What changed in this filing

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Item 2. Management’s Discussion and Analysis

2026-07-16 compared with 2026-04-16 · 246 added, 73 removed, 229 unchanged (58% of the section changed)

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Dollar amounts are stated in millions except for share and per share amounts and where otherwise noted.

All historical common stock share and per share information in this quarterly report on Form 10-Q have been retroactively adjusted to reflect the two-for-one stock split effective at the close of business on May 21, 2025.

Percentages, values, and dollar change calculations, which are based on non-rounded dollar values, may not be able to be recalculated or footed using the dollar values in this document due to the rounding of those dollar values.

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On February 20, 2026, the United States Supreme Court issued a decision invalidating the broad-based tariffs imposed under the International Emergency Economic Powers Act (IEEPA).

Significant uncertainty exists regarding the timing and amount of any potential tariff refunds.

We will continue to assess these developments as additional information becomes available.

As a result, the United States Court of International Trade ordered the United States Customs and Border Protection to process refunds for tariffs collected under IEEPA.

Because we are not the importer of record for most products we sell, our direct exposure to potential tariff refunds is limited.

During the second quarter of 2026, we submitted claims for refunds of IEEPA tariffs previously paid on imports for which we were the importer of record.

Refunds received through June 30, 2026 were not material.

The ultimate availability, timing, and the amount of any additional refunds remain uncertain and subject to regulatory, legal, and administrative developments.

Accordingly, as of June 30, 2026, we have not recorded a receivable related to such tariff refunds due to the aforementioned uncertainty;

however, we may recognize additional benefits in future periods.

Following the Supreme Court's ruling on IEEPA tariffs, the United States Executive Branch introduced tariffs under a different statutory authority.

Significant uncertainty remains regarding the scope and duration of current and potential tariffs.

We continue to monitor and evaluate these developments and assess their potential impact on our business, financial condition, and results of operations.

Executive Overview

The following table presents a performance summary of our results of operations for the three-month periods ended March 31, 2026 and 2025 .

Three-month Period

2026 2025 Change

The following table presents a performance summary of our results of operations for the six- and three-month periods ended June 30, 2026 and 2025 .

Six-month Period Three-month Period

2026 2025 Change 2026 2025 Change

Net sales $ 4,588.6 4,039.7 13.6 % $ 2,386.9 2,080.3 14.7 %

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based on 40 hours per week) employee headcount by 423.

Our total FTE selling personnel increased by 214 to support growth and sales initiatives to target customer acquisition.

We had an increase in our distribution and transportation FTE personnel of 14 to support increased product throughput at our distribution facilities.

We had an increase in our remaining FTE personnel of 196, which related primarily to personnel investments in information technology (IT), finance, and supply chain support.

Our total FTE selling personnel increased by 136 to support growth and sales initiatives.

We increased our distribution and transportation FTE personnel by 98 to support increased product throughput at our distribution facilities.

We increased our remaining FTE personnel by 189, which related primarily to personnel investments in supply chain support.

The table below summarizes our absolute and FTE employee headcount at the end of the periods presented and the percentage change compared to the end of the prior periods.

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Total personnel - FTE employee headcount 22,230 21,763 2.1 % 21,602 2.9 % 21,807 1.9 %

FIRST QUARTER OF 2026 VERSUS FIRST QUARTER OF 2025

SECOND QUARTER OF 2026 VERSUS SECOND QUARTER OF 2025

Results of Operations

The following table sets forth condensed consolidated statements of income information (as a percentage of net sales) for the periods ended March 31:

The following table sets forth condensed consolidated statements of income information (as a percentage of net sales) for the periods ended June 30:

Three-month Period

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Income before income taxes 21.0 % 21.0 %

The table below sets forth net sales and daily sales for the periods ended March 31, and changes in such sales from the prior period to the more recent period:

The table below sets forth net sales and daily sales for the periods ended June 30, and changes in such sales from the prior period to the more recent period:

Three-month Period

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Daily sales impact of currency fluctuations 0.1 % 0.1 %

Net sales increased $242.2, or 12.4%, in the first quarter of 2026 when compared to the first quarter of 2025 (both periods had the same number of selling days.) Sales performance reflects the contribution from improved customer contract signings since the first quarter of 2024, as well as a slight improvement in industrial production in the first quarter of 2026.

Foreign e xchange rates positively affected sales in the first quarter of 2026 by approximately 60 basis points, compared to a negative impact in the first quarter of 2025 of approximately 50 basis points.

The impact of product pricing on net sales in the first quarter of 2026 was an increase of approximately 350 basis points, compared to being immaterial in the first quarter of 2025.

Net sales increased $306.6, or 14.7%, in the second quarter of 2026 when compared to the second quarter of 2025 (both periods had the same number of selling days).

