2026.10.08 | GP | Industrials | Grainger & Fastenal 3Q26 Sales Trends

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GWW

FAST

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Competitor

Moderator: Robert Jacapraro (RJ)

Robert Brown (RB), Owner and CEO - Kasbah Industrial Supply

SUMMARY

Overview

An independent industrial and safety supplies distributor discussed recent sales trends across fasteners, safety products and maintenance, repair and operations offerings. The business serves mainly small and midsized manufacturing, construction and industrial customers in two western markets.

Recent quarterly sales were strong and slightly exceeded expectations, although growth slowed toward the end of the quarter. Existing-customer expansion and new accounts drove most of the improvement, while inflation contributed to reported revenue. Competitive discounting, an unfavorable shift toward lower-margin safety products and rising operating costs pressured profitability.

The distributor expects the next quarter to fall modestly below its original plan before activity potentially improves early in the following year.

Key Insights

Competitive quoting has intensified, particularly among regional and smaller distributors targeting midsized accounts. Smaller customers increasingly feel underserved by large national distributors and are shifting toward regional providers offering better service and pricing. Price sensitivity has spread to low-value purchases that customers previously ordered without seeking multiple bids. Customers are reducing inventory toward just-in-time levels to preserve working capital. Safety was the strongest product category, supported by hiring, construction activity, stricter workplace requirements and changes following customer acquisitions. Customer payment periods deteriorated to their weakest point of the year, signaling mounting financial stress. The expert expects margin pressure and supplier price increases to persist into the coming months.

Competitive Landscape

10/12/2026 at 06:04 AM UTC

Participant type

Positioning and recent activity

Large national distributors

Focused primarily on major manufacturing accounts and onshoring opportunities. Their service to smaller customers was viewed as less attentive.

Regional distributors

Most aggressive competitors for small and midsized accounts. Several are hiring, expanding geographically and adding light manufacturing services.

Independent distributor

Benefits from broad product availability, personalized service and inventory-management programs, but faces limited labor and purchasing scale.

Private-label suppliers

Help distributors reduce direct price comparisons and protect customer relationships. Branded systems remain difficult to displace where compatibility matters.

Quantitative Insights

Metric

Reported trend

Recent quarterly sales growth

Low double digits and possibly near 20% year over year

Safety sales

Approximately 40% above the preceding quarter

Fastener purchase-cost inflation

Estimated at 10%–12% year over year

Inventory cost inflation

Approximately 10%, despite broadly flat inventory volume

Aluminum cost increase

Estimated near 150% over the prior year

Tungsten cost increase

Estimated near 750% over two years

Typical immediate order fulfillment

About 70%, versus roughly 85% a year earlier

Delayed imported products

Some items require two to three months

Supplier pricing outlook

Further increases expected for roughly six to eight months

Customer payment terms

Standard terms are 30 days, with collection pressure increasing near 60 days

Margin pressure is expected to continue because inflation-driven revenue has not translated into equivalent profit growth.

RJ: Hello, everyone. My name is Rob Jacapraro, and I am an industrials analyst here with Guidepoint. I would like to welcome everyone to our Industrial Distribution: Grainger and Fastenal - 3Q26 Sales Trends and 4Q26 Reads on Activity and Pricing teleconference with Robert Brown. If you have any questions for our advisor today, please feel free to email them to ask@guidepoint.com. We will try to get to your questions in the order that they are received, and as always, they would be asked anonymously. Just before we start, I would like to introduce our advisor for today, Robert

10/12/2026 at 06:04 AM UTC

Brown. Robert, welcome and thank you for your time today. If you wouldn't mind giving us a little bit of background on yourself, especially for those that might be less familiar with you, that would be great, and then we can begin.

