FAST Earnings

Operator: Greetings. Welcome to Fastenal's 2026 Third Quarter Earnings Results Conference Call. At this time, all participants are in a listen-only mode. A question and answer session will follow the formal presentation. Please note that today's conference is being recorded. This time, I will now turn the conference over to Dre Schreiber. Thank you, Dre. You may begin. Dre Schreiber: Welcome to the Fastenal Company 2026 Third Quarter Earnings Conference Call. This call will be hosted by Jeffery Watts, President and Chief Executive Officer and Max H. Tunnicliff, Chief Financial Officer. The call will 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 a proprietary Fastenal presentation and is being recorded by Fastenal. No recording, reproduction, transmission or distribution of today's call is permitted. This call is being audio simulcast on the Internet via the Investor Relations homepage, investor.fastenal.com. A replay of the webcast will be available on the website until 12/01/2026 at midnight central time. 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 those 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. Jeffery Watts. Jeffery Watts: Thank you, Dre. Good morning, everyone, and welcome to Fastenal's third quarter 2026 earnings call. I am Jeffery Watts, Fastenal's Chief Executive Officer, and I appreciate you joining us all today. Also with me this morning is Max H. Tunnicliff, our Chief Financial Officer. Before we get into the quarter, I would like to recognize our Blue team. Every result we report today was earned by people in our branches, our on-sites, our distribution centers, our trucks and our support teams. They show up every day for our customers. They solve problems, and they keep finding better ways to help our customers run their operations. So to the Blue team, thank you. This was a very strong quarter and 1 you should all be very proud of. Now for 2 quick housekeeping items before we get to the numbers. First, our slides look different this quarter. We have refreshed the format of the investor presentation to make the story easier to follow. The flow now goes from highlights to our objectives to what drove sales, financial results, and then there is some key takeaways. I want to be clear about what we did not change. Our definitions are the same, and our historical data is the same. The supporting detail you have relied on is all still there. But some of it is simply moved to the appendix. The first page of the appendix, shows exactly what moved and where to find it. And second, we are targeting a 45-minute call today. We expect to keep the Q&A portion broadly consistent, take about the same number of questions as usual. Now onto the quarter. And for me, I think the headline is pretty simple. Sales grew 15.5%, earnings grew faster than sales. And our net sales were $2.46 billion up $330 million from last year. Operating margin was 21.5%, up 90 basis points and a return on invested capital reached 32.5%, up 32 basis points. Operating income increased by $90 million from last year. that is the largest year over year increase in a single quarter in Fastenal's history. But I think the 3 things that really stood out to me, or stand out to me and drove the quarter. First, growth accelerated. Now second, we converted that growth into higher operating margin and faster earnings growth. And third, the quarter was driven mainly by market share gains through our key account strategy and new contract wins. Now on to slide 5 and this really brings us back to our 3 strategic objectives. Now these are the same pillars we have discussed before, and everything we do ties back to them. Now first being increasing sales effectiveness. We are gaining share with larger customers through our key account strategy and new contract wins. You can see that in our daily sales growth and in the growth of our largest customer sites. On the services, we continue to grow our FMI installed base. Our FastBin and FastBend technology, our digital footprint, these tools improve the customer experience, they strengthen retention, and make both our customers and our own operations much more efficient. Then lastly, expanding our TAM. And we continue to reach revenue that we do not serve today through new products, new geographies, new business models, and new services. You can follow our international and non fastener growth in our monthly sales releases and really, the strategy is consistent. What changes quarter to quarter is the evidence and this quarter I believe the evidence was strong. Now on to slide 6 and what really drove our sales. Our customer site data continues to show progress with our large excuse me, our larger customers, both new and existing, all growing with us. Our contract count increased 6.4% from last year, with signings weighted toward multi site national accounts, The number of sites spending 50 k or more per month with us grew almost 19% from approximately 2.8 thousand roughly 3.3 thousand and sales from those sites increased roughly 28%. Contract customers now represent over 76% of sales and their daily sales grew, 18.8%. Pricing did contribute for the quarter approximately 2.4% to growth. that is a slower pace than earlier in the year because the year over year pricing contribution peaked between fourth quarter of 2025 and first quarter of 26. We are now lapping some of the strongest pricing actions taken in 2025. Market conditions did improve in the first half and that improvement continued in the third quarter, but our growth exceeded the growth rates in the industrial markets that we serve. Me, that is the clearest signal that we