Fastenal
FAST · NasdaqBigger 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%.
Q3 FY2026, the quarter to Sep 30, 2026 · 10-Q filed Oct 19, 2026
- Operating margin
- 21.5%
- Net income
- $401.6M
- Free cash flow, quarter
- $347.6M
Where Fastenal's money goes
- 01
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%.
Why it matters
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.1
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.1
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.1
AnalysisAnalysis: 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.
- 02
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.
Why it matters
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.1
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".1
AnalysisAnalysis: 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.
- 03
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.
Why it matters
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.1
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".1
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.1
AnalysisAnalysis: 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.
Sources
- 1.Fastenal 10-Q for the period to 2026-09-30 (the filing), Oct 19, 2026, read Nov 2, 2026
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Growth, profit and margin
Revenue went from $2.1B in FY2007 to $8.2B in FY2025, the operating margin from 18.3% to 20.2%, over 18 years.
- Revenue$8.2B
- Operating income$1.7B
- Operating margin20.2%
- Period
- Q3 FY2026
- Revenue
- $2.5B
- Operating income
- $530.8M
- Operating margin
- 21.5%
- Net income
- $401.6M
- Free cash flow
- $347.6M
Does the profit turn into cash?
Q3 FY2026: free cash flow of $347.6M against net income of $401.6M in the quarter.
- Operating cash flow$1.3B
- Capital expenditure$245.3M
- Free cash flow$1.1B
- Net income$1.3B
Capital expenditure is drawn below the axis as cash out. Cash conversion is operating cash flow over net income, shown in the tooltip for years with a profit.
Financial data and sources
How the revenue mix has shifted
Each breakdown the filing reports, as shares of revenue, for every period it restates.
Geographic markets
Revenue - Revenues by Geographic Areas (Details). The filing restates this breakdown for 1 period.
Click a member to isolate it across the years shown.
The figures
Margins, cash and growth for the period, each with what it was computed from.
Where revenue comes from
Every breakdown the filing reports for the period, with each item's share.
Geographic markets
| Canada and Mexico | $342.1M | 13.9% |
| All other foreign countries | $86.1M | 3.5% |
These items do not sum to total revenue; the filing states them beside it. Source10-Q, us-gaap:RevenueFromContractWithCustomerExcludingAssessedTax, as reported in the 10-Q filed 2026-10-19
What it costs
The cost lines beneath operating income, each as a share of revenue, then the operating result.
Costs are reported by function: what it cost to make what was sold, then the expenses of selling, developing and administering.
| Cost line | Q3 FY2026 | Of revenue | Source |
|---|---|---|---|
| Cost of sales | $1.4B | 55.2% | Source10-Q, us-gaap:CostOfGoodsAndServicesSold, as reported in the 10-Q filed 2026-10-19 |
| Operating income | $530.8M | 21.5% | Source10-Q, us-gaap:OperatingIncomeLoss, as reported in the 10-Q filed 2026-10-19 |
Operating figures the company states
From the text of the filing rather than its statements, each with the sentence that states it.
View source
Grand total 90,759 $ 2,463.3 $ 9,047 98,823 $ 2,133.3 $ 7,149
View source
3,288 $ 1,456.6 $ 147,668 2,771 $ 1,141.9 $ 137,363
View source
% of sales 61.4 % 61.3 %
View source
Total personnel - absolute employee headcount 24,679 24,795 -0.5 % 24,489 0.8 % 24,438 1.0 %
View source
Total personnel - FTE employee headcount 21,749 22,230 -2.2 % 21,602 0.7 % 21,568 0.8 %
View source
Weighted FASTBin/FASTVend installations (MEUs; end of period) 143,878 133,910 7.4 %
View source
We signed 7,484 weighted FASTBin and FASTVend devices in the third quarter of 2026 .
The statements, as filed
The income statement, cash flow statement and balance sheet in the company's own order and words. Every line links to the filing.
Income statement14 lines, as presented in the 10-Q
Cash flow statement32 lines, as presented in the 10-Q
Year to date, as a quarterly filing reports it.
Balance sheet27 lines, as presented in the 10-Q
About this data
- Source
- Fastenal 10-Q, accession 0000815556-26-000049, filed Oct 19, 2026, read on Nov 2, 2026.
- History
- From the SEC's XBRL company facts, the value from the latest filing that stated each period.
- Reading
- Paragraphs marked Analysis are CXProWealth's reading; everything else is the filing's own numbers and words, or a cited source.
- Version
- methodology business-lens-1.0 · schema 1.2.0 · run business-lens-2026-11-02
What holds Fastenal's model up, and what could bend it
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.