Sales performance reflects the contribution from improved customer contract signings since the first quarter of 2024, product pricing, and a modest improvement in industrial production in the first half of 2026.

Foreign e xchange rates contributed approximately 10 basis points to sales growth in both periods.

The impact of product pricing on net sales in the second quarter of 2026 was an increase of approximately 290 basis points, compared to an increase of 140 to 170 basis points in the second quarter of 2025.

From a product portfolio standpoint, we classify our offerings into four primary categories:

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Direct materials generally include products incorporated into finished goods or that directly support customers' production processes, while indirect materials support customers' facility operations, maintenance, and safety needs .

During the first quarter of 202 6, direct materials slightly outpaced indirect materials, reflecting greater contribution from fastener sales and continued strength with manufacturing customers.

During the second quarter of 202 6, direct material s slightly outpaced indirect materials, reflecting greater contribution from fastener sales and continued strength with manufacturing customers.

The DS R change when compared to the same period in the prior year and the percent of sales in the period were as follows:

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heavy manufacturing, other manufacturing, non-residential construction, and other, the latter of which includes reseller, government/education, transportation, warehousing and storage, and data centers.

Our manufacturing end markets growth was mainly due to the relative strength we are experiencing with key account customers with significant managed spend, where our service model and technology are particularly impactful.

The non-residential construction end market experienced growth for the fourth time in fourteen consecutive quarters.

Our manufacturing end market growth was m ainly due to th e relative strength we are experiencing with key account customers with significant managed spend, where our service model and technology are particularly impactful.

The non-residential construction end market experienced continued growth for the fifth time in fifteen consecutive quarters.

Other end market sales were favorably impacted by growth with transportation and warehousing customers.

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1) contracts, which include national multi-site, local and regional, and government customers with significant revenue potential, and 2) non-contracts.

Sales with our contract customers continue to outperform as we realize incremental sales from implementing customer signings that we have achieved since the first quarter of 2024.

Sales with our contract customer s continue to outperform as we realize incremental sales from implementing customer signings that we have achieved since the first quarter of 2024.

Non-contract customers tend to be smaller and utilize fewer of our tools and capabilities, providing fewer avenues for share gains and therefore more closely reflect overall business trends.

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Segmentation by spend level provides insight into the scale and potential of customer relationships served through our network.

The following table summarizes customer Sites averaged by monthly spend band and related monthly sales metrics.

The following table summarizes average customer Site counts by monthly spend band and related sales metrics.

Three-month Period

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(2) Sites numbers reflect the monthly average of active Site counts.

(3) Monthly sales per Site totals are not rounded to the millions and represents the exact dollar amount.

(3) Monthly sales per Site totals are not rounded to the millions and represent the exact dollar amount.

(4) $50k+ Sites are disclosed as a representation of Onsite-like customers and are also a subset of $10k+ and $5k+ Sites.

(5) Other sales represent sales to Sites under $5k+ per month and sales that are not tied to a specific Site.

This includes certain service fees, cash sales, direct material sales, etc.

This includes certain service fees, cash sales, direct ship sales, etc.

Digital Technology

FMI Technology comprises our FASTStock℠ (scanned stocking locations), FASTBin ® (infrared, RFID, and scaled bins), and FASTVend ® (vending devices) offerings.

FASTStock's fulfillment processing technology is not embedded, is relatively less expensive and highly flexible in application, and is delivered using our proprietary mobility technology.

FMI Technology comprises our FASTStock℠ (scanned stocking locations), FASTBin ® (infrared, RFID, scaled bins, and FASTBin ® - Click), and FASTVend ® (vending devices) offerings.

FASTStock's fulfillment processing technology is not embedded, is relatively less expensive to deploy and highly flexible in application, and is delivered using our proprietary mobility technology.

FASTBin and FASTVend incorporate highly efficient and powerful embedded data tracking and fulfillment processing technologies.

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We do not include FASTStock in this measurement because scanned stocking locations can take many forms, such as bins, shelves, cabinets, pallets, etc., that cannot be converted into a standardized MEU.

We signed 6,950 weighted FASTBin and FASTVend devices in the first quarter of 2026.

Ou r goal for weighted FASTBin and FASTVend device signings in 2026 remains between 28,000 and 30,000 MEUs.

We signed 6,993 weighted FASTBin and FASTVend devices in the second quarter of 2026 .

Our goal for weighted FASTBin and FASTVend device signings in 2026 is between 27,000 and 29,000 MEUs (our previous goal was between 28,000 and 30,000 MEUs).

The second statistic is sales through FMI Technology, which combines the sales through FASTStock, FASTBin, and FASTVend.

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(2) Digital Footprint is a combination of our sales through FMI (FASTStock, FASTBin, and FASTVend) plus that portion of our eBusiness sales that does not represent billings of FMI services.