are taking share. Now on to slide 7. In our digital footprint was 61.4% of sales and digital sales grew approximately 16% on a daily basis, faster than the company overall. When customers transact digitally, orders are more accurate, there is less manual work on both sides and the relationship becomes much more integrated. We signed approximately 7.5 thousand weighted FMI devices in the quarter or about 117 per day compared with 110 per day last year. In our installed base, passed 143 thousand units, up 7% and sales through FastBin and FastBend grew approximately 18%. We continue to expect 27 thousand to 29 thousand weighted device settings for the full year. We really believe that opportunity for us is clear. We need to keep moving customers toward technology enabled replenishment because it improves service it strengthens the relationship and it creates efficiency for both sides. Now on to slide 8. And this is a little different, but from time to time, we will show you a real example of how we win. Because I think it tells our story better than any statistic ever could. So today, I want to take a couple of minutes to highlight our customer strategy and action and show how we identify a customer challenge and bring our supply chain capabilities to life. In this example, we had a new customer that is experiencing direct material stock outs supply chain shortages and limited control over product consumption. As their business grew, those challenges became even more significant. So after we signed the contract, we got to work. Our Lean 6 Sigma specialists, they mapped the process identified the root cause which was a manual inconsistent system with limited automation, limited digital visibility and physical organization from there, we continued. We developed a road map to modernize their supply chain. And once approved, our team moved quickly. As you can see on slide 9, we reorganized their crib and storage areas for the direct materials We installed clearly labeled barcoded bins deployed our FMI technology established planograms and connected the customer to FAST360 to really provide greater visibility across their facility. We also established KPIs to measure ongoing performance. And the results are significant. Digital visibility increased from 0% to 99%. Replenishment is now automated, stock outs have been eliminated inventory has been reduced and employees spend less time searching and walking for product. Over time, we expect this solution to generate anywhere between 25% to 30% in overall cost savings. But I do want to emphasize that this is only the beginning. As we learn more about their operation and deepen the relationship, our local teams and industry specialists are going to continue to bring new products new technology, new systems and saving opportunities to the customer. Now that is the power of our model: initial investment creates value, that value builds trust, and that trust creates an opportunities to expand the relationship. Over time, those benefits compound for not only the customer but for Fastenal as well. With that, I will turn it over to Max to walk through the financial results. Max H. Tunnicliff: Thanks, Jeffery. Good morning, everyone. Overall, this was a very strong quarter. Demand improved, we continued to gain share and management of our expenses helped us turn that growth into higher operating margins and earnings. Sales grew 15.5% while operating earnings and earnings per share grew roughly 20%. I will start with the business and market trends on slide 10. Industrial conditions improved further in the third quarter. U. S. Manufacturing PMI averaged nearly 55 and industrial production for our key end markets remained positive. This is consistent with the gradual improvement we have seen since late last year. Although momentum remains stronger, in select industrial markets, in the traditional manufacturing and automotive area. Our daily sales growth improved to 15.5% from 14.7% in the second quarter. The improvement was driven primarily by new customer wins, greater share of spending with existing customers and improving industrial activity. Customer demand remained healthy overall, What we heard from the field was consistent with our results. Growth opportunities were strongest in data centers and other high demand markets, while softness remained concentrated in a smaller number of areas. The slide shows how broad the improvement was. Heavy manufacturing led the way again. It represented approximately 45% of sales, and daily sales grew approximately 20%. Growth was strongest in key accounts. Machined products, aerospace and industrial equipment. Other manufacturing grew approximately 13% showing that the improvement extended beyond the largest accounts and strongest verticals. Construction and other non manufacturing markets also contributed. Non residential construction continued to grow. Supported by infrastructure electrical and utility activity. While transportation and reseller customers also posted solid gains. By material type, direct materials increased approximately 19%, compared with approximately 14% in indirect materials. This reflected stronger customer activity, large customer signings, improved product availability and pricing actions. Several higher growth product categories also outpaced the company overall. Particularly electrical, tools and other industrial products. To summarize, industrial activity improved during the quarter but our growth continued to significantly outpace the market. The common thread was our continued progress with larger customers. Reflecting ongoing share gains from our key account strategy new