Q1 2025 Fastenal Co Earnings Call

Operator: Greetings, and welcome to the Fastenal Q1 2025 Earnings Results Conference Call. At this time, all participants are in a listen-only mode. If anyone should require operator assistance, please press star zero on your telephone keypad. A question and answer session will follow the formal presentation. You may be placed into question queue at any time by pressing star 1 on your telephone keypad and we ask you to please ask one question, one follow-up, then return. As a reminder, this conference is being recorded.

Greetings and welcome to the fashion All Q1 2025 earnings results Conference call. At this time all participants are in a listen only mode. If anyone should require operator assistance. Please press star zero on your telephone keypad.

Speaker Change: A question and answer session will follow the formal presentation. He may be placed in the question queue at any time by pressing star one on your telephone keypad and we ask you. Please ask one question. One follow up then return to the queue. As a reminder, this conference is being recorded its now my pleasure to turn the call over to your host Trey Schreiber a fast at all please.

Dre Schreiber: It's now my pleasure to turn the call over to your host, Dre Schreiber of Fastenal. Please go ahead, Dre.

Ryan: Go ahead Ryan.

Speaker Change: Welcome to the basketball company 2025 first quarter earnings Conference call. This call will be hosted by Dan <unk>, Our Chief Executive Officer, Jeff, What our President and Chief sales Officer, and Holden Lewis, Our Chief Financial Officer, the call will last for up to one hour and we'll start with a general overview of our quarterly results.

Dre Schreiber: Welcome to the Fastenal Company 2025 First Quarter Earnings Conference Call. This call will be hosted by Dan Florness, our Chief Executive Officer, Jeff Watts, our President and Chief Sales Officer, and Holden Lewis, our Chief Financial Officer.

Dre Schreiber: The call will last for up to one hour, and we'll 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 without Fastenal's consent.

Speaker Change: And operations with the remainder of the time being opened for questions and answers today's conference call is a proprietary fast <unk> presentation and is being recorded by SaaS at all no recording reproduction transmission or distribution of today's call is permitted without <unk> consent. This call is being audio simulcast on the internet via the <unk> Investor Relations homepage.

Dre Schreiber: This call is being audio simulcast on the internet via the Fastenal Investor Relations homepage, investor.fastenal.com.

Dre Schreiber: A replay of this webcast will be available on the website until June 1, 2025 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 these anticipated.

Speaker Change: Investor Dot ethanol dot com a replay of this webcast will be available on the website until June one 2025 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.

Speaker Change: <unk> actual results may differ materially from these anticipated factors that could cause actual results to differ from anticipated 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. Dan <unk>.

Dre Schreiber: Factors that could cause actual results to differ from anticipated 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.

Dan Florness: I would now like to turn the call over to Mr. Dan Florness. Good morning, everybody. And thank you for joining, joining us for our Q1 earnings call.

Speaker Change: Good morning, everybody and thank you for joining joining us for our Q1 earnings call.

Speaker Change: As you can see from the.

Dan Florness: As you can see from the flipbook on page three, Bob Kerlin, our founder, passed away on February 10. He was 85 years of age. I thought I'd open with a few thoughts on Bob, if you'd indulge me. So Bob was born in June of 1939 in Winona, Minnesota. It's a town of about 25,000 people in southeastern Minnesota on the banks of the western banks of the Mississippi River. His first memory as a child was the World War Two Victory Parade going across the interstate bridge coming into Winona. In his in his obituary, it said Bob's compass was a true North Bob's compass had a true north with a belief in people, free minds and free markets.

Speaker Change: Flipbook on page three.

Speaker Change: Bob Kurland are founder passed away on February 10th.

Speaker Change: It was 85 years of age.

Speaker Change: I just thought I'd open with a few thoughts on Bob if you'd indulge me.

Speaker Change: So Bob was born in June of $19 39 in Winona, Minnesota.

Speaker Change: Total of about 25000 people in southeastern Minnesota on the banks of the <unk>.

Speaker Change: Western banks of the Mississippi River.

Speaker Change: His first memory as a child was World War two victory parade going across the.

Speaker Change: Interstate bridge coming into Winona.

Speaker Change: And as a mature its that Bob's compass whats at true North.

Speaker Change: Bob's Compass had a true north with a belief in people free minds in free markets.

Dan Florness: And he indiscriminately respected others, seeing the best in everyone without desiring reciprocation himself. I had the good fortune, I knew Bob for... Just over 30 years. I met him in the second quarter of 1994. And I had a number of across-the-country road trips. Bob preferred to travel by van and visit fashion locations. I remember my first trip with them. We we left on a Sunday morning at about seven o'clock. We drove to Denver. visited some locations, met with some investors, we drove to Salt Lake City, we drove to Vegas, we drove to LA, San Francisco, Rock Springs, Wyoming, and made our way back to Winona on Friday evening.

Speaker Change: Any indiscriminately respected others seeing the best in everyone without designing reciprocation himself.

Speaker Change: I had the good fortune I knew Bob for.

Speaker Change: Just over 30 years I met them in in the second quarter of 1994.

Speaker Change: And I had a number of cross the country road trips Bob preferred to travel by van and visit pass locations.

Speaker Change: I remember my first trip with them.

Speaker Change: We left on a Sunday morning at about seven o'clock.

Speaker Change: We drove to Denver.

Speaker Change: Visited some locations now some investors we drilled the salt Lake City, we drilled the Vegas, we drilled the San Fran to L. A San Francisco Rock Springs, Wyoming and made our way back to Winona on Friday evening.

Dan Florness: In that, I learned how well read Bob was. And one thing I observed over the years is there was not a day that Bob Kerlin did not read the Wall Street Journal from cover to cover. And I thought it appropriate, based on my travels with him, that in his obituary, it said Bob's sense of humor was kindled from old Mad magazines, Bob and Ray comedy shows, which I might be older than most of the folks at Fastenal, I'm not sure what that is. Steve Martin and Bob Newhart, I do know the latter two, and I do know the Mad magazine reference.

Speaker Change: In that I learned how well read Bob was one thing I observed over the years as there was not a day.

Speaker Change: <unk> currently does not read the Wall Street journal cover to cover.

Speaker Change: And I thought it appropriate.

Speaker Change: Based on my travels with him that in his obituary, it's been Bob sense of humor was kindled from old med magazines.

Speaker Change: Bob and Ray comedy shows, which I might be older than most of the folks that fast so I'm not sure what that is.

Speaker Change: Steve Martin and Bob Newhart, I do know the latter too and I do know the Mad magazine reference.

Dan Florness: The about 60 years ago, Bob convinced four friends to invest in a vending company selling nuts and bolts. The idea didn't work. and he but he After calling on customers, understanding what they needed in as far as helping in their supply chain needs with fasteners, he went with Plan B. And that's the organization you know today and that the investing public first became aware of in 1987 when we when we went public. 40 years after our start in around 2007-2008 time frame, we revisited Bob's vending idea. Today, about 25% of our revenue goes through a vending machine.

Speaker Change: About 60 years ago, Bob convinced for friends.

Speaker Change: To invest in our vending company selling nuts and bolts.

Speaker Change: The idea didn't work.

Speaker Change: And he but he he.

Speaker Change: After calling on customers.

Speaker Change: Understanding what they needed and as far as helping in their supply chain needs with fasteners.

Speaker Change: Plan B and that's the organization you know today and that the investing public first became aware of and.

Speaker Change: 987, when we when we went public.

Speaker Change: Yeah.

Speaker Change: 40 years after our start in around 2007, 2008 timeframe, we revisited Bob spending idea.

Speaker Change: Today about 25% of our revenue goes through a vending machine.

Dan Florness: And we've added a lot of other technologies to that since. And if you look at our broadly defined FMI or Fastenal Managed Inventory, which is really point of use technologies that we've deployed, over 43% of our revenue today goes through some type of technology platform. And, you know, there's been a number of articles written on Bob over the years and recently. I remember the first one after a trip I'd done with Bob. He was he was regarded as frugal, the cheapest CEO in America. The fact that he shares hotel rooms with other Fastenal employees when he travels.

Speaker Change: And we've added a lot of other technologies to that since.

If you look at our broadly defined F&I, our fastest managed inventory, which is really point of use technologies that we've deployed over 43% of our revenue today goes through some type of technology platform.

Speaker Change: And there's been a number of articles written on Bob over the years and recently I remember the first one after.

Speaker Change: A trip I'd done with Bob.

Speaker Change: He was he was regarded as frugal cheapest CEO in America.

Speaker Change: The fact that E series hotel rooms with over the past our employees when he travels.

Dan Florness: On all my trips to Bob, I shared a hotel room. And he wore youth suits. And they painted somewhat of a character about Bob. But I think in many ways, they missed the point.

Speaker Change: And all my trips Ababa shareholder tell room.

Speaker Change: And he warned us suits.

Speaker Change: They painted in somewhat of a character about Bob.

Speaker Change: But I think in many ways they miss the point.

Dan Florness: And so what I what our flipbook includes is an excerpt from a book Bob Bob wrote in the late 1990s. titled The Power of Fastenal People and he talked about philosophy on leadership within the organization. And he had 10 rules about leadership he had he had coined over the years. And I'm sharing that with our folks on the call today, whether that be shareholders, analysts, employees of Fastenal, others. in hopes that more of society can capture some of the ideas that Bob shared with us. I was very blessed to have met Bob, as I said, 30 years ago.

Speaker Change: And so what our flipbook includes is an excerpt from our book Bob Bob wrote.

Speaker Change: In the late 19 nineties.

Speaker Change: The power of fast on people and he talked about.

Speaker Change: Philosophy on leadership within the organization.

Speaker Change: He had 10 rules about leadership he had he had coined over the years.

Speaker Change: I'm sharing that with our folks on the call today is whether that be shareholders analysts employees the fastener others.

Speaker Change: In hopes that.

Speaker Change: More of a society can.

Speaker Change: To capture some of the ideas that Bob shared with US I was very blessed to have met Bob as I said 30 years ago.

Dan Florness: Like many others at Fastenal, he changed the course of my life. For me, the ones that stand out particularly when I think of Bob is the first rule about challenge rather than control. treating everyone as your equal See the unique humanness in all persons. Let people learn and we've we've tweaked that a little bit to challenge people to learn And ask them to consider changing when they learn something new. And then finally, remember how little you know. We have a lot of tenure within Fastenal. A lot of people choose to start their career young with Fastenal and spend their career here.

Speaker Change: Like many others have fast now he changed the course of my life.

Speaker Change: For me the ones that stand out, particularly when I think of Bob is the first rule about challenge rather than control.

Speaker Change: Everyone is equal.

Speaker Change: These are unique humanness in all persons.

Speaker Change: Let people learn and we've tweaked down a little bit.

Speaker Change: Challenge people to learn and.

Speaker Change: And asked them to consider changing when they learned something new.

Speaker Change: And then finally remember how little you know.

Speaker Change: We have a lot of tenure within fast I'll allow people to spend their start their career young with fast and spend their career here.

Dan Florness: Whether you've been here five years or 30 years You always have things to learn. And Bob carried that mantra through his entire life and he will be sorely missed. I was personally blessed in that a couple of weeks before he passed away, I had a nice visit with Bob and we served on the board of another organization together and we had a nice conversation afterwards. And he is sorely missed in the organization. and in the community at large.

Speaker Change: Whether you've been here five years or 30 years.

Speaker Change: You always have things to learn.