(3) Weighted FASTBin/FASTVend signings and installations reflects the percent change compared to the same period in the prior year.

Gross prof it, as a percentage of net sales, decreased to 44.6% in the first quarter of 2026 from 45.1% in the first quarter of 2025, driven primarily by unfavorable price/cost of approximately 50 basis points, and smaller headwinds from transportation and certain customer rebates.

Customer mix remained a structural headwind to gross margin, as growth skewed toward larger customers that carry lower gross margins but remain positive to operating margin due to strong fixed-cost leverage.

Our fastener expansion project benefits continued to provide a meaningful offset, mitigating some underlying gross margin pressure;

these benefits will anniversary early in the second quarter of 2026.

(3) Weighted FASTBin/FASTVend signings and installations reflect the percent change compared to the same period in the prior year.

Gross prof it, as a percentage of net sales, decreased 75 basis points to 44.6% in the second quarter of 2026 from 45.3% in the second quarter of 2025, driven primarily by unfavorable net price/cost of approximately 40 basis points, and smaller headwinds from customer mix, transportation costs, and customer rebate activity.

Customer mix continued to shift toward larger customers, consistent with our strategic focus.

While these relationships typically carry lower gross margins, they generate higher absolute profit dollars and are accretive to operating margin through fixed-cost leverage, higher volumes, and operating efficiencies.

Transportation costs were up modestly, driven by fuel inflation, while customer rebates increased slightly du e largely to timing-related factors.

Our gross margin decreased 50 basis points in the first quarter of 2026 to 44.6% of net sales, from 45.1% in the first quarter of 2025.

Gross margin was consistent from the first quarter of 2026 to second quarter of 2026.

SG&A Expenses

SG&A expenses, as a percentage of net sales, were 24.3% in the first quarter of 2026 versus 25.0% in the first quarter of 2025.

SG&A expenses, as a percentage of net sales, were 23.5% in the second quarter of 2026 versus 24.4% in the second quarter of 2025, an improvement of 80 basis points.

The approximate change as a percentage of net sales in employee-related, occupancy-related, and all other SG&A expenses compared to the same period in the preceding year, is outlined in the table below.

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(1) payroll (which includes cash compensation, stock option expense, and profit sharing), (2) health care, (3) personnel development, and (4) social taxes.

In the first quarter of 2026, our employee-relate d expenses remained stable as a percentage of net sales when com pared to the first quarter of 2025 .

We realized about 60 basis points of leverage from improved FTE productivity.

Bonuses and commissions increased 55 ba sis points as a result of improved business activity and financial performance versus the same period in the prior year.

In the second quarter of 2026, our employee-relate d expenses improved 70 basis points as a percentage of net sales when com pared to the second quarter of 2025 .

Base pay leveraged due to increased labor productivity, while bonuses and commissions grew faster than sales as a result of improved business activity and financial performance versus the same period in the prior year.

The table below summarizes our FTE headcount at the end of the periods presented and the percentage change compared to the end of the prior periods:

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(1) Sales Support personnel (37% to 42% of category), which includes sourcing, purchasing, supply chain, product development, etc.;

(2) IT personnel (34% to 39% of category);

(2) Information Technology (IT) personnel (34% to 39% of category);

and (3) Administrative Support personnel (22% to 27% of category), which includes human resources, Fastenal School of Business, accounting and finance, senior management, etc.

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(1) building rent and depreciation, (2) building utility costs, (3) equipment related to our selling and distribution locations, and (4) industrial vending equipment and bins utilized as part of FMI services (we consider this hardware to be a logical extension of our in-market operations and classify the depreciation and repair costs as occupancy expenses).

In the first quarter of 2026, our occupancy-related expenses improved 30 basis points as a percentage of net sales when compared to the first quarter of 2025, driven mainly by fixed cost leverage.

In the second quarter of 2026, our occupancy-related expenses improved 40 basis points as a percentage of net sales when compared to the second quarter of 2025 , driven mainly by fixed cost leverage.

All other SG&A expenses include:

(1) selling-related transportation, (2) IT expenses, (3) general corporate expenses, which consist of legal expenses, general insurance expenses, travel and marketing expenses, etc., and (4) sales of property and equipment.

Combined, all other SG&A expenses improved 40 basis points as a percentage of net sales in the first quarter of 2026 when compared to the first quarter of 2025.

The improvement was mainly driven by reductions in expense related to currency revaluation of certain assets and increases in joint marketing efforts with our suppliers.

Combined, all other SG&A expenses increased 30 basis points as a percentage of net sales in the second quarter of 2026 when compared to the second quarter of 2025.

The increase was mainly driven by selling-related transportation and fuel costs and increased sales-related travel expense.