contract wins, and embedded supply solutions. Turning to the financial results on slide 11. The key message is that we converted strong sales growth into higher operating margin and earnings. Operating margin increased 90 basis points to 21.5%. As 130 basis points of SG&A leverage more than offset a 40-bps decline in gross margin. Gross margin was approximately 45% down 40 basis points from last year but 20 basis points above second quarter. Customer mix remained the primary year over year headwind. Consistent with our strategy. Beyond mix, 2 items were not discussed in this quarter. Pricecost which we will continue to address until we return to neutrality and favorable items that benefited the quarter. But may not continue at the same level in the underlying run rate. First, customer mix. It was approximately a 50-basis-point headwind reflecting growth with large customers, and continued execution of our strategy. This mix pressure reflects the continued success of our larger customer strategy. These customers generally carry lower gross margins, but their higher volumes and more efficient service models support attractive operating margins and incremental operating profit. Price cost was approximately a 30-basis-point headwind, improving approximately 10 basis points from the second quarter marking another quarter of sequential improvement. The year over year pricing contribution is slowing after peaking between the fourth quarter of 2025 and the first quarter of 26. We will continue to report on price cost while it remains a headwind. And we remain focused on disciplined pricing and returning to neutrality. Favorable items added approximately 40 basis points to gross margin. Including direct sourcing savings. Supplier rebates, and tariff refunds. About 20 basis points of this 40 reflect timing across these items and should not be assumed to continue in the underlying gross margin run rate. SG&A provided 130 basis points of leverage reflecting expense growth well below sales growth. Employee costs improved by 90 basis points as a percentage of sales while total full time equivalent headcount increased less than 1%. This reflects productivity, role specialization, and the benefits of technology and automation. Occupancy costs improved by approximately 50 basis points as higher sales were spread across our existing branch, on-site, and distribution network. All other SG&A increased slightly as a percent of sales reflecting continued investment in tech, analytics, supply chain and sales support. In total, SG&A leverage expanded operating margin by 90 basis points to 21.5%, This demonstrates how we are executing our strategy using our infrastructure, tech, digital capabilities to scale effectively and efficiently while continuing to invest for growth. Return on invested capital increased 32 basis points to 32.5% on a trailing 12 month basis. Comparing that with a 10-year average of approximately 28%. The improvement reflects stronger operating earnings and continued discipline in working capital and capital spending. Overall, the quarter demonstrates that we can grow with larger and more complex customers. While continuing to invest in the business and improve operating margins and returns. Turning to cash flow and capital discipline on slide 12. Operating cash flow was approximately $422 million or 105% of net income. The year-over-year in conversion was lower primarily because receivables increased with strong sales growth. Particularly with larger customers who generally carry longer payment terms. Inventory increased approximately 3% over the past year. Well above the growth in sales. While product availability remained high. That performance reflects more disciplined inventory positioning and better use of the inventory already in our network. Accounts payable increased as purchasing rose to support growth. Free cash flow was approximately $350 million or 87% of net income. Providing capacity to fund growth investments and return capital to shareholders. Third quarter capital spending was $72 million or 2.9% of sales. Spending was directed primarily toward hub and facility capacity, automation, FMI equipment, information technology and transportation assets. For full year 2026, we continue to expect net capital spending of $310 million to $330 million The program includes hub network capacity, FMI, automation equipment, information technology projects, and transportation assets. We returned $328 million to shareholders during the quarter, $298 million of which of which was through dividends and $30 million through share repurchases. Together, that represented nearly 82% of net income. Over the trailing 12 months, we returned approximately $1.2 billion after funding our operating and capital needs. Our approach to capital is unchanged, We invest in the business, we see strong returns, return excess cash to shareholders, keep a conservative balance sheet So overall, we delivered strong growth expanded margins, and generated healthy cash flow while continuing to invest for the future. The quarter reflects disciplined execution across the business. With that, I will turn it back to Jeffery for the key takeaways. Jeffery Watts: Thanks, Max. Before we open the line, I think I just want to leave everyone with 3 points. The first our growth was broad based. Reflecting share gains across large accounts and embedded supply solutions. Second, we converted that growth into higher operating margin and earnings, while price cost improved sequentially for the second consecutive quarter. And third, our model is compounding. New customer wins create embedded spend, technology deepens