Speaker Change: And Bob carried that mantra through his entire life and he will be sorely missed us personally blessed in that.

Speaker Change: A couple of weeks before he passed away had a nice visit with Bob and served on the board of of another organization together and we had a nice conversation afterwards.

Speaker Change: He is sorely missed in the organization.

Speaker Change: And in the community at large.

Dan Florness: Thanks, Bob.

Speaker Change: Bob.

Dan Florness: Flip into page four, some thoughts on the quarter. The from a quarterly perspective, our sales grew about three and a half percent. We had one less day. So our daily growth grew about 5%. The marketplace we operated is still sluggish. I deem what's happening in our growth as mostly self help things we're doing from an execution standpoint. And there's an element of comps in there too. But it's mostly self help. And I make that comment when I look at the sequential patterns of our business, because that's about how we're executing. new customer relationships for creating And expansion of existing customer relationships that we're creating, we're executing at a very high level.

Speaker Change: Flipping to page four some thoughts on the quarter.

Speaker Change: From a quarterly perspective, our sales grew about three 5% we had one less day. So our daily growth grew by 5% the marketplace. We operate in is still sluggish.

Speaker Change: I'd deem what's happening in our growth.

Speaker Change: As mostly self help things that we're doing from an execution standpoint.

Speaker Change: As an element of comps in there too, but it's mostly self help and I make that comment when I look at the sequential patterns of our business because that's about how we're executing.

Speaker Change: New customer relationships, we're creating.

Speaker Change: And expansion of existing customer relationships that we're creating we're executing at a very high level.

Dan Florness: And when I think of, we made a lot of changes to two and a half years ago within the organization. As we came through COVID, we had drifted apart a little bit. And we weren't as as focused on a common goal as we should have been as travel resumed. We saw signs of that and we made leadership changes in our sales side of the organization. and and everybody has been in their roles now a couple years. And you're really seeing it gel. And it's shining through in our numbers. The quarter is a little odd to look at if you think about it from a monthly perspective.

Speaker Change: When I think of we made a lot of changes to two and a half years ago within the organization.

Speaker Change: As we came through Covid.

Speaker Change: We have drifted apart a little bit.

Speaker Change: And we Werent as focused on a common goal as we should have been as travel resumed we saw signs of that and we made leadership changes in our sales side of the organization.

Speaker Change: And.

Speaker Change: And everybody has been in their roles now a couple of years.

Speaker Change: And you're really seeing at gel and its turning through in our numbers.

Speaker Change: The quarter is a little odd to look at if you think about it from a monthly perspective.

Speaker Change: But don't be misled by that either.

Dan Florness: But but don't be misled by that either. January was a bit understated because of weather. and March is a bit overstated because of the timing of Easter. I don't know if Holden will agree with my number here, but I estimate about two, two and a half percent of the growth in March. is a bit about Good Friday being being an And but regardless of that, even if you adjust for the weather in January, and you adjust for the the Easter timing in March The sequential pattern is quite strong, and it's strong in all of our geographies, which is really good to see.

Speaker Change: January was a bit understated because of weather.

Speaker Change: And March is.

Speaker Change: Bit overstated because of the timing of Easter.

Speaker Change: I don't know if Holden will agree to my number here, but I estimate about 225% of the growth in March.

Speaker Change: It's been about good Friday being being in April.

Speaker Change: But regardless of that even if you adjust for the weather in January.

Speaker Change: And you adjust for the Easter timing in March.

Speaker Change: The sequential pattern is quite strong and it's strong in all of our geographies, which is really good to see.

Dan Florness: And again, I I deem that to be about what Fastenal is doing in engaging with the marketplace, rather than what the marketplace is asking us to help with because of their business patterns, because it's still sluggish.

Speaker Change: And again.

Speaker Change: Yes.

<unk> that to be about what fast ones doing and engaging with the marketplace rather than what the marketplace is asking us to help with because of their business patterns because it is still sluggish.

Speaker Change: The.

Dan Florness: The As is typical of April, we held our customer expo, a few of us actually traveled back yesterday, the expo was on finished on Wednesday evening, and flew back on Thursday morning. We had similar what we witnessed in 2024. record attendance by customers at the event. It last year surprised us a bit because coming out of COVID the first two years in 22 and 23 that we had to show it was a very subdued event because a lot of organizations either weren't traveling yet or they were doing limited traveling. And it was so difficult to travel internationally that we weren't getting international folks.

Speaker Change: As is typical of April we held our customer Expo fueled us actually traveled back yesterday <unk> finished on Wednesday evening and pullback on Thursday morning, We had similar to what we witnessed in 2024.

Speaker Change: Record attendance by customers at the event.

Speaker Change: It.

Speaker Change: Last year surprised us a bit because coming out of Covid. The first two years and 22% and 23 that we had to show. It was a very subdued event because a lot of organizations either weren't traveling yet.

Speaker Change: Or they were doing limited traveling and it was still difficult to travel internationally that we werent getting international focus and so folks weren't coming from Canada are up from Mexico for the event.

Dan Florness: And so folks weren't coming from Canada or up from Mexico for the event. This year, I can tell you firsthand that we had a record number of attendees from our business unit in Mexico. Because I had the opportunity to speak to a large group that was gathered. And it was exciting to see the types of questions they were asking about and and the way they were approaching the relationship. The the other thing and I'll probably touch on this a couple times through my commentary. It was it was a unique week because in talking to various grou The one thing there wasn't a lot of discussion on was Tara That's not to say it didn't come up.

Speaker Change: This year I can tell you a firsthand that we had a record number of attendees from our business unit in Mexico, because I had the opportunity will speak to a large group that was gathered.

Speaker Change: And it was exciting to see the types of questions. They were asking about the way they were approaching the relationship.

Speaker Change: The other thing I'll, probably touch on this a couple times through my commentary.

Speaker Change: It was a unique weak because.

Speaker Change: In talking to various groups.

Speaker Change: The one thing there wasn't a lot of discussion on.

Speaker Change: It was tariffs.

Speaker Change: That's not to say it didn't come up.

Dan Florness: But The way we address the conversation in every group I talked to, it was a few sessions we had where it was a Q&A and Bill Drazkowski was the moderator. He led off with a question on tariffs, and he pointed it at me each time. And what I what I really impressed upon our customers is the way a supply chain partner approaches any kind of I shared some stories about the lead up to COVID, the vetting of suppliers that we did for safety products. Before the world got weird, and how that put us in a position to be a better supply chain partner.

Speaker Change: But.

Speaker Change: The way, we address the conversation and every group I talked to.

Speaker Change: It was a few sessions, we had where it was a Q&A and build rest koski was the moderator. He led off with a question on tariffs and he pointed to that meet each time.

Speaker Change: What I, what I really impressed upon our customers.

Speaker Change: Is the way our supply chain partner approaches any kind of chaos.

Speaker Change: I shared some stories about the lead up to Covid, the vetting of suppliers that we did for safety products.

Speaker Change: Before the World got weird and how that put us in a position to be a better supply chain partner.

Dan Florness: The tactical decisions we made to go out and buy inventory. to get ahead of the onslaught of everybody else because of the strength of our balance sheet and our financial resources. A lot of that attributed to things we do, but really the foundation that Bob Kirtland laid many years ago in priorities in an organization and what you do with cash. But But what I can tell you is we shared with them the tactics we're taking right now, in some cases, fattening our balance sheet a little bit. to to to to it doesn't it doesn't solve any issue other than it gives you time to have talked about products for bringing directly into Canada and Mexico that we would have brought through the United States before because some of the new tariffs are not eligible for duty drawback.

Speaker Change: The tactical decisions, we made to go out and buy inventory.

Speaker Change: To get ahead of the onslaught of everybody else because of the strength of our balance sheet and our financial resources a lot of that attributed to things, we do but really the foundation that Bob Kurland laid many years ago and.

Speaker Change: And priorities in an organization and what you do with cash.

Speaker Change: But.

Speaker Change: But what I can tell you is we shared with them. The tactics. We're taking right now are in some cases.

Speaker Change: Our balance sheet a little bit.

Speaker Change: Yep.

Speaker Change: Two it doesn't it doesn't solve any issue other than it gives you time to have options.

Speaker Change: Talking about products for bringing directly into Canada, and Mexico that we would've brought through the United States before because some of the new tariffs are not eligible for duty drawback.

Dan Florness: And while it might be more expensive to bring it directly into that market, from a logistics perspective It's a lot less expensive than a tariff that gets layered on top of maybe a tariff going into Canada or Mexico as well. So we're being very thoughtful about that because about 15% of our revenue is in Canada or Mexico. From the standpoint of the US and all markets, we talked a lot about how we've changed our sourcing patterns in the last five years. on diversifying where we're sourcing from. to provide a better supply chain. But we also talked about the fact that when we diversify our sourcing practice.

Speaker Change: And while it might be more expensive to bring it directly into that market from a logistics perspective.

Speaker Change: It's a lot less expensive than a tariff that gets layered on top of maybe a tariff going into Canada or Mexico as well.

Speaker Change: So we're being very thoughtful about that because about 15% of our revenues in Canada or Mexico.

Speaker Change: From the standpoint of the U S. In all markets, we talked a lot about how we've changed our sourcing patterns in the last five years.

Speaker Change: On diversifying where we're sourcing from.

Speaker Change: To provide a better supply chain, but we also talked about the fact that when we diversify our sourcing practices.

Dan Florness: We don't just play whack-a-mole. and try to avoid a problem. We try to improve the supply chain in every step we take. And we try to be relevant to the new manufacturing partners we join with, regardless of where they're located. In that we're a top 1, 2, 3, 4, 5 customer with that manufacturer. Because if you're a significant customer to a manufacturer, And they get tight on capacity, or they need to expand their capacity. They're going to help their largest partners first when they're prioritizing their efforts. And the fact that they know we have financial resources to match with dollars, what our commitments are.

Speaker Change: We don't just play whack a mole.

Speaker Change: And try to avoid a problem we try to improve the supply chain in every step we take.

Speaker Change: And we try to be relevant to the new manufacturing partners, we joined with regardless of where they're located.

Speaker Change: In that we're a top 12345 customer with that manufacturer.

Speaker Change: Because.

Speaker Change: If you're a significant customer to a manufacturer.

Speaker Change: And they get tight on capacity, where they need to expand their capacity.

Speaker Change: They're going to help their largest partners first when theyre prioritizing their efforts.

Speaker Change: And the fact, they know we have financial resources to match with dollars what our commitments are.

Dan Florness: We often get in line ahead of everybody else. And that serves our customers in the marketplace really well.

Speaker Change: We often get in line ahead of everybody else and that serves our customers and the marketplace really well.

Speaker Change: We've added a bunch of customer site information to our disclosures this quarter three years' worth of history, We had our recent Investor day, where we talked about it we touched on it in our January earnings call to really give better visibility.

Dan Florness: We've added a bunch of customer site information to our disclosures this quarter, three years worth of history. We had a recent investor day where we talked about it, we touched on it in our January earnings call to really give better visibility. some of the strategies we have deployed and are deploying. To broaden the size of our market opportunity, when I think of stepping into this role a decade ago, one of the points I made to the to our board was Coming from my old role, I had the advantage of I'd studied the numbers of Fastenal for years, and I'd had a lot of conversation with our regional leaders over the years.

Speaker Change: To some of the strategies, we have deployed and are deploying.