RB: Awesome. I appreciate it, Rob. My name is Robert Brown. I've been in the industry of industrial and safety supplies distribution since 1998. I had an opportunity to work with a small company called Fastenal for 18 years, managed a store and some districts for them, opened up multiple stores for them as a district manager, had some opportunities to travel overseas to China for them. A few other opportunities that allowed me some good learning experience and getting me in depth into the market and into distribution. 10 years ago, I had the opportunity to start my own company. We service the Utah, Idaho markets and I've been doing the same thing, set up the same way that we did Fastenal back in the day and looking forward to having this discussion.

RJ: Robert, how did your average daily sales trend across the months of July, August, and September?

RB: Yeah, so our sales for Q3, actually, we had a pretty good increase over our Q2 sales and pretty good increase over 2025. So we've had some pretty good numbers going into it. We do have a little bit of a downward trend going from July down to September. We've seen a slight decrease in our growth numbers, but overall we've had a pretty solid quarter.

RJ: If I asked you to frame your third quarter year over year, some of your peers that I've spoken with in recent weeks have seen, I would say, in the solid mid to upper single digit type year over year growth. Would that be comparable or are you seeing something different than that?

RB: Actually our year-over-year, we're looking at the low double-digit growth right now. So we're seeing some pretty good solid, actually probably closer to 20% right now. So we're seeing pretty good growth.

RJ: I'm curious to explore the deceleration in that growth that you cited since July. Is there an issue in the year-over- year comps that you're coming up against? Is there something within the churn of the business or something else that you've identified or can point to that explains that?

RB: Yeah, so what have we been able to dig into? We don't really have any tough comps going in. What we had in September were pretty decent numbers. And our August numbers, we had a really good month in August, but we did have a little bit tougher comps there. But some of the stuff we're seeing is there's a lot of competitive quoting going on right now, a lot of aggressiveness. We are seeing an increase in our customer count, so we are increasing business with the amount of customers that are buying from us and that contributes a little bit to our growth but some of the big growth is coming from other aspects of the matrix and some of it could be tariff growth or inflation growth. But a lot of it I'm thinking, because our numbers that we're looking at is a lot of the existing customers are on a growth path. And so where the shrinkage is starting to come in or where we're seeing that come off is probably because of losing some of those one-off quotes that are within some of those bigger accounts. And so that aggressiveness from some of our competitors is probably still in some of that market.

RJ: Did any of this take you by surprise, Robert, or have you been almost expecting or not surprised by how this has turned out?

RB: We actually were expecting some pretty solid growth going into Q3. We probably matched our expectations, maybe exceeded it just a little bit. Some of the stuff, we're seeing a little bit quicker of a drop off. We usually drop off in the fall as we go into the winter months. And we're seeing a little bit quicker drop off this year and some of that comes in the ag industry where the weather patterns have made it to where some of the harvesting has been taken care of earlier than usual and so some of that stuff is closing out and we're seeing a little drop off on that side but overall it was about what was expected. The one thing that we are seeing that we didn't expect is our margin has

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slowly declined this year compared to last year and that's been a little bit of a sticking point for us. We're trying to raise it, but we're just seeing too much competitive quoting going on and also we're seeing a lot of our growth is coming, like, on the fastener side where we get a little bit more margin. We're getting most of our growth on the safety side where we get quite a bit lower margin. And so that's kind of deteriorating some of our margin points on the overall pattern.

RJ: In terms of that competitive quoting, are there any particular competitors that you see as more aggressive than others? And does it feel like to you a step up in the competitive environment or normal pressure that comes from time to time?

RB: So it's a step up right now. I think there's a lot of aggression going on right now. There's a lot of people that are hungry trying to get the growth they need to do. Expenses have gone up and it costs a little bit more to run a business right now than it did a year ago. And so I think. Trying to get commissions up and trying to get the sales to bring in the working capital to keep the growth pattern going. There is some aggression going on right now. And you're seeing a lot of new sales guys get into the market. There's a lot of hiring going on with some of our competitors and most of it's coming from the small business and the regional competitors. We're not seeing as much aggression coming from the Fastenals, the Graingers, the MSCs. We see a little bit more probably from MSC than we're seeing from the other two, but overall, those ones seem to know which customers they want and they've gone aggressively after some of those larger accounts, but they don't seem to be too interested in some of the medium or smaller accounts that you're seeing a lot of the regional players fight after.