those relationships, and our scale allows us to grow profitably while continuing to invest. Now this quarter demonstrates the strength of our strategy. We gained share expanded margins, generated strong cash flow, and improved returns. And I think I will close where I started. With our people. Now this business is-- it is always been built 1 customer and 1 relationship at a time by a blue team that takes ownership. And I am very excited about where we are headed. With that, operator, I think we are ready for questions. Operator: Thank you. We will now be conducting a question and answer session. Thank you. And our first question today comes from the line of David Manthey with Baird. Please proceed with your questions. David Manthey: Yes. Hi, good morning. A 2-part question on gross margins. First off, number 1, the 20-basis-points of timing benefits, could you give us your definition of timing? I mean, is that catching up for past accruals? Or is it pulling benefits from a fourth quarter back into the third quarter? And then second, if fuel prices stay at current levels, is it possible that the 30-basis-point price cost gap actually gets larger in the fourth quarter. Those 2 questions, please. Operator: Ladies and gentlemen, please stand by. We are experiencing technical difficulties and will resume momentarily. Thank you. Max H. Tunnicliff: David, are you there? Operator: Hi, ladies and gentlemen. Thank you for standing by. Please go ahead, sir. Max H. Tunnicliff: Sorry about that, David and company. I-- Jeffery told me I got to take accountability because it was me. I hit. The wrong button trying to unmute ourselves. So I apologize. It was not a question. Not trying to burn time. Okay, David. 2-part question. First of all, you asked about the bits of timing. Yeah, let me define that. Part-- just candidly part of that and roughly half of that was tariff refunds. Very immaterial but we do not see, that coming through in any material level in Q4. So first of all, the amount of 10 bps in that regard is quite small. And second, just because of the phasing and the type of IP tariffs we paid and the sequence of receiving those, that is gonna be probably somewhere in the early part of next year before we see that back in our run rate. The other half, is a bit more of a timing element in regards to primarily volume rebates with suppliers. And so we did have to do a little bit of a catch up on that benefit knowing that we were gonna start to trip into various tiers in the quarter. So that would be that, and that is why we wanna talk about a trend that would exclude that from Q4. Fuel levels, yeah, this 1's an extremely interesting 1, and the reason I say that is first of all, you know our business in that we do a pretty good job offsetting the. That inflation in our in our business. it is not generally possible to offset all of it. But the impact on our business is real. it is I would say in Q3, flattish to what the impact was in Q2. But versus the first quarter versus last year, it is, it is fairly significant. Now to your point, we see enough traction in our price execution enough traction in that space. We have seen enough traction in the way that we handle fuel costs. To feel comfortable that we are not going to be in a situation in Q4 where the price cost becomes-- widens the gap. To answer your question directly. We had a pretty nice exit rate out of Q3, particular to net price cost which we expect to continue. But I cannot make a confident statement like that without suggesting that we all know that these types of elements, inflation, direct or indirect, regarding fuel, diesel, can have a pretty big consequence on our business. And I will take a moment too just to answer and make 1 more point around fuel that I think is more structural to Fastenal. So why do not we have to refer to diesel costs and fuel costs as a major impact on our business. And a lot of it just has to do with our captive fleet. We choose our own routes. we were able to put a lot of product that otherwise would need to be small parcel on our own vehicles. And so we are able to structurally mitigate a lot of the impacts of some of this inflation. Albeit it still sits in our P&L to some extent. David Manthey: All right. that is perfect. Thanks, guys. I will pass it on. Operator: Thank you. The next question is from the line of Stephen Volkmann with Jefferies. Please proceed with your question. Stephen Volkmann: Great. Thank you, guys. I am going to switch to the growth side of this and your helpful slide 21. it is just interesting to me, that the September sequential change sort of underperformed normal seasonality based on your chart here, and that is the first time we have seen that for a number of months here. So I am just curious. Think Max, you might even have mentioned there were some very limited areas where you saw some weakness or something. I do not wanna put words in your mouth, but anything to call out relative to sort of how the quarter progressed and maybe why September was a little bit lower than seasonality? Jeffery Watts: Yeah. I will take that, Max. September still was a strong month at 14.4%, but it was below July and August. Now we are starting to lap some pricing, but I think I am more focused on the 2 year growth of 27% and more importantly, the January to September sequential growth. And that is over 18%, which is well above our historic trend and really, I think the most important numbers as we move into Q4 and more importantly into Q1, I think also when we look at those numbers, especially in September, what gives me a lot of confidence is really what is underneath that headline