Speaker Change: To broaden the size of our market opportunity when I think of stepping into this role a decade ago, one of the points I made to the to our board.

Speaker Change: Was.

Speaker Change: Coming from my old role highly advantage of I'd studied the numbers of hostile for years and I had had a lot of conversation with our regional leaders over the years, So I understood.

Dan Florness: So I understood maybe better how they thought about things. where they discovered success. There was a few people for me that stood out that had been very successful in their business. When I think of our business in Minnesota and Wisconsin, I took a lot of stuff out of that playbook. When I think about our regional leaders, the two Millers, Randy, who led our business down in Indianapolis, and Casey, who led our business down in what we refer to the Southeast Central at the time, which was Kentucky and Tennessee. Our team in Mexico, our team in international more broadly, Jeff Watts at the time, had a lot of discussions to really understand their tactics for growing, because they had consistently discovered the success.

Speaker Change: Maybe better how they thought about things where.

Speaker Change: Were they discovered success those are few people for me that stood out that had been very successful in their business when I think of our business in Minnesota and Wisconsin.

Speaker Change: I took a lot of stuff out of that playbook.

Speaker Change: When I think about our regional leaders to Miller's Randy who led our business down in Indianapolis and Casey, let our business down in what we referred to the southeast Central at the time, which was Kentucky and Tennessee.

Speaker Change: Our team in Mexico, our team in international more broadly Jeff Watts at the time had a lot of discussions to really understand their tactics for growing because they had consistently discovered to success.

Dan Florness: Maybe sometimes when others had Bob Hopper is another one on that list where I touched with and he covered our Florida market. Incredible success. And you learn and you ask people, how are you doing it? And what I shared with the board is our most successful regions have a great key account program. If you put me in this role, I'm going to drive the business towards where they're discovering success. Because I think it broadens the market for Fastenal, but we have to lower our cost structure to go after that kind of business. And I'm pleased to say we've done that.

Speaker Change: Maybe some times when others haven't.

Speaker Change: Bob Hopper is another one on that list, where I touched with any covered our Florida market.

Speaker Change: Incredible success, and you learn and you.

Speaker Change: Ask people how are you doing it and what I shared with the board is our most successful regions have a great key account program.

Speaker Change: If you put me in this role.

Speaker Change: Going to drive the business towards where theyre discovering success, because I think it broadens the market for faster, but we have to lower our cost structure to go after that kind of business.

Speaker Change: And I'm pleased to say we've done that.

Dan Florness: And you see the success that shines through in some of those those customer site information statistics. Finally, on page four, we inched up our dividend from 43 to 44 cents and It's a dumb reason. Yeah, I'll give you a little historical perspective. in 2003. our sales total sales we needed 10 and a half percent growth to break a billion that year we came in at 9.9 and we reported 995 million dollars in sales That was cool. But a billion plus would have been neater. But we can't change our sales. We can influence it by our activities, but we can't change At least not legally.

Speaker Change: And you see the success that shines through in some of those those customer site information statistics finally on page four we inched up our dividend from <unk> 43 to 44.

Speaker Change: It's a dumb reason.

Speaker Change: Yeah, I'll give you a little historical perspective.

Speaker Change: In 2003.

Speaker Change: Our sales total sales, we needed 10, 5% growth to break 1 billion that year, we came in at $9 nine and we reported $995 million in sales.

Speaker Change: That was cool, but 1 billion plus would've been neither but we can't change our sale, we can influence it by activities, but we can't change it at.

Speaker Change: At least not legally.

Dan Florness: In 2018, our operating income came, we needed 13.4% growth to break a billion dollars that year. We only got 13.3. We came in at 999.2 million of operating income. We can't change that one either. Holden did get a dirty look from me. But we can't change that one. But we can change our dividend. So in the first quarter, we paid out 246 million. And I looked at Holden, I said, can we bump that up a penny? If our board goes along with it, and we continue this dividend through the year, we'll break a billion in regular dividend for the dumb reason, sorry about that.

Speaker Change: In 2018, our operating income came we needed 13, 4% growth to break $1 billion at year, we only got $13. Three we came in at $999 2 million of operating income.

Speaker Change: We can't change that one either.

Speaker Change: Holden did get a dirty look from me, but we can't change that one but.

Speaker Change: But we can change our dividend so in the first quarter, we paid out $246 million and I looked at Holden I said can we pumped out of a penny.

Speaker Change: If our board goes along with it and we continue this dividend through the year, we'll break $1 billion in regular dividend for the first time.

Speaker Change: Some reason.

Speaker Change: Sorry about that flipping to page five.

Dan Florness: Flipping to page five, FMI, we continue to execute at a high level there. Given the comment I just made about dividend, I'd feel a lot better if we had 130,000 devices, not 129,996. But I'm going to round it and say we have 130,000 devices deployed in 25 countries. Our device count grew 12.5%. When you look at our safety sales growth of almost 10% more. That's about execution and FMI and our vending more generally, but FMI more broadly. Going down the page, digital footprint, 61% of total sales versus 59 and 54 one and two years ago.

Speaker Change: We continue to execute at a high level there.

Speaker Change: The comment I, just made about dividend I'd feel a lot better if we had 130000 devices not a 129 996, but I'm going to round it and say we have 130000 devices deployed in 25 countries.

Speaker Change: Our device Count grew 12, 5% when you look at our safety sales growth of almost 10% in March.

Speaker Change: That's about execution and <unk> in our vending more generally, but F&I more broadly going down the page.

Speaker Change: Digital footprint, 61% of total sales versus 59% and 54, one and two years ago our goal remains.

Dan Florness: Our goal remains It October 66 to 68% of sales is going through digital And that's what we're working towards. And then again, the customer site data success in our 10k plus sites. And what that means is, this is a customer, it's a building, it's a campus, where we provide more than $10,000 a month. and product and service. A subset of that is what we call onsite like customer sites. And that's where we do more than $50,000 a month with that customer. that group grew 7%. So that's about executing and engaging with customers at a high level.

Speaker Change: In October 66% to 68% of sales has gone through digital footprint and Thats what were working towards.

Speaker Change: And then again the customer site data success in our 10-K plus sites and what that means is this is a customer to building it's a campus.

Speaker Change: Where we provide more than $10000 a month.

Speaker Change: And product and services.

Speaker Change: A subset of that is what we call onsite like customer sites, So thats, where we do more than $50000 a month with that customer.

Speaker Change: That group grew 7%.

Speaker Change: So that's about executing and engaging with customers at a high level.

Dan Florness: There's one category that you'll see that that doesn't shine so strongly.

Speaker Change: There is one category that youll see that.

Speaker Change: Doesn't shine so strongly and that's our under five K and it's really our under two K a subset of that.

Dan Florness: And that's our under 5k. And it's really our under 2k, a subset of that. And if you're on our e commerce team right now, or if you're in it, if you're in supply chain, you're getting a lot of pressure and dirty looks from Dan right now, because We need to get better at the e-commerce site. We solved the problem with that group, not by adding resources and sales teams to go after 500 and 800 dollar a month customers. We want those customers. That marketplace has chosen to buy. more in the online channels and that accelerated during We're not great at that piece of business.

Speaker Change: And if you run our e-commerce team right now our Purion.

Speaker Change: If you're in supply chain, you are getting a lot of pressure and dirty looks from Dan right now because.

Speaker Change: We need to get better at the E Commerce site.

Speaker Change: We solve the problem with that group not by adding resources and sales teams to go after 500 $800 a month customers we want those customers.

Speaker Change: That marketplace has chosen to buy.

Speaker Change: More than the online channels and that accelerated during COVID-19.

Speaker Change: We're not great at that piece of the business, we're great at a lot of things that's not on the list, but we can be.

Dan Florness: We're great at a lot of things. That's not on the list, but we can be. and the reason that matters. is when you look at some of the customer site data. I believe. A great e-commerce platform enhances our ability to be successful in all groups. Because I believe there's probably a 20% lift. And this is just this is the belief. is not based on any data. I believe there's a there could be a 20% lift in every category. If we have a great e commerce strategy, because there's random MRO spend, we don't necessarily get even when we have a great relationship with that customer.

Speaker Change: And the reason that matters.

Speaker Change: Is when you look at some of the customer site data.

Speaker Change: I believe.

Speaker Change: A great E Commerce platform.

Speaker Change: Enhances our ability to be successful in all groups.

Speaker Change: Because I believe there is probably a 20% lift.

Speaker Change: And this is just this is the belief.

Speaker Change: Not based on any data.

Speaker Change: I believe there is it can be a 20% lift in every category. If we have a great e-commerce strategy because there is random MRO spend we don't necessarily get EBIT, when we have a great relationship with that customer.

Dan Florness: because some department in that organization might find it easier to order some We need to get better at that.

Speaker Change: Because some department in that organization Mike.

Speaker Change: Might find it easier to order somewhere else.

Speaker Change: We need to get better at that.

Speaker Change: I'll shut up now and flip it over to holding alright, Thanks, Dan and good morning, everyone before digging into the results for what we have what will be my final call I did want to mention a few things first to Dan who nearly 99 years ago.

Holden Lewis: I'll shut up now and flip it over to Holden. All right, thanks, Dan. And good morning, everyone.

Holden Lewis: Before digging into the results for what we what was what will be my final call. I did want to mention a few things.

Holden Lewis: First to Dan, who nearly 9 years ago, based on the response of many of the people on this call, took a chance on a relatively unorthodox hire. It's been an unbelievable experience working with a great leader and I sure have enjoyed being your partner. To the entire blue team, I know I got this opportunity in part because of my outsider's perspective, but at the same time, you all challenged me to earn your trust and respect, and you deserve that. I've tried to do that for nine years, but it wouldn't have been possible if not for your passion for learning, teaching, and collaboration.

Speaker Change: Based on the response with many of the people on this call took a chance on a relatively unorthodox higher it's been an unbelievable experience working with a great leader.

Speaker Change: And I sure have enjoyed being your partner in this.

Speaker Change: So the entire blue team.

Speaker Change: I know I got this opportunity in part because of my outsider's perspective, but at the same time you. All have challenged me to earn your trust and respect and you deserve that.

Speaker Change: Tried to do that for nine years, but it wouldn't have been possible if not for your passion for learning teaching and collaboration that's the foundation of our culture.

Holden Lewis: That's the foundation of our culture. So I've surely enjoyed being your CFO, and I couldn't ask for 24,000 better friends. And to our investors, you probably don't realize how often I've actually used your observations, perspectives and questions in my own work here. And for that, I thank you, I hope I've been able to provide a deep and differentiated view into our business. I could go on.

Speaker Change: So surely enjoyed being your CFO and I Couldnt ask for 24000 better friends.

Speaker Change: And to our investors you probably don't realize how often I've actually use your observations perspectives and questions and my own work here and for that I. Thank you.

Speaker Change: Hope I've been able to provide a deep and differentiated view into our business I could go on but if I do I suspect the musical start so why don't I just jump into slide six.

Holden Lewis: But if I do, I suspect the musical start.

Holden Lewis: So why don't I just jump into slide six. Sales in the first quarter of 2025 were up 3.4% with daily sales up 5%. That's our strongest daily sales rate since the second quarter of 2023. Feedback from regional leadership continues to reflect sluggish end market demand despite generally favorable outlooks. Customer tone did seem to shift from the steady improvement we've seen since the election to plateauing as trade policy created some caution. Notwithstanding this uncertainty, we did not discern any meaningful pre-buying ahead of tariff. In the absence of much external help, the improvement in our DSR reflects two other variables.