RJ: I was going to ask you, when it comes to those smaller customers, have you noticed that there's more opportunities among that small and medium-sized customer set coming from previous relationships with those larger national distributors any more this year maybe than in prior years?

RB: I think we've seen that pattern for the last probably year and a half, two years, where a lot of them are honestly feeling kind of neglected by those larger businesses, you know, I'll say the big three. And really just looking to get the service level that they feel like they deserve, but also looking to get the pricing that they deserve. A lot of those ones are paying the margin price that is required so your Fastenals, your Graingers can dip low for the larger businesses that they're going after. And so a lot of them are finding price relief, especially right now where expenses have gone up pretty high this year. Everyone's looking for ways to save money and so you're seeing a lot of aggressive shopping, trying to reduce costs on products by a lot of these medium-sized accounts or smaller accounts. You're seeing a lot closer to the just-in-time inventory right now where after the supply chain shortage, everyone was kind of cautious and they were going to a just-in-time inventory plus one, giving them an extra day or so of product that they had on the shelf and now they're really just tightening that up, not wanting to lock up their assets into the inventory and they're just trying to find ways to save money. And so with that pattern, they're looking at the costs that they're getting from these large distributors and really seeing that they can save money by going to the regionals who are willing to give them the discounts to get their business.

RJ: Robert, when you try to break down your recent sales, how would you describe the relative contributions contributing to the totals that are coming from growth in volume versus growth in price?

RB: So if we look at the inflationary numbers, the price growth is mostly coming from what is inflation. If I look at my numbers, my margin is dropping. And so we have to be a lot more competitive on some of that stuff. So even if the sales, the inflation is coming up, the margin is bringing that cost back down. So the revenue growth is more coming from new customers addition or product within existing accounts that we're able to add.

RJ: How about if you look at the spending patterns from your largest down to your smallest accounts? Any disparities or differences in the recent trends that you can see there?

10/12/2026 at 06:04 AM UTC

RB: Great question. A lot of it, when you look at my larger accounts, they're doing a lot more. VMI bill of material type ordering and they're able to really tailor down how much extra inventory they have in stock. A lot of your smaller businesses are doing a BMI type program where we're managing the inventory on-site and depending on how often we visit that account is about how much inventory you want to have on hand. So if we see them every 2 weeks, we're trying to make sure that they have enough product there to last 2 weeks until the next time we come. And so, it's a little easier for those medium and larger customers that we deal with to really focus in and dial down how much inventory they have on hand because we're seeing them more often. It's easier for them to get to the just-in-time inventory where your small businesses don't have that opportunity.

RJ: Another question that I guess that one opens up that I had planned for later is with some of your more high touch customers and especially the ones you just mentioned on vendor managed inventory. How are you managing the pressure of higher fuel or even higher logistics costs into your inventory with those relationships? Have you been able to either offset or pass through the effects of those higher costs?

RB: We really haven't. It hasn't been a focus of ours. We're hoping that the fuel costs are temporary. They've lasted a lot longer than we were hoping for. So we haven't really done too much there. We do pass on the extra shipping costs that we get when we bring product in specifically for a customer. But overall, we have set routes that we run, and we run those same routes every week, and so the actual cost of driving around to the customers might cost us a little bit more, but it really hasn't been one that we've really targeted trying to make up that little difference. I think there's other ways to really focus on and drive extra costs and extra profits from different areas and then really worrying about it. I know that I've seen a lot of our competitors do fuel surcharges, which have been popular for years, but they're getting a little more abundant now. But on the same hand, customers at this point are really price sensitive. They're there with the expenses the way they've gone over the last year, they're sensitive when it comes to any kind of costing and added costs. And so, when you add something like a fuel surcharge, you're opening up the door for them to look somewhere else for that business. And so you have to be kind of careful on which cost you want to add and make sure that it makes sense for both people because that sensitivity will lose your customers if you're not careful.