number. Contract sales grew at 19%, our large customer sites continue to grow well. And we continue to gain share. I do not think I would describe September I think I would describe September as more of a moderation from very strong levels, not so much Max H. Tunnicliff: Steve, I will add on. Just to the point around where in our end markets are we seeing a bit more of a slower pace. And so even some of our what we would call in quotes, weakest areas albeit whether it is resellers, a little bit on the government side is still-- our end markets-- we are still performing in the low double-digits. A couple notable areas of weakness that we are just sensing more in the economy is more around ag, and food. But we do not feel that. that is clearly to us not an underperformance on our side. it is just part of the economy and what is happening there. So as Jeffery said, in September and looking ahead, we do not see any change in our underlying share gains the way that we calculate our impact or what we have called in the past self help. We also do not see anything yet that would concern us from a macroeconomy perspective. That we have not already seen in the past couple quarters. So, yeah, a little below our sequential trends. But nothing that causes us to change our future perspective on our business. Stephen Volkmann: Super. Thank you. Very helpful. I will pass it on. Operator: The next question is from the line of Tommy Moll with Stephens. Please proceed with your questions. Tommy Moll: Good morning and thank you for taking my question. Good morning. Max H. Tunnicliff: Good morning, Tommy. Tommy Moll: I wanted to start maybe to tie out the conversation on gross margin and then pivot to a strategic question as a follow-up. But on gross margin, in 3Q, 40-bps lower year over year. If we take away the 20 bps of timing help, that gets us to down 60. Is that the baseline assumption we should work with for Q4? Or are there any other crosscurrents that you want to call out for us? Thanks. Max H. Tunnicliff: Yeah, Tommy. So, you know our business well in that, based on our strategy, 1 of the elements that comes from that strategy is just a consistent mix negative impact on margin. And that is both big customer growth focused, which shows up in leverage, and it is also just where we grow geographically, especially internationally. And so, yes, the around 60 bps is a good underlying point on a year over year basis to consider. So your question was beyond that known item, what else might we wanna consider for Q4 And you can look at it a couple different ways. 1 is if you just take the sequential you know, you do not. The mix question does not impact and we have a normal sequential pattern. Now we do not provide guidance on a quarterly or annual basis, as you well know, but we do want to and do point out when there is something significant in our run rate. And so aside from the you take a sequential pattern, aside from the 20 bps that I mentioned, there is nothing significant. We have talked about our goal of price cost neutrality. Of course, delivering that goal would be a sequential benefit. If you flip to a year over year basis, same comment. If there is something really big, we would call it out. If you recall from Q4 of last year, we did talk about a significant amount of timing in our gross margin, and it was a negative 50 basis points the way we described it. Last year. So if you are doing a year over year comp, you wanna take that into account along with the mix. So we will have a positive tailwind coming from the timing elements from last, assuming no timing elements in Q4 this year. And then you will have the offset mix component, and then as you read through our results and looked at our Q3 deeper and deeper, notice also that we have a little bit of benefits in the run rate. Again, it is the 40 bps that we mentioned as a benefit offsetting mix and offsetting price cost. And around half of that was timing. That means 20 bps remain. And so that is the way I am thinking about both from a sequential perspective and a year over year perspective on gross margin. Now I cannot, again, I do not want to escape that answer without saying we do not have a we do not have the crystal ball everyone wishes we had. And some of these elements, a lot of our mix is dynamic. The inflation is dynamic and our price conversations are dynamic. Tommy Moll: Yep. Understood and appreciated. And as a follow-up question, I wanted to ask about some press mentions recently of an AI related acquisition. I do not think it was mentioned in the materials today, and my guess is this is pretty small. But could you just give us any details there and how and maybe explain how it ties into your broader strategy? Thank you. Max H. Tunnicliff: Yeah. I will talk maybe just scope it as size and why it was not mentioned publicly and then I will give it to Jeffery. But first of all just broadly, when we think about M&A for Fastenal in the near term, we are not-- we do not see a need for anything large. but, and we have made that clear in the past. But at the same time, we find opportunities and we look for opportunities to improve our capabilities. And oftentimes, those are not gonna be large enough to even be disclosable. And sometimes not large enough to even speak to on the call but we look at the ROI on those as being in some cases, a little bit in a way, limitless. So these are investments, and this is an example of 1, and I will turn it over to Jeffery. But, yeah, small, but we would not waste our time with something small that we did not think it had a. Has a has a positive coming in the future. Jeffery Watts: Yeah. I