Operating Income

Operating income, as a percentage of net sales, increased to 20.3% in the first quarter of 2026 from 20.1% in the first quarter of 2025.

Net interest income was $0.8 in the first quarter of 2026, compared to net interest expense of $0.8 in the first quarter of 2025, reflecting lower debt balances and higher interest income.

We recorded income tax expense of $ 108.6 in the first quarter of 2026, or 24.2% of in com e before income taxes.

Income tax expense was $ 94.4 in the first quarter of 2025, or 24.0% of income before income tax es.

We believe our ongoing tax rate, absent any discrete tax items or broader changes to tax law, will be approximatel y 24.6%.

Net income was $ 339.8 in the first quarter of 2026, an increase of 13.8% compared to the first quarter of 2025.

Diluted net income per share was $ 0.30 compared to $0.26 in the first quarter of 2025.

Operating income as a percentage of net sales was 21.0% in the second quarter of 2026, remaining consistent year-over-year as SG&A leverage fully offset gross margin pressure.

Net interest income was $0.2 in the second quarter of 2026, compared to net interest income of $0.5 in the second quarter of 2025, reflecting slightly lower cash investments and debt balances.

We recorded income tax expense of $119.3 in the second quarter of 2026, or 23.8% of in com e before income taxes.

Income tax expense was $106.3 in the second quarter of 2025, or 24.4% of income before income tax es.

We believe our ongoing tax rate, absent any discrete tax items or broader changes to tax law, will be approximately 24.6%.

Our tax rate in the second quarter of 2026 was below our expected ongoing rate due to return-to-provision adjustments recognized in the quarter and the tax benefits associated with the exercise of employee stock options during the period.

Net income was $382.8 in the second quarter of 2026, an increase of 15.9% compared to the second quarter of 2025.

Diluted net income per share was $0.33 compared to $0.29 in the second quarter of 2025.

Liquidity and Capital Resources

Cash flow activity was as follows for the periods ended March 31:

Cash flow activity was as follows for the periods ended June 30:

Three-month Period

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Net cash used in financing activities $ 307.6 216.4 42.2 %

(1) Five-year average includes first quarter average for 2021 to 2025.

(1) Five-year average includes second quarter average for 2021 to 2025.

Net Cash Provided by Operating Activities

Net cash provided by operating activities increased $116.2 in the first quarter of 2026 when compared to the first quarter of 2025.

This increase in operating cash flow compared to last year, as a percent of net income, primarily reflects a focused effort to optimize inventory levels.

The dollar and percentage change in accounts receivable, net, inventories, and accounts payable as of March 31, 2026 when compared to March 31, 2025 were as follows:

March 31 Twelve-month Dollar Change Twelve-month Percentage Change

Net cash provided by operating activities decreased $12.9 in the second quarter of 2026 when compared to the second quarter of 2025.

The decline as a percentage of net income compared to last year was primarily driven by a larger use of cash for accounts receivable, reflecting strong mid- and late-quarter sales growth, including a 20.5% year-over-year increase in June sales.

This was partially offset by an increase in accounts payable associated with higher purchasing activity.

The dollar and percentage change in accounts receivable, net, inventories, and accounts payable as of June 30, 2026 when compared to June 30, 2025 were as follows:

June 30 Twelve-month Dollar Change Twelve-month Percentage Change

2026 2025 2026 2026

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Net sales in last three months $ 2,386.9 2,080.3 $ 306.6 14.7 %

The increase in our accounts receivable balance in the first quarter of 2026 was mainly attributable to growth in sales with our customers, including relative growth with larger customers that tend to carry longer payment terms.

The slight increase in our inventory balance in the first quarter of 2026 reflects disciplined inventory manag ement and optimization during the period.

The increase in our accounts payable balance in the first quarter of 2026 was mainly attributable to an increase in inventory spending to support growth which was partially offset by timing associated with capital expenditures and general insurance payment activity.

The increase in our accounts receivable balance in the second quarter of 2026 was mainly attributable to sales growth, including relative growth with larger customers that tend to carry longer payment terms.

The slight increase in our inventory balance in the second quarter of 2026 reflects disciplined inventory management and optimization during the period.

The increase in our accounts payable balance in the second quarter of 2026 was mainly attributable to an increase in inventory spending to support growth later in the quarter.

Net Cash Used in Investing Activities

Net cash used in investi ng activities increased $3.8 in the first quarter of 2026 when compared to the first quarter of 2025.

This was mainly related to an increase in spending for facility construction and upgrades, IT, and vehicles.

Net cash used in investi ng activities decreased $1.9 in the second quarter of 2026 when compared to the second quarter of 2025.

Our investments were directed toward facility construction and upgrades, IT spend, and industrial vending equipment .