RJ: Overall, how would you say that July to September quoting activity compared to the prior year?

RB: Quoting has actually gone up a little bit. I think we're seeing more and more people want to quote their items before they place orders. And some of them are getting a lot more, holding it out with other suppliers. And I think that comes to that price sensitivity we're seeing because of the cost of running business. And so I think we're seeing quite a bit more, especially on your smaller accounts where you usually didn't see it. You had a relationship and it's more relationship built and driven. Those ones are starting to quote out a little more often. And so I think that's where we're seeing the biggest impact on that.

RJ: Were those levels of quoting in line with what your expected or normal levels would be, or were you surprised in any direction by that activity?

RB: I think, you know, we're actually surprised on some of the things that are being quoted. Some of them are small dollar amounts that really, in previous years, it's not worth their time to quote; they just ordered it. Now they're spending time quoting it, trying to save a little bit. And honestly, it's over all set of things; if you look at the cost of labor and the cost it takes them to quote it out, it really, if it's under 100 bucks of savings, it's not even worth their time to even quote it. But a lot of them are, and they're really trying to drive that price down on everything, not just the common used items. Usually, as a purchaser, your main concern is the high dollar items or the high turned items that you have. If you can save money on those, it makes a bigger impact on your overall costing than if you target the small ones. And so they usually, or they used to, give a lot of that small stuff to their preferred suppliers as kind of a reward to try to help them make a little bit more because they know that we're aggressively going after the other stuff for them. But now you're seeing a lot more opportunity, actually, on some of that smaller stuff to land into new accounts

10/12/2026 at 06:04 AM UTC

because they're quoting it out everywhere. And that might be your in as a distributor to get into that account and be able to go after some of the other stuff that you're not getting opportunities on right now.

RJ: Has that required you to offer them different brands or manufacturers as alternatives in order to manage their desire to get lower pricing?

RB: Yeah, there's always opportunities there where you're seeing a lot of different product lines that are getting introduced into the market that are either a private label or stuff like that to try to offset that, that they can get someone set on a private label, then you really - the price really becomes negated because no one else is going to offer that private label. And so it's not apples to apples, so to say. You know, when we're looking at other product lines and different distributors. Yeah, you're offering different product lines compared to one another and trying to get that undercut business. Sometimes, though, the brand is required to stay. You know, someone buying a Milwaukee power tool, they're not going to want to buy a DEWALT because they don't have the batteries for that kind of stuff. But overall, when you start looking at paints and stuff, you might have 3 or 4 different brands that are getting quoted and some are better than others. It's always a Chevy Ford thing in most cases.

RJ: When you look at recent quoting and your incoming order rates, what kind of early signals would you say they're sending to you for the potential for fourth quarter 2026 sales growth?

RB: Great question. We're actually been discussing our fourth quarter projections and trying to see if what we projected the beginning of the year is in line with what we're seeing right now and some of that we're actually thinking it's going to be a little bit lower than what we initially projected at the beginning of the year. Everything else has been in line or a little bit better, but the trend we're seeing right now, we're seeing some of the sales. With the margin drops and the demand out there kind of dwindling down a little earlier than expected, we're kind of expecting the fourth quarter to dwindle down a little bit, but I think it will be a temporary thing. Until next year, first part of next year, I think it will kick up again pretty quick, so.

RJ: I'm curious because you mentioned you meet often with your customers, what kind of indicators or signals they're sharing with you, not only about the fourth quarter, but also their underlying confidence perhaps in early 2027 at this point.

