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Fastenal (FAST) is heading lower after reporting its Q3 results this morning. The industrial products distributor posted in-line EPS, a more typical outcome after last quarter's miss, while revenue increased 11.1% yr/yr to $2.03 bln, roughly in line with expectations.

• FAST said industrial production remained sluggish in Q4, but growth stayed strong as improved contract signings continued to drive incremental volume from new and expanding customer sites.
• Manufacturing outperformed again with sales up 11.5% to about $1.5 bln and DSR up 12.8%, reflecting continued strength and share gains with large contract customers and managed-spend accounts.
• Total non-manufacturing sales increased 10% yr/yr to $504 mln, with transportation and data center strength doing most of the heavy lifting and helping offset ongoing reseller softness, while non-residential construction experienced growth for only the third time in the past 13 quarters.
• Unit sales also increased in Q4, with pricing contributing about +310-340 bps to sales, but gross margin still slipped 50 bps to 44.3% as higher COGS and supplier rebate timing left price/cost slightly negative at -10 bps, alongside an ongoing mix shift toward larger, lower-margin customers.
• Digital adoption remained a tailwind with Digital Footprint sales increasing 11.1% yr/yr to $1.28 bln, driven by 16.5% growth in FMI sales to $947 mln. Weighted FASTBin and FASTVend signings totaled 5,966 MEUs, down yr/yr but still above its five-year average signing rate.

Briefing.com Analyst Insight

FAST continues to execute well in a sluggish industrial backdrop, with growth being driven by improved contract signings, deeper penetration at larger customer sites, and solid pricing traction. The offset is that gross margin remained under pressure as higher product costs and supplier rebate timing more than offset pricing benefits, with incremental growth coming from larger, lower-margin accounts. Overall, the quarter reinforces strong execution and initiative-driven momentum, but a still-muted industrial recovery and cost inflation are keeping enthusiasm in check.