Our capital spending typically falls into five categories:

(1) purchases related to FMI hardware, (2) purchases of property and equipment related to expansion of and enhancements to distribution centers, owned or leased branch properties, and other company facilities, (3) spending on software and hardware for our information processing systems, (4) the addition of fleet vehicles, and (5) the addition of manufacturing equipment.

Proceeds from the sales of property and equipment, typically for the planned disposition of pick-up trucks as well as distribution vehicles and trailers in the normal course of business, are netted

against these purchases and additions.

During the first quarter of 2026, our net capital expenditures (purchases of property and equipment, net of proceeds from sales of property and equipment) were $57.6, which was a slight increase from $ 53.8 in the first quarter of 2025.

vehicles, and (5) the addition of manufacturing equipment.

Proceeds from the sales of property and equipment, typically for the planned disposition of pick-up trucks as well as distribution vehicles and trailers in the normal course of business, are netted against these purchases and additions.

During the second quarter of 2026, our net capital expenditures (purchases of property and equipment, net of proceeds from sales of property and equipment) were $60.5 (2.5% of net sales) which was a slight decrease from $64.3 (3.1% of net sales) in the second quarter of 2025.

Our five- and ten-year annual average as a percent of net sales was 2.5% and 3.1%, respectively.

Cash requirements for capital expenditures were satisfied from cash generated from operations, available cash and cash equivalents, our borrowing capacity, and the proceeds of disposals.

For 2026, we continue to expect our net capital expenditures to be within a range of $310.0 to $330.0, an increase from $230.6 in 2025.

The expected growth on a year-to-year basis reflects three items.

For 2026, we continue to expect our net capital expenditures to be between $310.0 and $330.0, an increase from $230.6 in 2025.

The expected growth on a year-over-year basis reflects three items.

First, we expect increased spending to replace our Atlanta hub facility and improve our picking capacity and efficiency across our hub network.

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Net Cash Used in Financing Activities

Net cash used in financin g activities increased $52.8 in the first quarter of 2026 when compared to the first quarter of 2025.

In the first quarter of 2026, we had lower average borrowings and a smaller proportion of those balances were part of a facility that was eligible for repayment.

In contrast, during the first quarter of 2025, we had higher average borrowings outstanding and were using capital to reduce those balances.

As a result, we used significantly less capital to reduce debt balances in the first quarter of 2026 relative to the first quarter of 2025.

We also increased capital returned to shareholders through dividends and share repurchases in the period.

During the first quarter of 2026, we retu rned $295.7, or 87.0% of net income, to our shareholders in the form of dividends ($275.6) and share repurchases ($20.1), compared to the first quarter of 2025 when we returned $246.7, or 82.6% of net income, to our shareholders in the form of dividends.

Our five-year average returned to our shareholders as a percentage of net income is 73.6%.

During the first quarter of 2026, we purchased 425,000 shares of our common stock at an average price of approximately $47.27 per share.

We did not purchase any shares of our common stock in the first quarter of 2025.

Net cash used in financin g activities increased $91.3 in the second quarter of 2026 when compared to the second quarter of 2025.

In the second quarter of 2026, we had lower average borrowings and a smaller proportion of those balances were part of a facility that was eligible for repayment.

In contrast, during the second quarter of 2025, we had higher average borrowings outstanding and were using capital to reduce those balances.

As a result, we allocated significantly less capital to debt reduction in the second quarter of 2026 relative to the second quarter of 2025.

During the second quarter of 2026, we retu rned $305.1, or 79.7% of net income, to our shareholders in the form of dividends ($275.4) and share repurchases ($29.7), compared to the second quarter of 2025 when we returned $252.5, or 76.4% of net income, in the form of dividends.

Over the past five years, we have returned an average of 73.2% of net income to shareholders.

During the second quarter of 2026, we purchased 650,000 shares of our common stock at an average price of approximately $45.72 per share.

We did not purchase any shares of our common stock in the second quarter of 2025.

We have authority to purchase up to 11,325,000 shares of our common stock under the July 12, 2022 authorization.

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Our material cash requirements for known contractual ob ligations include capital exp enditures, debt, and lease obligations, each of which are discussed in more detail earlier in this report in the Notes to Condensed Consolidated Financial Statements and in our 2025 annual report on Form 10-K.

We believe that cash generated from operations, together with our available cash and cash equivalents and borrowing capacity under our Credit Facility, will be sufficient to meet our working capital, capital expenditure, debt service, dividend, and share repurchase requirements for the foreseeable future.

An overview of our cash dividends paid or declared in 2026 and 2025 is contained in Note 3 of the Notes to Condensed Consolidated Financial Statements.