think, on this acquisition, I mean, we have known this company for quite some time. What they kind of brought us was some orchestration that we needed around our AI and our technology as we move forward. It was an opportunity that, you know, again, as Max said, it is not maybe as material, or even more immaterial. But for us as a company, when we see an opportunity like this, we jumped on it, and it is going to help us grow a lot faster on the tech side. Tommy Moll: Thank you both. I will turn it back. Operator: The next question is from the line of Ryan Merkel with William Blair. Please proceed with your questions. Ryan Merkel: Hey, everyone. Thanks for the question and nice job on the new slide deck. Max H. Tunnicliff: Thank you, Ryan. Ryan Merkel: Wanted to ask first on data centers. You mentioned that was a strong market. So I will leave it kind of open ended. Just curious how you see that impacting demand? And in your answer, maybe talk about the data center pods. I think you are having a lot of success there. Jeffery Watts: I mean, overall, obviously, the data centers, meaningful contributor to our sales. Right now, internally, we look at about 4% to 5% of our 4 to 5% percentage points of our growth You know, the work really spans the data center. The impact we see comes from the construction contractors and manufacturers supplying the build out. Excuse me. Mean, we really serve that through existing customer relationships. But it is difficult to really get a grasp between how much of the data centers is coming out. We should give you a stronger number of per part of our growth. On the pod side, I will turn that over to Max. He can talk a little bit about that. Max H. Tunnicliff: Yeah. it is just a just a reiterate what Jeffery said, it is we want to calculate the impact better than we can, but it is just. As you know, the fingers are all over the place on data centers. And it is a bit of a tough 1 to call on the impact, but it is big enough to call out. Yeah. Jeffery Watts: The pods are more of a. If I get your question, just more of an approach on how we are innovating on thinking about how to service data centers. And in a way, I guess, I think of it this way is, and I have not heard this internally, so I could hopefully, I am not off. But it is it is more like setting up shop almost like an on-site and being as close to the customer as possible, which is always our strategy. it is our winning strategy we have had in. So the team's innovated and found a way to service these growing customers, in the best possible way. Max H. Tunnicliff: I think for us, it is a way to try to keep up with the demand. Because it is coming so fast. That having that on-site, that pod on-site, it is just helping us keep up with the day to day demand, which is, sometimes pretty overwhelming. On the speed in which they need the product. Ryan Merkel: Yeah. Got it. Alright. Got it. that is helpful. And then second question is just on price cost. Just curious what you think that looks like in 4Q? I think I heard you say the exit rate was better coming out of 3Q. And do you expect to be back to neutral in maybe 1Q 2027? I know it is a bit of a moving target. Maybe suppliers are raising prices, but just what are your thoughts? Max H. Tunnicliff: Yeah. You are you are exactly right. it is a moving target. But I would not dispute that. Our goal is as quickly as possible as it always has been, and fortunately, we are making progress. But I think the way you articulated it, Ryan, feels very reasonable to me. Ryan Merkel: Okay. Alright. On time. Thanks. Operator: Our next question is from the line of Chris Yao with Morgan Stanley. Please proceed with your question. Analyst: Thank you. 1 thing that stood out in the September print was the divergence between, I guess, heavy manufacturing, which continues to grow north of 20% on average. For 3Q and non resi construction, which slowed quarter over quarter. Can you help us unpack what is driving that divergence? For example, is there something specific to certain projects or project types, or are you seeing a broader change in activity? Jeffery Watts: Yeah. I would not say that there is a big slowdown in construction by any means. And construction, you know, can move around with project timing. Growth did slow from a very strong Q2 but it still remained healthy and year to date our construction fastener growth remained extremely healthy. Now we are watching it, but I do not know if we are seeing anything that changes our broader view on the construction side. The manufacturing side, yeah, continues to do very well. Very strong demand there. So, yeah, on the construction, I do not think we have anything that would change our broader view. Analyst: Got it. that is very helpful. And so September, came in below typical seasonality. And I wonder, was there any. Anything unusual in customer order patterns during the during the quarter that helps explain the softer exit rate? Jeffery Watts: No, kind of like what I said earlier. I mean, if you are if you really look at the numbers, the last 5 months, previous to September, we outgrew our historic rate. I personally think we are lapping some pricing from last year. We do not really see anything out of the ordinary as far as demand goes, especially on the manufacturing side. I just think, you know, we have a very good sequential trend January through September. And I would not read too much into it. Analyst: Okay. Got it. Thank you. Operator: The next question is from the line of Ken Newman with KeyBanc Capital Markets. Please proceed with your question. Ken Newman: Hey, good morning guys. This is Zach on for