RB: Well, as I talk to different end users or different customers that we sell to, a lot of the management there just trying to get a good feel of what their expectations is. Usually I like to do that to try to help us evaluate what kind of product we need to stock and how heavy of a level we need to stock it at. If our manufacturers or high users are slowing down, we can save a little bit of money by shrinking down some of that inventory temporarily. It's always a benefit. But as I talk to a lot of these customers, we're seeing a wide variety right now of what their expectations are. We're seeing some that are very optimistic about the future and then we see some that are very pessimistic about the future. And some of it comes down to different variables that impact their individual businesses. A good example is we have an aluminum trailer manufacturer that does a lot of aluminum trailers in flatbed style, all different types, and it ships them throughout the country. Aluminum has gone up like a lot over the last, I think it's up like almost 150% or something over the last year, and so it's making it hard for them to compete in that steel market where there's a lot of steel trailers that get put out there. And so he's pretty pessimistic right now because the cost of aluminum is really making it hard for him to compete in the marketplace with trailers. But then you get into someone who's doing heavy truck manufacturing or something, and there's a lot of sales going on right now for them and so they're pretty positive about the outcome, and their expectations for Q4 are pretty high. They think there's people with ending budgets at the end of the budget year that will spend and buy quite a few, and so we're seeing a wide spectrum of expectations. And so for us, it's kind of harder because usually the market's pretty in line with one another, but where those pressures are coming from is kind of dividing people up. And so I think it's just setting people up to either those that are struggling like our aluminum trailer manufacturer; he's got some tough decisions to make to try to make it

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through the rest of this year and hopefully the pressures that are causing him to stress will ease up. Otherwise, he might be looking for selling his business or that kind of stuff, so you might see a lot more mergers and acquisitions on those style of businesses and so we'll see how that plays out. But I think over the next 3 months we'll see, you know, get through the midterms. An election year usually helps once the elections are done and people are understanding what the outlook looks like for the next 2 years, then they seem to order and play by those numbers.

RJ: Collectively, I appreciate you sharing those examples. And thinking about the aluminum trailer manufacturer and stretching it out to your larger customer base, any other areas you're seeing where what you would consider more than normal stress on your customers or would that be a more extreme example based on that raw material situation?

RB: That's a great question. There's a lot of variables out there. Your tungsten right now is up quite a bit. I think it's up 750% in the last 2 years. So it's driving your carbide prices. Some machine shops are getting hit pretty hard on machining costs. But it's across the board. They're all getting hit that way, and so they're competing against one another, and so you don't see that much of a drive to- they're not competing against someone that doesn't have those costs, kind of like that aluminum trailer manufacturer. His competition is still trailer manufacturers and they haven't seen the impact on the costing like aluminum has. And so he's seeing a lot more adversarial components in his business where the steel trailer manufacturer doesn't see that kind of stuff. We're seeing it in construction where you've got a lot of carbide tooling that gets used for cutting, diamond cutting for diamond blades. I don't know where we're seeing a lot of costing go up and it's costing a lot more to build the buildings. And so, but we're not seeing that competitive disadvantage like we are in anything that's getting made by aluminum. And so I think as you go into the next 3 to 4 months, we'll see some of that balance out and some of the market adjust, and you know, I think we'll be fine after we see some adjustments going on. I just think there's going to be some pretty tough decisions made by some of the businesses out there to kind of figure out what he wants to do. You know, that trailer manufacturer, he might have to go into steel to be competitive. I don't know. So that's something he's got to figure out.

RJ: How was the trend for your fastener sales in the third quarter specifically?

RB: Yeah, so our fastener sales are trending the same direction. I mean, we're slowly increasing, but we didn't see an added increase in Q3 where we're seeing a lot of our growth is coming from our safety stuff right now. And so we're seeing a higher demand on safety. And I don't know if that's across the market, but for us, it seems to be a pretty big impact when it comes to government accounts, construction accounts, and new hires within your MRO, OEM accounts that are needing product. We've also seen a few acquisitions with some of our bigger accounts that got acquired and the new management has come in and required different safety protocols, and so we're seeing a lot of restocking up on certain things that were lacking before.