SIX MONTHS ENDED JUNE 30, 2026 VERSUS SIX MONTHS ENDED JUNE 30, 2025

Results of Operations

The following table sets forth condensed consolidated statements of income information (as a percentage of net sales) for the periods ended June 30:

Six-month Period

Net sales 100.0 % 100.0 %

Gross profit 44.6 % 45.2 %

SG&A expenses 23.9 % 24.7 %

Operating income 20.7 % 20.5 %

Net interest 0.0 % 0.0 %

Income before income taxes 20.7 % 20.5 %

The table below sets forth net sales and daily sales for the periods ended June 30, and changes in such sales from the prior period to the more recent period:

Six-month Period

Net sales $ 4,588.6 4,039.7

Percentage change 13.6 % 6.0 %

Business days 127 127

Daily sales $ 36.1 31.8

Percentage change 13.6 % 6.8 %

Daily sales impact of currency fluctuations 0.2 % -0.2 %

Net sales increased $548.9, or 13.6%, in the first six months of 2026 when compared to the first six months of 2025 (both periods had the same number of selling days).

Sales performance reflects the contribution from improved customer contract signings since the first quarter of 2024, as well as a slight improvement in industrial production in the first six months of 2026.

Foreign exchange rates positively affected sales in the first six months of 2026 by approximately 20 basis points as compared to negatively affecting sales in the first six months of 2025 by approximately 20 basis points.

The impact of product pricing on net sales in the first six months of 2026 w as an increase of approximately 320 basis points, compared to the first six months of 2025, which experienced an increase of 70 to 100 basis points.

From a product portfolio standpoint, we classify our offerings into four primary categories:

fasteners, safety supplies, cutting tools and other product lines.

'Other product lines' encompasses seven smaller product segments, including tools and janitorial supplies.

Beginning in the fourth quarter of 2025, we expanded our reporting to provide a more comprehensive view of direct (original equipment manufacturing/production) and indirect (maintenance, repair, and operations/facilities maintenance) business across product categories.

During the first six months of 202 6, direct materials slightly outpaced indirect materials, reflecting greater contribution from fastener sales and continued strength with manufacturing customers.

The DSR change when compared to the same period in the prior year and the percent of sales in the period were as follows:

Six-month Period

2026 2025 2026 2025

Direct fasteners/hardware 15.6 % 6.1 % 21.0 % 20.7 %

Direct cutting tools and abrasives 12.9 % 6.3 % 5.1 % 5.2 %

Direct non-fasteners/hardware 14.6 % 10.5 % 12.9 % 12.8 %

Total direct materials 14.9 % 7.6 % 39.0 % 38.7 %

Indirect fasteners/hardware 15.5 % 3.7 % 9.8 % 9.7 %

Indirect safety 11.7 % 7.1 % 20.9 % 21.3 %

Indirect non-fasteners/hardware and non-safety 13.7 % 8.7 % 30.2 % 30.3 %

Total indirect materials 13.3 % 7.1 % 61.0 % 61.3 %

From an end market standpoint, we have four categories:

Our heavy manufacturing end markets are outperforming primarily due to the relative strength we are experiencing with key account customers with significant managed spend where our service model and technology are particularly impactful.

This disproportionately benefits manufacturing customers.

Other end market sales are improving primarily as a result of strength with transportation, education and healthcare, and data center customers due to market share gains and product mix.

The DSR change when compared to the same period in the prior year and the percent of sales in the period were as follows:

Six-month Period

2026 2025 2026 2025

Heavy manufacturing 16.2 % 6.2 % 44.0 % 43.1 %

Other manufacturing 10.4 % 10.6 % 32.0 % 33.0 %

Total manufacturing 13.7 % 8.0 % 76.1 % 76.1 %

Non-residential construction 17.1 % -0.1 % 8.2 % 8.0 %

Other end markets 12.7 % 4.8 % 15.7 % 15.9 %

Total non-manufacturing 14.2 % 3.1 % 23.9 % 23.9 %

From a customer standpoint, we have two categories:

1) contracts, which include national multi-site, local and regional, and government customers with significant revenue potential, and 2) non-contracts.

Sales with our contract customer s continue to outperform as we realize incremental sales from implementing customer signings that we have achieved since the first quarter of 2024.

Non-contract customers tend to be smaller and utilize fewer of our tools and capabilities, providing fewer avenues for share gains and therefore more closely reflect overall business trends.

The DSR change when compared to the same period in the prior year and the percent of sales in the period were as follows:

Six-month Period

2026 2025 2026 2025

Contract sales 16.2 % 9.8 % 75.6 % 73.1 %

Non-contract sales 7.0 % -0.5 % 24.4 % 26.9 %

We signed 13,943 weighted FASTBin and FASTVend devices in the first six months of 2026.

The table below summarizes signings and installations of our FMI devices and sales through our FMI devices, eBusiness (1) tools, and Digital Footprint (2) .