Ken Thanks for taking the question. Just 2 quick ones. So the comps get tougher heading into next year. First, is it fair to assume like a mid to high single digit growth? And then if that is a fair scenario, what should incrementals look like for FAST? Max H. Tunnicliff: Yeah. Zach, I will take the start on this and then Jeffery can add in if you would like. it is a bit of a you know, it is a forecasting kind of guidance question and I will just I will give a couple points of color 1 that you will want to keep in mind is just that we are as we approach next year, the pricing tailwind, if you will, of course, will slow a little bit. And the way that we look at our business, is we focus a lot of our gauge of our success on the on the share gains. And so just as we responded to September, we monitor that. And so we see a consistent share gain pattern ahead of us. Based on our potential and what we are driving. And so then the rest is and we would assume less pricing. And so then the market dictates the rest of our performance. And so without giving you the figures, yeah, that. that is probably gonna I mean, we expect. Our success, we think, in any environment should be 10 percentage-point top line improvement each and every year. that is what we hold ourselves accountable for internally. But that is not a forecast or guidance either. So, hopefully, that helps put a little context there. And then you asked about incrementals, I think. So on the incremental operating margin level, we continue to believe that our business when we are growing double digits, should be in the mid twenties if not higher. And that is what we goal ourselves to achieve. And so that, if you will, not guidance, but if that-- it what we have said consistently in the past holds, and I think it is it is proving itself out this quarter, even if you take out the 1 time events, we are in that mid-20 range. And that is where we expect to be. that is that is the healthy point of our growing. Of our fast growing businesses to be in the mid twenties. Jeffery Watts: Yeah. I would just add you know, as pricing rolls over, what really replaces it for us is volume and share. I mean, price I mean, it did help this quarter, but I think the bigger story for us is our contract growth our customer site expansion, a lot of the newer wins and deeper penetration. As we anniversary maybe some of that pricing, our reported growth is going to grow naturally. Less from. Less help, I guess, from price. And I guess that is math. But does not really change the underlying customer activity that we see. Max H. Tunnicliff: So And even said it just to illustrate what Jeffery just said, if we just used pricing as a barometer looking ahead through the year we are walking through, there would be an expectation that we would have slowed down and so we have picked that up with share gains. And of course, the market has helped. Not significant, but it is helped. Even sequentially. So hard to tell. On the future on that on that piece, but we are we are gonna keep driving for the largest growth, obviously, percentage that we can do and with the right incremental margins. Our sequentials are strong. Ken Newman: Got it. I will turn it back. Yep. Operator: Our next question is from the line of Chris Stankert with D.A. Davidson. Please proceed with your questions. Analyst: Hey, good morning guys. Hope we could focus in a little bit here on SG&A. Impressive leverage in the quarter. I guess hard not to notice that sales force headcount is down over 400 heads versus where we were in June. Can you just kind of put that in context? Is this-- are there additional cuts planned? Is this just kind of a good reset? Maybe just kind of give us an update on heads there. Max H. Tunnicliff: Yes, Chris, I will take that to start. First, I would not. I definitely would not use the term cut. Because our business is a growth business. And we are you know, there is there is no CFO or CEO sitting here putting a headcount cap on areas that are important to our business. And so this is really the output of a lot of the work that the teams have done not just in months or quarters, but years, getting role specialization putting the work in the right place, automating, using AI, and the focus on large customers. And so all of those lead to significant efficiencies And so yeah, the. I would not even call it a reset, but this is a our ability to grow this business without growing headcount nearly as fast using the tools that are at our disposal. Jeffery Watts: Yeah. I would add that, you know, we are not gonna starve the business to create a better margin quarter. But, just to add into what Max was saying, a lot of the a lot of the decisions in the field are. They are being made in the field. And instead of maybe in the past before we were kinda getting all the digital tools and all the different things out to the field, you know, that natural reaction would be, we landed this account. I need to add 2 or 3 heads. Now that those same, managers, they are calling in saying, hey. We do not need the 2 or 3 heads. We need this tool. Now that we have this tool, we can do it with half. And that is really what it is becoming. there is definitely no headcount or restriction on adding labor. We are gonna add labor to help wherever we need to keep, continue to grow our business. Analyst: that is that is really, really helpful, guys. I guess my surprise is just, I guess, historically, you sign Onsites, you add contracts, you require just more labor energy. This seems like a material change. I guess, is there a specific tool in particular that is helped you guys lever? Because it is it is