RJ: How would you juxtapose the growth that you're seeing in fasteners with what Fastenal's been reporting in recent months as growth in the solid mid-teens, for example? Is it greater geographic exposure, different customer mix? Where do you think some of the difference in the trends you're seeing might be compared to theirs?

RB: Well, the majority of our businesses are in small manufacturing and MRO type accounts and construction accounts. And so a lot of theirs is going into big, large manufacturers and large manufacturing right now is going pretty strong by what I understand. And you're seeing a lot of onshoring still happening, a lot of warehouses getting built up and new additions where you're putting implants within a facility, which is boosting a lot of those sales as well as you add a new end user into the mix. And so we're just seeing a lot of opportunity within those larger accounts to really grow that business. Demand is up. We're seeing a lot more of it exported. And so there's a lot of advantage going on there with it all becoming onshore. So I think that helps, you know, the Graingers and the Fastenals, a lot of that. I would be interested in looking at if they had their fastener breakdown by OEM or MRO is the majority of that growth, I would say, is coming from their OEM manufacturing.

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RJ: With the trends you've seen in your fastener sales, have those been in line with what you were expecting or have you seen any surprises from your prior outlooks?

RB: No, what I'm seeing is pretty much in line with what we were expecting. We are seeing a lot more aggression from some of our regional competitors after some of our medium-sized accounts and larger accounts that we service. But, it's pretty much in line with what's expected. When you see a lot of activity within the sales side of things, you're expecting them to go after the larger fish, so to speak, that are out there that they can go after and, you know what? I encourage the competitive nature of it because it gives us opportunities to grow as well. And so I think it's a good positive thing.

RJ: I think you alluded to seeing some expanded sales assets from your competitors out there. Are these competitors that have already been active in your markets, or would they be more ones that have been expanding from other areas into your market?

RB: Actually, we got both. We do have a regional competitor out of the Washington area that's been coming into our area and really expanding pretty quickly. They kind of slowed down for the last 4 or 5 years, but we've seen an uptick of their aggressiveness going on and rumors of building new facilities and stuff, so we'll probably see them expand a little further into our marketplace. And there's a few others that are coming in from the other direction, and so we're seeing a lot of expansion within some of the medium-sized distributors as they try to get a little more aggressive and use this opportunity to try to grow some of their business and try to help increase the profit side of things. I think the revenue right now for everyone looks pretty good. Some of that is from inflation, but the revenue side has been struggling as expenses have really hit; cost of labor, cost of gas, all that kind of stuff's up, and so it's really impacted and I think that's where everyone's just trying to drive opportunities. The other thing we're seeing is a lot of our regional distributors are trying to get into more service-oriented type things, like in the fastener stuff. They're starting to do light manufacturing where they're bending new bolts or threading or drilling different things and doing those add-on type business to try to grow the profits that they can get from their sales. And so we're seeing a lot of innovation, basically, of where customers can expand into and how they can get into different industries, and so I think it's good.

RJ: How much change do you estimate you have seen in your fastener purchase costs on a year-over-year basis?

RB: So, inflationary on the fasteners, I'd probably say in the last year, from last year to this year, we're probably up 10-12%. I don't have that number in front of me, but that's just a guesstimate if I had to guess.

RJ: Have you been able to pass through most or all of those changes to your customers?

RB: Probably most of them. The way our system is set up, the margins automatically are taken off of our costs. We do have the replacement cost opportunity is where we fall short, where we sell an existing product at the cost we bought it from. We might have bought it 2 years ago, but now our replacement cost is 15-20% higher than it was. To sit on that same product actually costs us more money, and so that's kind of the replacement cost of where we're probably suffering from, but our system doesn't really allow us to modify that easily. It's a pretty hands-on situation, and we don't have the labor to really manage it as well as we probably should.

RJ: Are you expecting any fastener price increases to occur during the fourth quarter, or do you think that the majority of the inflation has already been onboarded?