Six-month Period

2026 2025 DSR

Weighted FASTBin/FASTVend signings (MEUs) 13,943 12,875 8.3 %

Signings per day 110 101

Weighted FASTBin/FASTVend installations (MEUs;

end of period) 140,789 132,174 6.5 %

FASTStock sales $ 579.4 502.3 15.4 %

% of sales 12.5 % 12.3 %

FASTBin/FASTVend sales $ 1,503.0 1,285.2 16.9 %

% of sales 32.3 % 31.4 %

FMI sales $ 2,082.4 1,787.5 16.5 %

FMI daily sales $ 16.4 14.1

% of sales 44.7 % 43.7 %

eBusiness sales $ 1,360.6 1,239.6 9.8 %

% of sales 29.2 % 30.3 %

eBusiness and FMI sales overlap $ 578.3 534.5 8.2 %

% of sales 12.4 % 13.1 %

Digital Footprint sales $ 2,864.7 2,492.6 14.9 %

% of sales 61.6 % 61.0 %

(1) Our eBusiness includes eProcurement activities, which are integrated transactions, including electronic data interchange (EDI), and eCommerce (transactional website sales).

(2) Digital Footprint is a combination of our sales through FMI (FASTStock, FASTBin, and FASTVend) plus that portion of our eBusiness sales that does not represent billings of FMI services.

(3) Weighted FASTBin/FASTVend signings and installations reflect the percent change compared to the same period in the prior year.

Our gross profit, as a percentage of net sales, decreased to 44.6% in the first six months of 2026 from 45.2% in the first six months of 2025, driven primarily by unfavorable net price/cost of approximately 45 basis points, and headwinds from customer mix, transportation costs and certain customer rebates.

Customer mix continued to shift toward larger customers, consistent with our strategic focus.

Transportation costs were up modestly, driven by fuel inflation, while customer rebates increased slightly due largely to timing-related factors.

Our fastener expansion project benefits provided a partial offset, mitigating a portion of underlying gross margin pressure;

these benefits largely anniversary early in the second quarter of 2026.

SG&A Expenses

Our SG&A expenses, as a percentage of net sales, were 23.9% in the first six months of 2026, down from 24.7% in the first six months of 2025.

Efforts to control growth in operating expenses in the first six months of 2026 produced a 10.1% expansion of total SG&A expenses in the period.

Growth in net sales was above growth in SG&A expenses, resulting in our leveraging of costs in the first six months of 2026.

Approximate Percentage of Total SG&A Expenses Six-month Period

Employee-related expenses 70% to 75% -40 bps

Occupancy-related expenses 14% to 19% -30 bps

All other SG&A expenses 10% to 15% 0 bps

In the first six months of 2026, our employee-related expenses improved 40 basis points when compared to the first six months of 2025.

Bonus and commission expense grew faster than the increase in net sales, as a result of improved sales and profit growth versus the prior year period.

This was offset by leverage we experienced in employee base pay due to higher average FTE and average wages during the period growing less than sales.

The table below summarizes our FTE headcount at the end of the periods presented and the percentage change compared to the end of the prior period:

Selling personnel (1)

15,796 15,439 2.3 %

Distribution/Transportation personnel 3,196 3,056 4.6 %

Manufacturing personnel 995 958 3.9 %

Organizational support personnel (2)

2,243 2,149 4.4 %

Total personnel 22,230 21,602 2.9 %

Of our Selling personnel, 80%-85% are attached to a specific location.

Organizational support personnel consists of:

(1) Sales Support personnel (37% to 42% of category), which includes sourcing, purchasing, supply chain, product development, etc.;

(2) IT personnel (34% to 39% of category);

and (3) Administrative Support personnel (22% to 27% of category), which includes human resources, Fastenal School of Business, accounting and finance, senior management, etc.

In the first six months of 2026, our occupancy-related expense s improved 30 basis points wh en compared to the first six months of 2025, driven mainly by fixed cost leverage.

Combined, all other SG&A exp enses were flat in the first six months of 2026 when compared to the first six months of 2025.

This was mainly driven by higher selling-related transportation and higher fuel costs which were mostly offset by increases in joint marketing efforts with our suppliers.

Operating Income

Operating income, as a percentage of net sales, increased to 20.7% in the first six months of 2026 from 20.5% in the first six months of 2025.

We had slightly lower inter est income in the first six months of 2026 and lower inte rest expense in the first six months of 2026 .

The decrease in interest income relative to interest expense resulted in net i nterest income of $1.0 in the first six months of 2026, compared to net interest expense of $0.2 in the first six months of 2025.

We recorded income tax expense of $227.8 in the first six months of 2026, or 24.0% of income before income taxes.

Income tax expense was $200.9 in the first six months of 2025, or 24.2% of income before income taxes.