a marked departure, it feels like. Jeffery Watts: I mean, I can. I mean, there is a number of tools, but when. I few years back when I was traveling to branches, and I was looking at how we were quoting business. And it upset me because, honestly, it was the same way I quoted business you know, 30 years ago when I was in a branch. And so 20. At the time, 2024. That cannot exist. So a lot of the new tools we have got in, instead of taking maybe, you know, 5, 6 days of sourcing and quoting, that same tool now using AI and some of our internal technology it may take 15 minutes. I mean, that time savings alone, that is just 1 example, but we really looked at the branch efficiencies first when we are developing the tools. We kind of went from there up. And it is having a real impact on the field. And on our headcount. Analyst: Got it. Well, thanks so much for the color, guys. Appreciate it. Operator: Thank you. I know we started a little late. So we will add 1 more question. I think we have time for 1 more question. Sure. The question will be coming from the line of Guy Hardwick with Barclays. Please proceed with your questions. Guy Hardwick: Hi, good morning. Sorry to go back to the gross margin. If we think about it on a year on year basis, should we assume that Q4 and perhaps into next year, you still have the mix headwinds of large customers growing faster than small and midsized customers. Though offset perhaps better price-cost and some other tailwinds that you referenced in the Q3 press release. Max H. Tunnicliff: Yeah, Guy. I will state the way I am looking at it. So we will continue. We do expect to always. Not always is hard to define. We expect over the coming years as we continue to deploy our strategy of really winning with the biggest customers, not ignoring the mid size, but focusing on the big ones, focusing on the customers that are midsize that can be big customers, that is a very deliberate strategy. That will usually result in a year over year impact of around 60 basis points, 50 basis points in that ballpark. The other mix components of our business are largely not material whether it be product mix, and things like that. Now we will have some geographic mix as we grow faster, as I said earlier. So, yes, you would, on a year over year basis, typically expect a starting point of a 50 to 60 basis point headwind on our gross margin. As you look at Q4, and if you look back at our materials from Q4, you would factor in what we described as 50 basis points of timing. That we had. That we encountered in Q4 of 25. And that would be a. That would largely offset, if not, you know, wash it completely away that mix impact. for the quarter. Then, of course, we are always looking for opportunities in margin, whether it is whether it is sourcing, of course, the pricing work. All those other things But I give you just the mix component as a baseline starting point with our margin. Profile. Jeffery Watts: Thank you, Max. Max H. Tunnicliff: And, guys, if you had a second question, that is perfectly fine too. We as Jeffery said, I hung up on you all. So we do not wanna end too early. But if there was a follow-up question, feel free. Otherwise, we will move into the close. Guy Hardwick: Yeah. I will send the calls. You did a really-- there is a very good spread between gross profit growth up 14.5%. I know you kind of answered it on the incremental question, but to what extent was that less than double digit growth in OpEx? I think it was improved versus the quarter helped by the headcount reduction or the natural reduction in headcount? And is that sort of a trend going forward, how we should think about headcount total OpEx growth? And maybe headcount growth as well, if you have any thoughts on that? Max H. Tunnicliff: Yeah. The largest driver, you are right, was headcount. Second was occupancy expenses. And so we are not we are not providing guidance on these elements, is the thing, but we are. This is not like there is-- as you can tell from our comments around what is driving this, there is a structural benefit to our headcount. And in fact, direct slash indirect impact on our occupancy, that we see going forward. And so we have got a little more runway on getting better usage of tools putting work in the right place, call it optimizing our footprint, Of course, we are going to keep adding hubs and doing those things and some of that could be, footprint changes from the branch side. So we are going to constantly pursue cost opportunities and efficiency opportunities. While focusing on, number 1, growing the business. And so, yeah, that just. I just wanna reiterate, it is not a blip like a 1-time blip. it is more of a structural improvement in the way of working within our Salesforce. Primarily. And I should not exclude it just Salesforce. it is it is our labor. Okay. Guy Hardwick: Thank you. Thank you very much. Operator: Thank you. Jeffery Watts: So let's say we have come to the end of our time. I will just kind of close it out with this. My thanks again to the Blue team. Q3 was strong and it was led by share gains. Earnings grew faster than sales. Operating margin expanded, and returns on capital remained excellent. Now we still have some work to do I think on the price-cost and maybe some of our execution, but the strategy is working, and the Blue team is executing. So we are staying very disciplined, and I just wanna thank you all for your time today, and I hope you have a great rest of your week. Thank you. Operator: Thank you. This will conclude today's conference. May disconnect your lines at this time. We thank you for your participation and have a wonderful day.