Speaker Change: Sales in the first quarter of 2025 were up three 4% with daily sales up 5%, that's our strongest daily sales rates since the second quarter of 2023 feedback.

Speaker Change: Feedback from regional leadership continues to reflect sluggish end market demand. Despite generally favorable outlooks customer tone did seem to shift from the steady improvement we've seen since the election to plateauing as trade policy created some caution.

Speaker Change: Notwithstanding this uncertainty we did not discern any meaningful pre buying ahead of tariffs.

Speaker Change: In the absence of much external help the improvement in our DSR reflects two other variables first even as the market has stabilized our comparisons have gotten easier, particularly in the cyclical parts of our business. This factor helped produce our first quarter of growth for fasteners since the first quarter of 2023 and acceleration and manufacturing end markets.

Holden Lewis: First, even as the market has stabilized, our comparisons have gotten easier, particularly in the cyclical parts of our business. This factor helps produce our first quarter of growth for fasteners since the first quarter of 2023, and acceleration in manufacturing and market. Second contributions from our strong contract signings over the past two years continues to build. We continue to experience a healthy pace and mix of signings in the first quarter of 2025 and our count of national, regional and government contracts has grown at a double digit rate for 12 consecutive months.

Speaker Change: Second contributions from our strong contract signings over the past two years continues to build we continued to experience a healthy pace and mix of signings in the first quarter of 2025, and our count of National Regional and government contracts has grown at a double digit rate for 12 consecutive months.

Holden Lewis: Now, the monthly cadence during the quarter warrants some discussion. I feel like Dan covered covered much of that. So I agree with his numbers about the impact of Good Friday having fallen in March of last year. What I will say is the quarterly daily sales rate growth is a fair representation of our performance. And we did see accelerations through the period. It was a solid self-help driven result in a soft market. But even so, as you interpret our results, please take stock of the discrete factors that affected each period.

Speaker Change: Now the monthly cadence during the quarter warrants some discussion I feel like Dan covered covered much of that so.

Speaker Change: I agree with his numbers about the impact of good Friday, having fallen in March of last year.

Speaker Change: What I will say is the quarterly daily sales rate growth is a fair representation of our performance and we did see acceleration through the period. It was a solid self help driven result in a soft market, but even so as you interpret our results. Please take stock of the discrete factors that affected each period.

Holden Lewis: The pricing outlook also warrants some discussion. year to date, significant tariffs have been applied to products from China as well as steel, including derivative products like fasteners on a global base We continue our long-term trend of diversifying our supply chain where possible, questioning the size and timing of our suppliers' pricing actions, and we have added some inventory to our own balance. That said, supply chains have gotten more expensive, and a part of our response over time will be incremental pricing. We have been proactively engaging with our customers for several months. And in April, we took our first actions, which we believe will contribute three to four percent of price in the second quarter of 2025 with the potential for that to double in the second half of 2020.

Speaker Change: The pricing outlook also warrants some discussion.

Speaker Change: Year to date significant tariffs have been applied to products from China, as well as steel, including derivative products like fasteners on a global basis.

Speaker Change: We continue our long term trend and diversifying our supply chain, where possible questioning the size and timing of our suppliers' pricing actions and we have added some inventory to our own balance sheet.

Speaker Change: That said supply chains have gotten more expensive and a part of our response over time will be incremental pricing.

Speaker Change: We have been proactively engaging with our customers for several months and in April we took our first actions, which we believe will contribute 3% to 4% of price in the second quarter 2025, with the potential for that to double in the second half of 2025.

Speaker Change: Depending on the pace and execution of our actions.

Holden Lewis: Depending on the pace and execution of our action We have taken no actions on the deferred portions of the reciprocal tariffs, but may need to should those ultimately go into force. We are encouraged by the easier comparisons, the improved sentiment, and particularly our internal momentum. That said, we have limited visibility and share our customers uncertainty over how current trade policy may impact demand over the course of 2025. However, Fastenal has historically been able to win market share during periods of disruption on the strength of our nimble sales force, our frugal and adaptive culture, and the weight of the technologies and global supply chain resources we can apply to finding solutions to customer challenges.

Speaker Change: We have taken no actions on the deferred portions of their cyclical tariffs, but may need to shed those ultimately go into force.

Speaker Change: We are encouraged by the easier comparisons the improved sentiment and particularly our internal momentum.

Speaker Change: That said, we have limited visibility and share our customers' uncertainty over how current trade policy may impact demand over the course of 2025.

Speaker Change: However, <unk> has historically been able to win market share during periods of disruption on the strength of our nimble our nimble sales force are frugal and adaptive culture and the weight of the technologies and global supply chain resources, we can apply to finding solutions to customer challenges that is our expectation in the current environment.

Holden Lewis: That is our expectation in the current environment.

Holden Lewis: Now to slide seven. Operating margin in the first quarter of 2025 is 20.1% down 50 basis points year to year. We had one less selling day in the period versus the first quarter of 2024, which is worth roughly 31 and a half million in sales. Had the first quarters of 2024 and 2025 had the same number of selling days, we would likely have leveraged SG&A, and our operating margin would have been down a more measured 10 to 20 basis. Gross margin in the first quarter of 2025 was 45.1% down 40 bips from the year ago period.

Speaker Change: Now to slide seven.

Speaker Change: Operating margin in the first quarter of 2025 was 21% down 50 basis points year to year, we had one less selling day in the period versus the first quarter of 2024, which is worth roughly $31 5 million in sales.

Speaker Change: Had the first quarters of 2024, and 2025 had the same number of selling days, we would likely have leveraged SG&A and our operating margin would have been down a more measured 10 to 20 basis points.

Speaker Change: Gross margin in the first quarter of 2025 was 45, 1% down 40 bps from the year ago period.

Holden Lewis: Product and customer mix was the usual contributor. We also saw higher costs from third party freight providers and higher hub vehicle lease costs. both coming against relatively flat freight revenue. Price cost was neutral in the period. We anticipate easier gross margin comparisons in the latter half of the year, though our effectiveness managing price cost and the degree of macro improvement will influence this scenario. SG&A was 25% of sales in the first quarter of 2025, up from 24.9% from the year-ago period. As described above, we believe we would have leveraged in the period had the current and year-ago quarters had the same number of selling days.

Speaker Change: Iot customer mix was the usual contributor we also saw higher costs from third party freight providers and higher hub vehicle lease costs.

Speaker Change: Both.

Speaker Change: Coming against relatively flat freight revenue.

Speaker Change: Price cost was neutral in the period.

Speaker Change: We anticipate easier gross margin comparisons in the latter half of the year there are effects, our effectiveness managing price cost and the degree of macro improvement will influence this scenario.

Speaker Change: SG&A was 25% of sales in the first quarter of 2025 up from 24, 9% from the year ago period. As described above we believe we would have leveraged in the period had the current and year ago quarters had the same number of selling days.

Holden Lewis: All major cost categories either leverage or deleverage very modestly, with none standing out. We continue to manage costs effectively. Total SDN expenses were up 3.6% year to year, consistent with what has been a stable 2 to 4% rate of increase over the last nine quarters. We continue to invest in key areas of key areas of our business to support growth, while managing other costs more tightly to reflect the sluggish business condition.

Speaker Change: All major cost categories, either leverage or deleverage very modestly with none standing out we continue to manage cost effectively total SG&A expenses were up three 6% year to year consistent with what has been a stable 2% to 4% rate of increase over the last nine quarters. We continued to invest in key areas, our key areas of our business to support growth.

Speaker Change: While managing other costs more tightly to reflect the sluggish business conditions.

Holden Lewis: Putting it all together, we reported first quarter 2025 EPS of 52 cents flat with the first quarter of 2024.

Speaker Change: Putting it all together, we reported first quarter 2025, EPS of <unk> 50 to <unk> flat.

Speaker Change: <unk> flat with the first quarter of 2024.

Holden Lewis: Now turning to slide eight. We generated $262 million in operating cash in the first quarter of 2025, or 88% of net income. This is a lower conversion rate than we might typically achieve in a first quarter reflecting our current investment working capital. Otherwise, we remain comfortable with the cash generation of our model and continue to carry a conservatively capitalized balance sheet with quarter end debt being 5.1% of total capital. Accounts receivable were up 5.4%, reflecting sales growth, relatively faster growth with larger customers that tend to carry longer terms, and an uptick in quarter end deferred payments from our customers.

Speaker Change: Now turning to slide eight.

Speaker Change: We generated $262 million in operating cash in the first quarter of 2025% or 88% of net income.

Speaker Change: This is a lower conversion rate than we might typically achieved in our first quarter, reflecting our current investment working capital otherwise we remain comfortable with the cash generation of our model. We continue to carry a conservatively capitalized balance sheet with quarter end debt being five 1% of total capital.

Speaker Change: Accounts receivable were up five 4%, reflecting sales growth relatively faster growth with larger customers that tend to carry longer terms and an uptick in quarter and deferred payments from our customers.

Holden Lewis: Inventories are up 11.9%. Not different than the preceding quarter, we have increased inventory as part of our effort to improve product availability in our in market locations and improve picking efficiencies in our hub. We have added stock to support customer growth, including expected incremental growth in the warehousing space, and we accelerated some inventory scheduled for future delivery into current periods ahead of potential tariffs. Inventory growth may remain elevated in 2025 as we continue to navigate tariffs and as more inflation builds in inventory. Accounts payable were up 23.9%, reflecting the increase in inventories and the timing of payments associated with certain capital projects.

Speaker Change: Inventories were up 11, 9% not different in the preceding quarter, we have increased inventory as part of our effort to improve product availability and our in market locations and improved picking efficiencies in our hubs.

Speaker Change: We have added staff to support customer growth, including expected incremental growth in the warehousing space.

Speaker Change: And we accelerated some inventory scheduled for future delivery in the current periods ahead of potential tariffs.

Speaker Change: Inventory growth may remain elevated in 2025, as we continue to navigate tariffs and as more inflation builds and inventory.

Speaker Change: Accounts payable were up 23, 9%, reflecting the increase in inventories and the timing of payments associated with certain capital projects.

Holden Lewis: Net capital spending in the first quarter of 2025 was $53.8 million, up from $48.3 million in the first quarter of 2024. This increase is consistent with our expectations for the full year, where we anticipate capital spending in a range of $265 million to $285 million, up from $214 million in 2024. This increase is from higher FMI device spending in anticipation of higher signings, higher IT spend, which includes projects aimed at developing additional digital capabilities, and distribution center outlays to reflect spending on our Utah and Atlanta hubs and automated picking additions across our hub network.

Speaker Change: Net capital spending in the first quarter of 2025 was $53 8 million up from $48 3 million in the first quarter of 2020 for this increase is consistent with our expectations for the full year, where we anticipate capital spending in a range of 265 million to $285 million up from $214 million in 2020 for.

Speaker Change: This increase is from higher F&I device spending in anticipation of higher signings.

Speaker Change: Our it spend which includes projects aimed at developing additional digital capabilities and distribution center outlays to reflect spending on our Utah, Atlanta hubs and automated picking additions across our hub network.

Operator: With that operator, we'll turn it over to begin the Q&A. Thank you. And I'll be conducting a question and answer session. If you'd like to be placed in the question queue, please press star one on your telephone keypad.

