so its direct exposure to refunds is limited, and refunds and pending claims were not material. Changes in tariffs remain a named risk to results. _(from the filing)_
The automated model has its own named risks: weak acceptance or adoption of the FMI offering, increased competition in FMI, difficulty maintaining installation quality as FMI expands, and leasing a significant number of additional devices to customers. The list also includes difficulty hiring, training and retaining people, controlling SG&A and headcount growth, collecting receivables, predicting inventory needs, cyber-security incidents and defective products. _(from the filing)_
Two of these named risks already show in the numbers. Customer mix is visible in gross margin, which fell while sales grew, because the filing ties the decline to larger accounts. Receivables show in cash flow: operating cash flow fell well short of net income in the second quarter as large customers on longer terms grew fastest. And manufacturing, the largest end market, means an industrial slowdown would reach most of the sales base at once. _(analysis)_

## Founder view: mechanisms

### Large accounts trade gross margin for leverage

Fastenal deliberately chases customers who spend heavily at a single location, often served by staff or vending machines on the customer's premises. Those customers negotiate lower prices, so gross margin falls. But a large account is served from one stocking point with predictable demand, so the cost to serve each dollar falls faster than the price does. Profit is made on cost to serve, not on markup. _(analysis)_

### Inventory inside the customer

Vending machines and smart bins put Fastenal's stock on the customer's floor. Each device records what is taken, triggers replenishment and becomes the default supply for those items. Once installed, buying elsewhere means removing a working system, so each device turns a repeated purchase decision into a routine and gives Fastenal the consumption data to restock efficiently. _(analysis)_

### Pay that flexes with profit

A large part of Fastenal's labor cost is bonus and commission tied to measured profit, and results are judged on return on assets at the selling location. When business is good, pay rises with it; when it slows, a meaningful part of the cost falls without layoffs. Base pay grows slower than sales because each person handles more volume. _(analysis)_

### Growth is paid for in receivables

A distributor finances its customers. Every new large account adds inventory to stock and invoices to wait on, and large customers negotiate longer payment terms. So fast growth with big accounts shows up first as cash tied in working capital, and only later as cash in hand. Fastenal keeps this manageable with very little debt and by holding inventory nearly flat while sales rise. _(analysis)_

## Member research

Signed-in members read, on the page: what Fastenal's numbers depend on from here, and the playbook behind each mechanism (what needs scale, what transfers, how to test it, the metric that would show it).

## Sources

- Fastenal 10-Q for the period to 2026-09-30: https://www.sec.gov/Archives/edgar/data/815556/000081555626000049/ (2026-10-19)

Methodology business-lens-1.0 · schema 1.2.0 · run business-lens-2026-11-02 · as of 2026-11-02