Our tax rate in the first six months of 2026 was below our expected ongoing tax rate due to return-to-provision adjustments processed in the second quarter

and the tax benefits associated with the exercise of stock options during the first six months of 2026.

We believe our ongoing tax rate, absent any discrete tax items or broader changes to tax law, will be approximately 24.6%.

Net income was $722.6, an increase of 14.9% compared to the first six months of 2025.

Our diluted net income per share was $0.63 in the first six months of 2026, compared to $0.55 in the first six months of 2025.

Liquidity and Capital Resources

Cash flow activity was as follows for the periods ended June 30:

Six-month Period

Five-Year Average (1)

2026 2025 Change

Net cash provided by operating activities $ 644.1 540.8 19.1 %

% of net income 94.1 % 89.1 % 86.0 %

Net cash used in investing activities $ 120.2 118.3 1.6 %

% of net income 15.6 % 16.6 % 18.8 %

Net cash used in financing activities $ 595.9 451.8 31.9 %

(1) Five-year average includes 2021 to 2025.

Net Cash Provided by Operating Activities

Net cash provided by op erating activities increased $103.3 in the first six months of 2026 when compared to the first six months of 2025 .

The increase in operating cash flow, as a percent of net income, primarily reflects improved working capital leverage associated with inventory.

Net Cash Used in Investing Activities

Net cash used in investing activities increased $1.9 in the first six months of 2026 when compared to the first six months of 2025.

During the first six months of 2026, our net capital expenditures were $118.2, which was a slight increase from $118.1 in the first six months of 2025.

This primarily related to an increase in spending on facility construction and upgrades, industrial vending equipment, IT, and trucking.

Net Cash Used in Financing Activities

Net cash used in financing activities increased $144.1 in the first six months of 2026 when compared to the first six months of 2025.

This was primarily due to reducing our net indebtedness less in the first six months of 2026 than we did in the first six months of 2025.

This was more than offset by an increase in capital returned to shareholders through dividends and share repurchase in the period.

During the first six months of 2026, we returned $600.7, or 83.1% of net income, to our shareholders in the form of dividends ($550.9) and purchases of our common stock ($49.8).

During the first six months of 2025, we returned $499.1, or 79.3% of net income, to our shareholders, all in the form of dividends.

During the first six months of 2026, we purchased 1,075,000 shares of our common stock at an average price of $46.33 per share.

During the first six months of 2025, we did not purchase any shares of our common stock.

Over the past five years, we have returned an average of 73.3% of net income to shareholders.

Critical Accounting Policies and Estimates – A discussion of our critical accounting policies and estimates is contained in our 2025 annual report on Form 10-K.

9 unchanged sentences

Consequently, no forward-looking statement can be guaranteed and actual results may vary materially.

Factors that could cause our actual results to differ from those discussed in the forward-looking statements include, but are not limited to, economic downturns, weakness in the manufacturing or commercial construction industries or any of our end markets, competitive pressure on selling prices, changes in our current mix of products, customers, or geographic locations, changes in our average branch size, changes in our purchasing patterns, changes in customer needs, changes in fuel or commodity prices, inclement weather, changes in foreign currency exchange rates, difficulty in adapting our business model to different foreign business environments and the challenges of operating in foreign business environments, failure to accurately predict the market potential of our business strategies, the introduction or expansion of new business strategies, weak acceptance or adoption of our FMI offering, increased competition in FMI, difficulty in maintaining installation quality as our FMI business expands, the leasing to customers of a significant number of additional FMI devices, the failure to meet our goals and expectations regarding branch openings, branch closings, or expansion of our FMI offering, the failure to realize expected benefits from the completion of our strategic rationalization, changes in the implementation objectives of our business strategies, challenges in developing and expanding our digital capabilities, difficulty in hiring, relocating, training, or retaining qualified personnel, difficulty in controlling SG&A expenses, including FTE growth, difficulty in collecting receivables or accurately predicting future inventory needs, dramatic changes in sales trends, changes in supplier production lead times, short-term inefficiencies in our supply chain may not normalize or result in certain warehousing customer growth, changes in our cash position or our need to make capital expenditures, credit market volatility, changes in tax law or the impact of any such changes on future tax rates, changes in tariffs or the impact of any such changes on our financial results including any changes resulting from the recent U.S.

Supreme Court decision affecting tariffs imposed under the IEEPA, changes in the availability or price of commercial real estate, changes in the nature, price, or availability of distribution, supply chain, or other technology (including software licensed from third parties) and services related to that technology, cyber-security incidents, potential liability and reputational damage that can arise if our products are defective, difficulties measuring the contribution of price increases on sales growth, acts of war, and other risks and uncertainties detailed in our filings with the Securities and Exchange Commission, including our most recent annual and quarterly reports.

1 unchanged sentence

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 2. Management’s Discussion and Analysis