Speaker Change: With that with that operator, we will turn it over to begin the Q&A.

Speaker Change: Thank you, we'll now be conducting a question and answer session if you'd like to be placed in the question queue. Please press star one on your telephone keypad.

Speaker Change: You May press star two if you'd like to remove your question from the queue. Once again, we ask you. Please ask one question and one follow up then return to the Q1 moment. Please while we poll for questions. Our first question is coming from David Manthey from Baird. Your line is now lives.

Operator: You may press star Q if you'd like to remove your question from the Once again, we ask you please ask one question and one follow up, then return One moment, please, while we poll for questions.

David Manthey: Our first question is coming from David Manthey from Baird, your line is now live. Thank you. Good morning, everyone. And Holden, thanks for everything and best of luck. Thank you. Good morning. Morning. So your customers may not be talking about tariffs, but that's all we talk about here on Wall Street. So I'll start there. If you could just, Dan, maybe talk about the 145%. I don't know how realistic that is. But if that type of tariff is actually implemented, even for a short period of time, are your customer contracts set to absorb the timing and magnitude of that kind of increase?

David Manthey: Well. Thank you Doug good morning, everyone and hold and thanks for everyone and best of luck.

Speaker Change: Thank you good morning, good morning, Dave.

Speaker Change: Morning, So.

Speaker Change: Our customers may not be talking about tariffs, but that's all we talk about here on wall Street, So I'll start there.

Speaker Change: If you can.

Speaker Change: Dan maybe talk about the 145% I don't know how realistic that is but that type of tariff is actually implemented even for a short period of time.

Speaker Change: Customer contracts set to absorb the timing and magnitude of that probably increase and just any other thoughts you have around if that should transpire.

Dan Florness: And just any other thoughts you have around if that should transpire? Yeah, so you're talking about the specifically the China non steel tariff. because because for us the because the China steel is is with with all the recent noise is is a total of 70% but 45 of that is new And but but going to your question. Do our contracts have the capability to adjust pricing? Yes. The question you have to look at is What optionality do you have as far as alternative sourcing? Because if we move a steel based product out of China, there's the there's the 25% Section 232 that's on steel and and metal products, essentially, but but it changes quite dramatic because you don't have the other duties that have been put in place both back in 2018 and earlier this year.

Speaker Change: Yes. So you are talking about specifically the China non steel tariffs.

Speaker Change: Because for us because the China steel is.

Speaker Change: As with all the recent noise.

Speaker Change: <unk> is a total of 70%.

Speaker Change: But 45 of that is new.

Speaker Change: And.

Speaker Change: But going to your question.

Speaker Change: Our contracts have the capability to adjust pricing.

Speaker Change: Yes.

Speaker Change: The.

Speaker Change: Question you have to look at is.

Speaker Change: <unk>.

Speaker Change: What Optionality do you have as far as alternative sourcing.

Speaker Change: If we move.

Speaker Change: Steel based product out of China.

There is the 25% section 232.

that's on steel and metal products. [inaudible]

Speaker Change: essentially, but it changes quite dramatic because you don't have the other duties that have been put in place both back in 2018 and earlier this year. So it becomes an optionality. And so most of our discussions with customers is frankly on optionality and things we're doing.

Dan Florness: So it becomes an optionality. And, and so most of our discussions with customers is frankly on optionality and things we're doing. and and but our contracts do allow for that. You have to then you have to ask yourself what what demand gets destroyed. But keep in mind For most of our customers, every dollar they spend with us They're probably spending $10 somewhere else, whether that be products, if it's in an OEM setting products, they're directly sourcing. So you have to look at it and say what businesses become not economical it when you have that type of steel based tariff.

Speaker Change: and but our contracts do allow for that. Then you have to ask yourself what what the man gets destroyed, but keep in mind. [inaudible]

Speaker Change: For most of our customers, every dollar they spend with us, [inaudible]

Not economical.

Speaker Change: When you have that type of steel-based tariffs, from a non-steel where the actual total duty is 170 percent.

Dan Florness: from a from a non steel where you're where the actual total duty is 170% of which 145 is new with all the pieces that have been added in. Again, same same fact pattern. But there are, in many cases, some optionality, again, for how you can direct the spend. depending on the willingness of the customer and the availability of alternatives. The other wildcard and the piece that we have no control over. is a lot of a lot of products that we source are branded products that are coming from suppliers in country. that are having product manufactured with their name on it somewhere else on the planet.

Speaker Change: of which 145 is new with all the pieces that have been added in. Again, same fact pattern.

Speaker Change: But there are in many cases some optionality again for how you can direct the spend, depending on the willingness of the customer and the availability of alternatives.

Speaker Change: The other wildcard and the piece that we have no control over. [inaudible]

Speaker Change: They are having product manufactured with their name on it, somewhere else in the planet.

Dan Florness: And the question is what their ability is. to change source. and to manage through it. But Dave, getting back to your question, yes, we do have the ability to raise money. and probably the only other thing I would probably add to that is You know, the ability includes not only the contract terms, but frankly, I think at the Customer Expo, a lot of the discussion was about visibility, clarity, certainty, and the fact that we have direct sourcing capabilities, gives us a degree of, of knowledge about what's happening, sort of in the source markets that a lot of our competitors, frankly, might be buying from master distributors may not have the same visibility, the pricing refute tool that we developed in 2018, in response to that round of tariffs, provides a tremendous amount of granularity to our customers.

And the question is, what their ability is?

to change sourcing and to manage through it.

David Manthey: But Dave, getting back to your question, yes, we do have the ability to raise prices. [inaudible]

David Manthey: and probably the only other thing I would probably add to that is

David Manthey: You know, the ability includes not only the contract terms, but frankly, I think at the customer expo . . . . . .

A lot of the discussion was about a visibility. [inaudible]

Clarity.

Certainly, and the fact that we have direct sourcing capabilities. [inaudible]

David Manthey: Davis, gives us a degree of knowledge about what's happening sort of in the source markets that a lot of our competitors frankly might be buying from master distributors and have the same visibility. The pricing refused tool that we developed in 2018 in response to that round of tariffs. [inaudible]

David Manthey: provides a tremendous amount of granularity to our customers. And so when you're starting off and you're opening conversation, you know, is very detailed about the wise and the what's in the wares. [inaudible]

Dan Florness: And so when you're starting off, and you're opening conversation, you know, is very detailed about the why's and the what's and the where's. You never say this is an easy conversation. And the order of magnitude is somewhat, you know, something we haven't navigated before. But we start off in a much stronger position because of the capabilities we've created to communicate effectively. But Dave, you know where a lot of the conversations went with customers. was actually to tactics that we're taking, because we're very transparent with our customer of things we're doing and have done. Because we've been, we've been modifying our sourcing teams quite dramatically over the last five years.

David Manthey: You never say this is an easy conversation and the order of magnitude is somewhat something we haven't navigated before but we start off in a much stronger position because of the capabilities we've created to communicate effectively. [inaudible]

Speaker Change: David, don't worry a lot of the conversations went with customers. [inaudible]

Speaker Change: Was actually to tactics that we're taking because we're very transparent with our customer of things we're doing and have done because we've been we've been modifying our sourcing teams quite dramatically over the last five years. If you go back to you know 2019. It's been a long time.

Dan Florness: If you go back to, you know, 2019, the year before COVID hit, and you know, right after the tariffs, if I look at other sourcing we have in Asia, for example, Our teams outside of China are 10 times larger today, sourcing teams. Now that's working off a pretty small base than they were in 2019. Because we wanted to know the way you move faster as you get closer to the manufacturer. But but a lot of discussions with customers, and I know we're taking this question and a lot of tangents in our answer. But hopefully it's it's it's answering maybe some other questions that might be out there is is sharing those tactics with our customers, because in some cases, they're searching for answers to, because they have to solve the other $9 to spend for every dollar they have with Fastenal, where they're sourcing directly.

Speaker Change: the year before COVID hit and right after the tariffs. If I look at other sourcing we have in Asia for example. [inaudible]

Our team's outside.

of China.

Speaker Change: are ten times larger today, sourcing teams. Now that's working off a pretty small base than they were in 2019 because we wanted to move, the way you move faster is you get closer to the manufacturer. But, but a lot of discussions with customers, and I know we're taking this question and a lot of tangents in our answer. Thank you very much.

Speaker Change: But hopefully it's it's it's answering me some other questions that might be out there is sharing those tactics with our customers because in some cases they're searching for answers to because they have to solve the other $9 a spend forever daughter they have with Fastenal were they're sourcing directly. Read.

David Manthey: And in some cases, we might help them find some manufacturing That's what a supply chain partner does. And I believe we're poised to be more successful in this type of environment, just like we were in during COVID, and the reemergence of the global economy after COVID. Because we sourced in so many places. And we know our customers on a first name basis locally. And a lot of that sourcing is done locally . And perhaps the last piece of that, I would say, talking to Bill Drazkowski, who heads up national accounts, he said that where the where the dialogue went at the show was much more about show me the math so I can understand what's happening, and then don't shut me down.

Speaker Change: And in some cases, we might help them find some manufacturing capability.

Speaker Change: That's what a supply chain partner does, and I believe we're poised to be more successful in this type of environment, just like we were in during COVID and the re-emergence of the global economy after COVID, because we sourced in so many places, and we know our customers on a first name basis locally, and a lot of that sourcing is done locally too.

Speaker Change: And perhaps the last piece of that, I would say, talking to Bill Drazkowski who heads up National Accounts, he said that where the dialogue went at the show.

Speaker Change: was much more about show me the mass so I can understand what's happening, and then don't shut me down. And that seemed to be the mindset of our partners and customers at the show around this. [inaudible]

Operator: And that seemed to be the mindset of our of our partners and customers at the show around. That's very helpful. Usually the analyst asks four questions. This time I asked one and got four answers. So I'll pass it on. Thanks a lot, guys. Thanks, Dave. Thank you.

Thank you. Thank you.

David Manthey: That's that's very helpful. Usually the analyst asked four questions. This time I asked one and got four answers. So I'll pass it on. Thanks. Thanks. Thanks.

Stephen Volkmann: Next question is coming from Stephen Volkmann from Jefferies. Your line is now live. Great. Good morning, everybody. I'll I guess I'll ask the next one here. How do you I mean, the magnitude of these increases is pretty unprecedented. Do you try to sort of smooth this out for your customers? Or does it just become very Oh, I hope we're still here. Yeah. Kevin, can you hear us? You are Yes, please proceed. Okay, the question. The question cut off there. That's why I was wondering the you know, As Holden mentioned, we do so much direct sourcing because of our scale of operation.

Speaker Change: Thank you. Next question is coming from Stephen Volkmann from Jeffery's, your line is now live.

Dan Florness: It gives us much more visibility to to communicate with our customer and transparency. And we do have some buffers in that we have some inventory. So it allows you to step into things in a different way. Because We don't we don't want it. Our goal here isn't to profit on the inventory on the shelf. Our goal. profit because of Tara The inventory on the shelf. Let me rephrase that. Our goal is, is with that natural hedge, how can we use that to our customers advantage as we manage through this? And it gives us time for some optionality on certain products.

Speaker Change: We don't we don't want our goal here isn't to profit on the inventory on the shelf.

Speaker Change: Our goal.

Speaker Change: Profit because of tariffs.

Speaker Change: Inventory on the shelf, let me rephrase that.

Speaker Change: Our goal is is with that natural hedge how can we use that to our customers' advantage as we manage through this and.