The detail
Revenue grew from $4.97B in FY2018 to $8.20B in FY2025. Gross profit grew more slowly, from $2.40B to $3.69B, while operating income grew from $999.2M to $1.66B, in step with revenue. This quarter's operating margin of 21.5% sits above both years.1
AnalysisAnalysis: the advantage is a cost to serve that falls as accounts get larger, not a pricing premium. That is harder to copy than a price, because it rests on a branch network, on-site inventory and years of consumption data. It holds as long as the cost base keeps growing slower than sales.
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.
The detail
The filing measures FASTBin and FASTVend devices in machine equivalent units. Installations stood at 143,878 at quarter end against 133,910 a year earlier, and signings were 7,484 in the quarter against 7,050. Digital Footprint sales, through devices plus eProcurement and eCommerce, were 61.4% of sales against 61.3%.1
AnalysisAnalysis: a device on the customer's floor records what is used and triggers replenishment, so a repeated buying decision becomes a routine. Switching supplier means removing a working system, which is why the installed base, more than any single quarter's sales, describes how durable the customer relationships are.
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.
The detail
Full-time equivalent headcount was 21,749 at quarter end against 21,568 a year earlier, and total employees 24,679 against 24,438. SG&A grew 9.5% against sales growth of 15.5%. The filing says "base pay leveraged through increased labor productivity, while bonuses and commissions grew faster than sales".1
AnalysisThe filing says return on assets pre-tax profit, a selling-location income statement, "drives compensation programs". Analysis: when pay follows measured profit, part of the cost base shrinks on its own in a weaker period, which cushions operating margin without layoffs.
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.
The detail
The filing attributes sales growth to "improved customer contract signings" made in earlier periods, product pricing, and "a modest improvement in industrial production". Manufacturing is the largest end market. Its forward-looking statement names economic downturns, weakness in manufacturing or construction, and competitive pressure on selling prices among the main risks.1
AnalysisAnalysis: operating leverage works in both directions. SG&A grew 9.5% while sales grew 15.5%, so operating income grew 20.2%. If pricing stops adding to sales and volume cools, the cost base would have to slow just as fast, or the gross margin already given up would show straight through in operating margin.
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 detail
Gross margin was 44.6% in the first and second quarters, improving to 44.8% in the third, against 45.3% a year earlier. The filing says price/cost reduced gross margin, offset by direct sourcing savings, supplier rebates and tariff refunds, and that part of that benefit reflected favorable timing.1
The Supreme Court invalidated the tariffs imposed under the International Emergency Economic Powers Act, and new tariffs followed under other statutes. The filing says it is not the importer of record for most products it sells, so direct refund exposure is limited, and that uncertainty remains about the scope and duration of tariff programs.1
AnalysisAnalysis: because part of the third-quarter benefit was timing, the improvement from the second quarter is not a clean read on where gross margin settles.
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.
The detail
The company signed 7,484 weighted FASTBin and FASTVend devices in the quarter against 7,050 a year earlier, and lowered its goal for full-year weighted signings. The filing ties current sales growth to customer contract signings made in earlier periods, and lists weak adoption of FMI, more competition in FMI and installation quality among its risks.1
AnalysisAnalysis: signings lead installations, and installations lead contract sales. The filing does not say why the goal was cut. A shift in the timing of large implementations would matter less than fewer new customer programs, and the next quarters' installations would show which it was.
Sources
- 1.Fastenal 10-Q for the period to 2026-09-30 (the filing), Oct 19, 2026, read Nov 2, 2026
Fastenal, further in
Member research, then your own questions on ChatGPT.
What could change the outlook
What Fastenal's numbers depend on from here, read from the filing: the conditions behind this period's margins and growth, and where a change would show first.
- What Fastenal's operating margin depends on if growth slows
Which costs bend with sales and which do not, how much of the margin gain rests on pricing, and the figures that would show first if the large-account trade stopped paying.
- Reading the receivables: when big-account growth turns into cash
Why cash conversion swings between quarters, what longer payment terms cost a distributor, and how rising capital spending changes the free cash flow picture.
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Have a question about Fastenal?
Explore its profit drivers, competitive edge, risks, or your own investment and business questions with CXProWealth on ChatGPT.
- How much of Fastenal's operating margin gain depends on SG&A growing slower than sales?
- Why did Fastenal's active customer Sites fall while Sites buying $50k+ a month rose?
- What could Fastenal's lower device signings goal mean for its contract sales growth?
Business Lens describes Fastenal from its own filings with the SEC. It is not a view on its shares, a target, or advice to buy, sell or hold anything; figures are as filed and may be restated by the company later. The filing, the dates and the version are under the financial data above.