Speaker Change: It gives us time for some optionality on certain products in some cases.

Dan Florness: And in some cases that, you know, when the when the when the tariff situation is changing daily, In fact, we this was every week starting February 10. Kevin Fitzgerald and our team that that communicate provides communication to the field and guidance to the field. We've been putting out a an updated video. In fact, it was just a new one that came out this morning, because it's been a moving target. And even during the course of our conversations, numbers were moving around. Because the week started and ended in two different places.

Speaker Change: When the when the tariff situation is changing daily.

Speaker Change: In fact, we this was.

Speaker Change: Every week, starting February 10th Kevin Fitzgerald, and our team that that communicate provides communication to the field and guidance to the field, we've been putting out an updated.

Speaker Change: Video and in fact, it was just a new one that came out this morning.

Speaker Change: Because it's been a moving target and even during the course of our conversations number for moving around.

Speaker Change: Because of the weak started and ended in two different places.

Dan Florness: There's no way to cushion 145% tariff. There's no math that you can make that work. The question is what optionality you have because on non steel product, if we source it out of Taiwan, the math changes from 145% of new tariff 10. And or if we source it in other places in Asia or other places around the world, then the number goes to 10, but it might be 30% more expensive. or more, depending on their their ability to produce it and to produce it in a chaotic environment where there's a lot of change going on.

Speaker Change: There is no way to Cushing or 145% tariffs.

There is no math that you can make that work.

Speaker Change: The question is what Optionality you have because our non steel product if we source out of Taiwan. The map changes from 145% of new tariff 10.

Speaker Change: And or if we source it in other places in Asia or other places around the world when the number goes to 10, but it might be 30% more expensive.

Speaker Change: Or more depending on their ability to produce it and to Bruce it in a chaotic environment, where there is a lot of change going on.

Dan Florness: And so but but there is there is no there is no silver bullet that will cause something where you have a tariff that was declared on Wednesday or Thursday Wednesday that's 145%. That's just math. But we do try to align the timing of the pricing, the timing of the costing hitting our cogs in terms of thinking about how we're going to affect pricing. So, you know, when you talk about smoothing it, we try to align with where the market is. The one thing I would point out, though, I think everyone's aware that we have turns about two and a half times.

Speaker Change: And so but there is no there is no.

Speaker Change: Silver bullet that will cause something where you have a tariff.

Speaker Change: Was declared on Wednesday, or Thursday, Wednesday, because it was cool.

Speaker Change: That is 145%.

Speaker Change: Just math.

Speaker Change: But we do try to align the timing of the timing of the costing hitting our Cogs in terms of thinking about how we're going to affect pricing. So.

Speaker Change: When you talk about smoothing it we try to we try to align with where the market is the one thing I would point out, though I think everyone's aware that we have turns of about two five times.

Dan Florness: As it relates to this matter, you know, once something actually hits the U.S. shores, our turns are obviously much faster with all of our products, right? And so in the case of tariffs, you know, when those go in, it's really only a couple of few months. before the costing is beginning to catch up, you know, with the with the P&L. And so that's why when you think about the cadence of tariff conversations are really heavy in February and March, and we took our first steps in April, even though we have a very long supply chain with two and a half with two and a half turns.

Speaker Change: As it relates to this matter.

Speaker Change: Once once something actually hits the U S. Shores, our turns are obviously much faster with all of our products right and so in the case of tariffs.

Speaker Change: When those go in it's really only a couple of few months before.

Speaker Change: The costing is beginning to catch up.

With the with the P&L and so that's why when you think about the cadence of tariff conversations are really heavy in February and March and we took our first steps in April even though we have a very long supply chain with 2525 turns.

Speaker Change: That was because tariffs begin to hit much faster than generalized inflation.

Dan Florness: That was because tariffs begin to hit much faster than generalized inflation. And so to Dan's point, you know, we aren't timing this to, to pull margin in ahead of costing.

Dan: And so to Dan's point.

Speaker Change: We are timing this to to pull margin in ahead of costing.

Operator: It's just tariffs move through the move through the P&L a little Thank you guys.

Dan: It just has moved through the <unk>.

Dan: <unk> moved through the P&L a little quicker.

Thank you guys I'll pass it on as well.

Operator: I'll pass it on as well. Thank you.

Dan: Thanks.

Brian <unk>: Thank you next question is coming from Brian <unk> from Wolfe Research. Your line is now lives.

Ryan Cooke: Next question is coming from Ryan Cooke from Wolf Research, your line is now live. Good morning, and thank you for taking my question. Morning.

Brian: Good morning, and thank you for taking my questions.

Holden Lewis: Maybe we could spend some time on SG&A. I know you called out some elevated freight expense again, within that other category that was up double digits. To maybe just quantify that impact in this quarter and share how we should think about things trending for the rest of the year. And I guess just more broadly, it does sound like you expect to be leveraging SG&A in the remaining quarters, given you would have been there without the loss of a selling day in one queue. So just making sure is that the correct way to be interpreting your outlook?

Speaker Change: Good morning, maybe we could just spend some time on SG&A I know.

Speaker Change: You called out some elevated freight expense again within that other category that was up double digits can you, maybe just quantify that impact in the quarter and share how we should think about things trending for the rest of the year and I guess just more broadly it does sound like you expect to be leveraging SG&A in the remaining quarters, giving you would've been there without the loss of a selling day in <unk>.

Speaker Change: Just making sure is that the correct way to be interpreting your outlook.

Holden Lewis: Yeah, on the phrase, the nature of the freight was different this quarter than it was last quarter. Last quarter, we had some expedited shipments that we paid for. But that's in cost of goods, right? If you're talking freight and SG&A, you're talking more vehicles, local vehicles. Got it. Sorry.

Speaker Change: Yeah on the frame the nature of the freight was different this quarter than it was last quarter last quarter, we had some expedited shipments that we paid for.

Speaker Change: So thats in cost of goods right at <unk> freight and SG&A youre talking to more vehicles low vehicle got it sorry.

Holden Lewis: I was anticipating a different question. Yeah, on the on the SG&A. So we are cycling through our fleet of pickups. And, you know, we're that pace is accelerated in the last call it 612 months. And that's because One of the the sort of afterglows of the pandemic was it took a while for the for the vehicle supply chain to catch up and we had several years where we were probably not cycling as quickly as we normally would during which those things were inflating and so you know we'd be you know that that is continuing to move through I think as you get into the second and fourth quarter in particular the comps do start getting somewhat easier and so I do I do think you have that working in your favor on the SG&A but to your broader point you know look I've always argued that when we grow at a mid single digit rate we should be able to defend the margin and I think this quarter if we hadn't lost the day compared to last quarter or the year ago quarter we would have grown it at five percent and that's what our DSR was at and at that level we were pretty close to sustaining our operating margin and you know would have leveraged SG&A and so I think the question is it depends on what you think demand is going to do if you think that we're going to grow or continue to grow at a mid or better than mid single digit rate then I would expect that we should be able to leverage SG&A at that level particularly with the the way that we're managing our cost today.

Speaker Change: Is anticipating a different question.

Speaker Change: Yes on the SG&A. So we are cycling through our fleet of pickups and.

Speaker Change: That pace has accelerated in the last call it six to 12 months and that's because.

Speaker Change: One of the sort of Afterglows of the pandemic was it took a while for the for the vehicle supply chain to catch up and we had several years, where we were probably not cycling as quickly as it normally would during which those things were inflating and so we'd be.

Speaker Change: That is continuing to move through I think as you get into the second and fourth quarter in particular, the comps do start getting somewhat easier.

Speaker Change: And so I do think you have that working working in your favor on the SG&A, but to your broader point.

Speaker Change: Always argued that when we grow at a mid single digit rate, we should be able to defend the margin and I think this quarter.

Speaker Change: We hadn't lost a day compared to last quarter or the year ago quarter, we would've grown at 5% and Thats, what our DSR was that and at that level, we were pretty close to.

Speaker Change: To sustaining our operating margin and would have leveraged SG&A and so I think the answer. The question is it depends on what you think demand is going to do if you think that we're going to grow continue to grow at a mid or better than mid single digit rate. Then I would expect that we should be able to leverage SG&A at that level, particularly with the way that we're managing our cost today.

Speaker Change: So, but volume always helps us, saying that the only thing I'll add to that is.

Holden Lewis: So but volume always has a say in that. The only thing I'll add to that is, and I think it was Dave Manthey that that coined this a number of years ago, we talked about the shock absorbers in our system. And that is, we we use a meaningful amount of incentive compensation in our structure. And one of the messages I had for our leadership earlier this morning was, you know, as we're moving into, into second quarter here, we did we did a nice job of managing expenses. Our sales growth has picked up. We, we expect that to continue as we move into.

Speaker Change: And I think it was Dave Manthey that coin. This a number of years ago, we talked about the shock absorbers in our system and that is.

Speaker Change: We use it.

Speaker Change: Meaningful amount of incentive compensation in our structure and one of the messages I had for our leadership earlier. This morning was as we're moving into in the second quarter here, we did a nice job of managing expenses.

Speaker Change: Our sales growth has picked up.

Speaker Change: We expect that to continue as we move into.

Speaker Change: Second and third quarter.

Holden Lewis: second and third quarter. And, and There will be some reloading. of bonus numbers. Because you can read our proxy and you can see it was pretty ugly for a few of us. Yeah, you know, and that's not unique to to the folks that are in proxy that's throughout the organization. That makes sense. That's why I always talk about an incremental margin being that 20 25% range, you know, because you do have that shock absorber effect that works on both works when volumes expanding as well as when it's slower.

Speaker Change: <unk>.

Speaker Change: And.

Speaker Change: There will be some reloading.

Speaker Change: Our bonus numbers, because you can read our proxy and you can see it was pretty ugly for a fuel us.

Speaker Change: And that's not unique to the folks that are in proxy that's throughout the organization.

Speaker Change: Focus or a meaningful cut in there in their incentive comp in 'twenty, three and 'twenty four and there'll be some reloading of that but that is predicated.

Speaker Change: Weighted on the fact that our gross profit dollars in our pre tax dollars are growing and driving that and so optically you'd see your operating expenses growing little bit faster the incentive comp within labor grown a bit faster.

Speaker Change: But it's because the.

Speaker Change: Operating earnings are growing faster.

Speaker Change: That makes sense.

Speaker Change: While we always talked about an incremental margin be in that 2025% range.

Speaker Change: Because you do have that shock absorber effect that works on both.

Worst when volumes expanding as well as when it's slower.

Speaker Change: Great. Thanks, Dan and hold and that's all very clear and I guess, if we could just spend a quick moment on the customer sites and thank you for the additional disclosures you've given there.

Holden Lewis: Great. Thanks, Dan and Holden. That's all very clear.

Holden Lewis: And I guess if we can just spend a quick moment on the customer sites, and thank you for the additional disclosures you've given there. I guess, you know, maybe just how do you think about the disaggregation between manufacturing versus the non manufacturing locations? Do we think of the pruning opportunity as maybe more substantial on the non manufacturing side, given those look to be a little bit heavier mix of this low spend customers or anything you can share on just how you think about the two differences there. And maybe if there's any significant margin differentials. Well, I'm not sure there's a difference between manufacturing and non manufacturing as much as there's a difference between the services that are utilized.

Yes.

Speaker Change: Maybe just how do you think about the disaggregation between manufacturing versus the non manufacturing locations should we think of the pruning opportunity as maybe more substantial on the non manufacturing side, given those look to be a little bit heavier mix of the slow spend customers or anything you'd share on just how you think about the two differences there and maybe if there is any significant margin differentials to think about.

Speaker Change: Well Im not sure Theres, a difference between manufacturing and non manufacturing as much as there is a difference between the services that are utilized the reality is.

Holden Lewis: The reality is What we sell are supply chain solutions using a high touch model and a lot of technology. And, you know, we need customers that have the scale to take advantage of that, you know, and are willing to sort of pay for the savings and advantages that we can bring to them. Whether that's a customer manufacturing non manufacturing to some degree is somewhat agnostic to us. You know, when you look at the bucket information, and you look at what's happened to the total customer sites, and that less than 5k group, the reason that's acting the way it's acting is in part because we've closed branches, that that process is obviously, you know, stabilized.

Speaker Change: What we sell our supply chain solutions.

Speaker Change: Using our high touch model and a lot of technology and.

Speaker Change: We need customers that have the scale to take advantage of that.

Speaker Change: And are willing to sort of pay for the savings and advantages that we can bring to them.

Speaker Change: Whether that's a customary manufacturing nonmanufacturing to some degree is somewhat agnostic to us.

Speaker Change: When you look at the bucket information and you look at what's happened to the total customer sites in that less than five K group. The reason that's acting the way. It's acting is in part because we've closed branches that processes obviously.

Holden Lewis: But you know, part of the reason we've lost customers is because we've closed branches. The other part is because a customer that does $500 a month with us doesn't use a lot of the tools that we can bring to bear for customer supply to Whereas a customer that spends 10k or more a month with us You know, they've typically using multiple of our solutions, right. And so when we think about manufacturing and non manufacturing, I don't think there's as much of a distinction there as much as there's a distinction between the size and the opportunity that exists with with the customer in either of those spaces.

Speaker Change: Stabilized, but part of the reason we've lost customers because we close branches. The other part is because a customer that does $500 a month with us doesn't use a lot of the tools that we can bring to bear for customer supply chain.

Speaker Change: Whereas the customer that spends 10-K or more months with us.

Speaker Change: Yes.

Speaker Change: Typically we're using multiple of our solutions right and so when.

Speaker Change: When we think about manufacturing and nonmanufacturing.

Speaker Change: I don't think theres as much of a distinction there as much as there's a distinction between the size and the opportunity that exists with the customer in either of those spaces.

Dan Florness: The only thing I'll go over. One thing I'll add to that is, is on the non manufacturing, you know, the manufacturing obviously is a more cyclical The non manufacturing includes some customer segments that we've seen enjoyed success with that aren't manufacturers and their businesses that are involved in warehousing and distribution, typically supporting e commerce models. They might be organizations that are involved in data centers. They might be organizations I've talked previously about some of the success we've enjoyed with on site. going through the COVID period, you know, for example, and I mentioned Bob Hopper earlier, I go down and visit Bob once a year, he usually doesn't let me come to Florida winter, I have to come in the summer, but hotels are cheaper.

Speaker Change: The only thing out over.

Speaker Change: Yes, one thing I'll add to that is.

Speaker Change: On the non manual the manufacturing obviously is the more cyclical.

Speaker Change: Customer base to a certain degree the nonmanufacturing includes some customer segments that we've seen enjoyed success with that arent manufacturer.

Speaker Change: Businesses are involved in warehousing and distribution typically sorting supporting E Commerce models.

Speaker Change: Might be organizations that are involved in data centers they might be organizations I've talked previously about some of the success we've enjoyed with.

Speaker Change: On sites.

Speaker Change: Going through the Covid period for example, and I mentioned, Bob Hopper earlier.

Speaker Change: And visit Bob once a year, usually doesn't let me come to Florida Winter I have to come in the summer but.

Speaker Change: Hotels are cheaper but.

Dan Florness: But, but when I come down to visit Invariably, I'm going to a K-12 school district where we have an on or I'm going to a boat manufacturer, one of the two. And, and so there's roughly 600 4-year state colleges, 2-year technical colleges, K-12 school districts with more than 20,000 students in the United States alone. If you take that number to 10,000 plus students, that 600 goes to over 1,300. Prior to COVID, we had fewer than five onsites with higher ed or k-12. Coming out of COVID and going to 25, of that 600 number, I don't know this for a fact, but we're probably sitting there with about 5% of them right now.

Speaker Change: But when I come down to visit.

Speaker Change: Invariably going to a K 12 School district, where we have an onsite.

Speaker Change: Or I'm going to a bulk manufacturer one of the two.

Speaker Change: And so there is roughly 600.

Speaker Change: Okay.

Speaker Change: Four year state colleges two year technical colleges K 12 school districts with more than 20000 students in the United States alone. If you take that number to 10000 plus students that 600 goes to over <unk> hundred.

Speaker Change: Prior to Covid, we had.

Speaker Change: Fewer than five onsite with higher Ed or K 12, coming out of Covid had grown to 25% of that 600 number I don't know this for fact, but we're probably sitting there was about 5% of them right now.

Dan Florness: And those are those would be in that bucket. And that's where we found success because that group of customers found we were special during COVID Because we can get them stuff other people couldn't get. And it opened up their eyes to the potential of some of the FMI devices, the resources we can bring to their supply chain. And I'm pleased to say in the last few years, we've had onsite customers that are in the final four of the basketball tournament, and we're rooting them on. And we had one this year as well. So, but it's a case of, that's, that's one of the reasons to break that out.

Speaker Change: And those are those would be in that bucket and that's where we've found success because that group of customers found we were special during COVID-19.

Speaker Change: Because we can get them stuff other people couldn't get.

Speaker Change: And it opened up their eyes to the potential of some of the the <unk> devices. The resources, we can bring to their supply chain and I'm pleased to say in the last few years, we've had onsite customers that are in the final for the best return it and we're rooting them on.

Speaker Change: And we had one this year as well.

Speaker Change: But it is the case of <unk>.

Speaker Change: That's one of the reasons to break that out but that group is less cyclical given what they do.

Dan Florness: But that group is less cyclical, given what they do. Whereas in the manufacturing, the only pieces that are less cyclical is where we have customers in manufacturing that are more in food production, because people always eat. might change what they eat, but they always eat. Thank you.

Speaker Change: Whereas in the manufacturing the only pieces that are less cyclical is where we have customers in manufacturing that are more in food production.

Speaker Change: People are busy.

Speaker Change: It might change what they eat but they always easy.

Speaker Change: Thank you your next call yesterday is coming from Tommy Moll from Stephens. Your line is in our lives.

Tommy Moll: Next question today is coming from Tommy Moll from Stevens Rewind is now live. Good morning and thank you for taking my question. Morning. I want to follow back follow up on a comment. I think this was from you Holden, just on the pricing actions that were taken in April. You quantified maybe three to four points year-over-year uplift in the second quarter that could potentially double in the second half, if I heard that correctly. Is the driver there just the staggered dates of implementation for these increases? And is that just tied to the pricing and costing a line that you referenced earlier.

Speaker Change: Okay. Good.

Speaker Change: And thank you for taking my questions.

Speaker Change: Hey, good morning, good morning.

Speaker Change: I wanted to follow back follow up on that.

Speaker Change: Comment I think this was from you Holden.

Speaker Change: Just on the pricing actions that were taken in April.

Speaker Change: You quantified maybe 3% to four points.

Speaker Change: Year over year uplift in the second quarter that could potentially double in the second half if I heard that correctly.

Speaker Change: Is the driver of that or just the staggered dates of implementation for these increases and is that just tied to the.

The pricing and costing alignment you referenced earlier.

Holden Lewis: Is there something else going on? Staggered timing, as well as just the timing it takes to sort of implement, have conversations. Our model starts with discussions with customers, right? It's not just sort of flipping a switch on a website, and so those conversations can take their own varying paces, particularly when 70% of your business is in the contract realm.

Speaker Change: Else going on here.

Speaker Change: Staggered timing as well as just the timing it takes to sort of implement have conversations.

Speaker Change: Our model starts with discussions with customers right, it's not just sort of flipping.

Speaker Change: Flipping a switch on on our website and so.

Speaker Change: Those conversations can take their own varying paces, particularly when 70% of your business and the contract realm.

Holden Lewis: I can touch on a few things. That's heavily centered on fastener products. Because that 25% tariff that came in on steel based products, once it was clarified, it was derivative products as well, which includes threaded fasteners, because of the high steel content there. and a little sarcasm, sorry, but Part of that is having conversations with our customers. and understanding what inventory we have. Thank you both.

Speaker Change: I can touch on a few things that's heavily centered on fastener product.

Speaker Change: Because that 25% tariff that came in on steel based products. Once it was clarified it was derivative products as well, which includes threaded fasteners because of the high steel content there.

Speaker Change: And we will sarcasm sorry, but.

Speaker Change: Part of that is having conversations with our customers.

Speaker Change: And understanding what inventory we have.

Speaker Change: To support them and some of the timings that can come into play and so that creates some staging effect, particularly on the OEM side of fasteners and Thats about two thirds of our fastener sales.

Speaker Change: Thank you both and I wanted to follow up with a question on gross margin.

Holden Lewis: And I wanted to follow up with a question on gross margin. Holden, I believe it was last quarter. You said that there was a shot for flat in 2025, maybe, maybe slight decline. Any update on that outlook? It sounds like maybe not. Price Cost Commentary, and how you think. You can defend margin percentage there, but I just wanted to ask if there's anything else you wanted to offer. I'm going to take that one. What's that? Care if I take that one? Be my guest. I'll look forward to hearing what you have to say.

Speaker Change: Hold on I believe it was last quarter, you said that there was a shop floor in 2025, maybe maybe slight decline.

Speaker Change: Any update on that outlook it sounds like maybe Bob just given some of the price cost commentary on how you think.

Speaker Change: You can defend margin percentage, there, but I just wanted to ask if there was anything else you want to go to offer.

Speaker Change: No.

Speaker Change: So when you take a look.

Speaker Change: Kevin I'll take that one would be my guess because this is a look forward to hearing which I would say.

Dan Florness: This is a philosophical thing. And you know, historically, we've defended gross profit percentage. And in fact, I had a conversation with a few of our directors yesterday on just this fact. And, you know, when when if you look back to 2018, time We largely defended a gross margin percentage. It was a little chaotic because we didn't have the tools we have today. And, and, and, you know, the degradation that you did see in gross profit over time was the earlier mentioned You know, hard frontal attack on growing our 50k plus customers and it was a mix shift that was going on both in customer mix and product mix.

Speaker Change: This is a philosophical thing.

Speaker Change: And you know historically, we've defended gross profit percentage.

Speaker Change: And in fact.

Speaker Change: The conversation with a few of our directors yesterday on just this fact.

Speaker Change: And you know when when if you look back to 2018 timeframe.

Speaker Change: We largely defended our gross margin percentage.

Speaker Change: A little chaotic because we didn't have the tools we have today.

Speaker Change: And.

Speaker Change: And the degradation that you did see in gross profit over time was the earlier mentioned.

Speaker Change: Hard frontal attack on growing our 50, K plus customers and there was a mix shift that was going on both in customer mix and product mix and those were those were competing with gross profit percentage, but we largely defended the percentage and.

Dan Florness: And those were those were competing with gross profit percentage. But we largely defended the percentage and but we'd be very thoughtful about what it means for our customer and our bigger challenge to our customer right now. is what optionality we can we create in their business. because defending gross profit percentage In an arena where you're talking 100, 125, 140, I mean, whatever, whatever hell number you throw out there, you're really working with your customer. to manage their supply chain. And you're doing you're doing right by everybody. That includes employees, customers Suppliers, because we're pushing back on suppliers pretty darn hard too, and our shareholders.

Speaker Change: But.

Speaker Change: We'd be very thoughtful about what it means for our customer and our bigger challenge to our customer right now.

Speaker Change: He is what Optionality, we can we can create in their business.

Speaker Change: <unk>.

Speaker Change: Defending gross profit percentage.

Speaker Change: In an arena, where youre talking 100, 125, 140, I mean whenever held number you throw out.

Speaker Change: There you're really working with your customer.

Speaker Change: To manage their supply chain and Youre doing doing right by everybody that includes employees customers.

Speaker Change: Suppliers, because we're pushing back on suppliers pretty darn hard to <unk>.

Speaker Change: And our shareholders.

Dan Florness: And you're finding what the right mix is. And you're also trying to figure out, is this a Is this is this an a forever thing? Or is this something that's going to be announced on Wednesday and canceled on Friday? And what what react what steps are you going to take? You're not going to stick your head in the sand and pretend it's not happening. Because that's that's naive. That's foolish. But you're not going to jump out the window either. You're going to find someplace in between to make great supply chain decisions for your customers. and but our goal has always been to manage gross profit percentage through scenarios.

Speaker Change: And youre, finding what the right mixes and Youre also trying to figure out.

Speaker Change: Is this a.

Speaker Change: Is this is this a forever thing or.

Speaker Change: Or is this something that's going to be announced on Wednesday, and counseled on Friday.

Speaker Change: And what react what steps do you take youre not going to stick your head in the sand and tenants not happening because that's naive that's foolish.

Speaker Change: But youre not going to jump out the window, either unifying someplace in between to make great supply chain decisions for your customers.

Speaker Change: But.

Speaker Change: Our goal has always been to manage gross profit percentage.

Speaker Change: Through scenarios.

Dan Florness: Our goal, our goal, our real goal long term is to grow relationships and find, discover more customers that find the Fastenal supply chain model to be special. And then with existing customers once established to grow our footprint with them and be special for more things. And that's an incredibly trusting relationship. And we're going to do right by all four constituencies I talked about. And all four are going to get pushed as we go through this suppliers, customers, Shareholders and employees and I think I think with that kind of mix I think our shareholders do really well.

Speaker Change: Our goal our goal our real goal long term.

Speaker Change: Is to grow relationships and find discover more customers that find the fastener supply chain model to be special.

Speaker Change: And then with existing customers once established to grow our footprint with them and be special for more things.

Speaker Change: And that's an incredibly trusting relationship and we're going to do right by all four constituencies I talked about in all four are going to get pushed as we go through this suppliers.

Speaker Change: Customers shareholders.

Speaker Change: Shareholders and employees and I think I think with that kind of mix I think our shareholders do really well <unk>.

Dan Florness: Investing in Fastenal because we have our head in the right place. And we keep our eye on Despite this quarter and beefing up our inventory to do a number of things strategically, we keep our eye pretty well on our cash flow operation too. And I see we're at five minutes on the hour. We can take one more if it's a quick question.

Speaker Change: Investing in fast and overtime because.

Speaker Change: Because we have our head in the right place and we keep our eye on.

Speaker Change: Despite this quarter and beefing up our inventory to do a number of things strategically, we keep our eye pretty well on our cash flow operation too.

Speaker Change: And I see we're at five months on the hour we can take one more if it's a quick question, but in case of our time.

Dan Florness: But in case you run out of time, I do want to reciprocate and say to Holden Thanks for the last nine years. You brought a very unique insight to the FAST organization. I always used to get home and my wife would ask me, hey, how were the questions today and and or some of the follow up questions and I'd always share a handful of names with some folks that would add some really, really good questions. Holden has always done that. So he will be missed at Fastenal.

Speaker Change: I do want to reciprocate and say to hold in.

Speaker Change: Thanks for the last nine years.

Speaker Change: Brought.

Speaker Change: A very unique insight to the fast organization.

Speaker Change: Used to get home and my wife would ask behave how are the questions today and or some of the follow up questions and not always sure a handful of names who asked some folks that would add some really really good questions.

Speaker Change: Although it is always on that list and so he will be missed the vessel.

Chris Snyder: But if there's one more question, we'll take Our final question today is coming from Chris Snyder from Oregon.

Speaker Change: But if there's one more question we'll take it.

Speaker Change: Our final question today is coming from Chris Snyder from Morgan Stanley. Your line is now live.

Dan Florness: Stanley, your line is now live. Thank you. I appreciate you squeezing me in here. I just wanted to maybe ask you, Dan, about fastener supply chains. You know, they're very heavily tied to Asia. When we look at other industrial categories, we did see more of a shift to Mexico over the last five years. That hasn't really happened in fasteners. So just, you know, are there contract manufacturers in Mexico that could, you know, kind of take on some of this production? If not, any views as to why? Because when we think about a fastener, the majority of the cogs are transportation and metal.

Chris Snyder: Thank you I appreciate you squeezing me in here I just wanted to maybe ask you Dan about fastener supply chains, they're very heavily tied to Asia. When we look at other industrial categories. We did see more of a shift to Mexico over the last five years that hasn't really happened in fasteners.

Chris Snyder: Or their contract manufacturers in Mexico that could kind of take on some of this production if not any any views as to why.

Chris Snyder: Because when we think about our fastener the majority of the Cogs are transportation and metal. So I would think that producing domestically even in the U S could make sense for that category.

Dan Florness: So I would think that, you know, producing, you know, domestically, even in the U.S., could make sense for that category. So just wondering if you had any thoughts on that and what that could mean for Fastenal if the supply chain is So, you know, yeah. I don't have a great answer for you other than there are sources of product in North America. And we source product out of Canada. And but there are sources of product of fastener product in North America. We took a really hard look ourselves. over a multi-year period of taking some of our working capital and and redirecting that into fixed capital and saying could we take some of the dollars we have on the balance sheet because we have a long supply chain and build our own capability and we did a lot of and you know the U.S.

Chris Snyder: So just wondering if you had any thoughts on that and what that could mean for fast at all if the supply chain is getting shorter.

Chris Snyder: Yes.

Chris Snyder: Yes.

Chris Snyder: I don't have a great answer for you other than.

Chris Snyder: There are sources of product in North America.

Chris Snyder: And we source product out of Canada.

Chris Snyder: But there are sources of product of fastener product in North America, we took a really hard look ourselves.

Chris Snyder: Over a multiyear period of taking some of our working capital.

Chris Snyder: And redirecting that into fixed capital and saying could we take some of the dollars. We have on the balance sheet, because we have a long supply chain and build their own capability and we did a lot of.

Dan Florness: has some things North America has some really key things going for it long And the most critical one that I can think of is there's no place on the planet. industrial place on the planet. that that has a more reliable long term source of stable cost energy been North America. Whether we choose to use it or not, that's a different question. But there is nobody with the capability industrialized area that has that capability. And so it does create a unique advantage. The problem is, there's such scale in in Asia, with faster production with steel production, and by extension, faster production, such scale that's been created, because automotive took faster manufacturing to Japan and South Korea post World War Two, you know, in the 50s and 60s, long before we even existed.

Chris Snyder: The U S has some things North America has some really key things going for it long term.

Chris Snyder: The most critical one that I can think of is there's no place on the planet.

Chris Snyder: Industrial.

Chris Snyder: <unk> placed on the planet.

Chris Snyder: That.

Chris Snyder: That has a more reliable long term source of stable cost energy.

Chris Snyder: Then North America.

Chris Snyder: Whether we choose to use it or not thats a different question, but there is nobody with the capability industrialized area that has that capability and so it does create a unique advantage. The problem was there's such scale and in Asia with fastener production with steel production and by extension fastener production such scale that's been.

Chris Snyder: Created because of automotive took faster manufacturing to Japan, and South Korea Post World War II.

Chris Snyder: <unk> and <unk> long before we even existed.

Dan Florness: And so there's such scale over there. Part of the issue you have in North America, and this comment includes Mexico, there isn't the same scale that's been developed. as far as competitive fast And obviously, this changes the math. And the real question is, does the marketplace do the producers of fasteners? believe . The investment is justified. Because, you know, you hear on on all the talking show, CNBC in the morning about certainty and all this kind of junk. There is no certain in the world never has But if it's government mandated, that's a really weird thing for certainty.

Chris Snyder: And so theres such scale over there part of the issue you have in North America.

Chris Snyder: This comment include Mexico, there isn't the same scale that's been developed.

As far as competitive fasteners.

Chris Snyder: And obviously this changes the math and the real question is.

Chris Snyder: Does the marketplace due to producers of fasteners.

Chris Snyder: Believe.

Chris Snyder: The investment is justified.

Chris Snyder: Yes.

You hear on on all the talking so you seem to see in the morning about certainty on all of those kind of chunk. There is no certainty enrolled and never has been.

Chris Snyder: But if it's government mandated that's a really weird thing for certainty because if the economics work because there is a 50% tariff we're at 25% tariff or 75% tariff and that tariff can go away in a day as easy as it can be created in today are you going to make that investment in Mexico for scale manufacturing.

Dan Florness: Because if the economics work, because there's a 50% tariff, or a 25% tariff or a 75% tariff, and that tariff can go away in a day as easy as it can be created in today, are you going to make that investment in Mexico for scale manufacturing? You may or may not. My guess is you probably won't unless you have comfort that you can put a half a billion dollars into a plant. and that 25% piece will be there. for the next 15 years, 20 years. You're not going to do it if you think it could disappear in two.

Chris Snyder: You may or may not.

Chris Snyder: My guess is you probably won't unless you have comfort that you can put out $1 billion into our plant.

Chris Snyder: And that 25% piece will be there.

Chris Snyder: For the next 15 years 20 years.

Chris Snyder: Youre not going to do it if you think it could disappear in two.

Dan Florness: And that's that's the challenge.

Chris Snyder: And that's the challenge, but we.

Dan Florness: But we have not found scale manufacturing capabilities to satisfy our needs in North America.

Chris Snyder: We have not found scale manufacturing capabilities to.

Chris Snyder: To satisfy our needs in North America.

Operator: Thank you.

Speaker Change: Thank you we've reached end of our question and answer session I'd like to turn the floor back over for any further or closing comments.

Dan Florness: We reached the end of our question and answer session.

Operator: I'd like to turn the floor back over for any further closing comments. I already slipped in my comment on Holden. And as always, thank you for participating in our in our call today and in future quarters. Between Jeff, Cheryl and Dan, we'll try to step into the void that that Holden will create. So be patient with us. Thank you.

Chris Snyder: I already slipped into my comment on holding and.

Chris Snyder: As always thank you for participating in our call today and in future quarters.

Between Jeff Cheryl and Dan will try to step into the void that Holden will create so be patient with us. Thank you.

Speaker Change: Thank you that does conclude today's teleconference and webcast you may disconnect. Your lines at this time and have a wonderful day. Thank you.

That does conclude today's teleconference and webcast. You may disconnect your line at this time and have a wonderful day. We thank you for your participation today.

Chris Snyder: For your participation today.