RB: You know, that's great. I actually, as of last month, I didn't think there would be any more. Price increases going on until probably January 1st because most companies, they'll evaluate where they're at and make adjustments going into the new year. And so you see a ton of pricing increase adjustments going on starting January 1st or February 1st,

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as soon as someone can put it in, but since then I've seen multiple price increases letters come through my desk and so we are seeing a lot of price increases right now, probably not as much as we were at the beginning of the year, but there's still quite a few going through and I expect more. I don't think it's slowed down. I think as people evaluate the year that they're having, where they're at, and really how big of an impact labor costs and occupancy costs and all that has had on their business, then you have to make adjustments to try to stay alive and stay in business and free up some of that working capital so you have capital to grow, and I think people are making those adjustments and so we'll see price increases for the next probably 6 to 8 months. I don't see that slowing down too much until some of the other costs get under control. And we'll see you next time.

RJ: Within those overall sales trends for the third quarter that you outlined earlier, if we wanted to focus on your MRO offerings, how would you say those sales compared with the overall trend?

RB: Yeah, MRO, it's interesting usually when people tighten up. In history that I've seen, you know, as prices get tighter, people start repairing things more often than buying new. And we are seeing that to an extent, but it's kind of a measured extent. I think MRO customers are up, but I do have a few that are struggling still. I'm not seeing the business that they would like, and where that difference is, and I'm not sure. It might be a service-level thing that has driven certain customers to go to other MRO suppliers or MRO places. When you're talking like truck repair, you might see two or three that are extremely busy, and then you have two or three that are not. And so it's kind of an interesting dynamic. But we're actually on the MRO side; we're seeing growth right now. We're seeing a lot of opportunities. We don't see a lot of the larger competitors really going after some of those accounts because they're smaller. And so we're seeing a lot more opportunity to land some and grow the business within them where we have a pretty broad offering. It kind of allows us to really get into the account and lock them up. And some of them are looking at different vendor management employee programs that we offer, which is a good opportunity as well.

RJ: You alluded to safety sales outpacing your overall mix earlier. How much so might that have been the case during the third quarter?

RB: Our Q3 compared to Q2 on safety, we're probably up 40% over the previous quarter. So we've seen a pretty significant increase in the safety side. And I think I alluded to it before, but to reiterate it, a lot of those, I think it's coming from, you know, new hires and needing some of that protection stuff that, you know, customers are just trying to keep up with some of the demand they have and so they've had to hire new and replace or get new safety products for them. But you're also seeing it in the construction programs where they're at; you're seeing a lot more demand for the safety side of things, and that might be an impact of in our area, we've had a pretty aggressive, OSHA going around and pushing a lot of those safety protocols and so that's increased the purchasing needed from a lot of the contractors. We're also seeing a lot of government looking at buying skill control and that kind of stuff, so we're seeing an increase there as well.

RJ: We've made it all the way through to this point without me asking about data centers and the impact they may be having on your local construction economy. Is that a tailwind in your area towards those contractors that are involved?

RB: Right now, that's not a huge impact. We do have one in our area that's being built right now that's pretty aggressive, and about everyone has business out there, and so that does impact a little bit. We have a couple others that are being pushed right now to be built, and I think they're a little closer to our servicing area, and so it'll impact us a little more. But yeah, the data centers do have a big impact when it comes to construction and the costing, and also how much safety goes in there. They do a pretty good job, by what I've seen, of demanding the safety with the builders that are going there and making sure that all that work on the sites are protected as much as possible, and so I think they are probably one of the heavier safety-driven contracts out there when it comes to construction.

RJ: To what extent, if any, have those higher tungsten carbide prices had an impact on your business based on your

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line card?

RB: Yeah, so it's had an impact on the costing of anything that has to do with our consumables. A lot of those go up, you know, our carbide burrs, our hammer drill bits, any of our hard end mills and that kind of stuff. All that kind of stuff has really gone up in cost. It helped with our sales side of things with increasing the cost, but it's really impacted the margins a little bit because as those costs go up more and more, companies are trying to make the old ones last as long as possible, so you're not selling as many. And I think the competition has really been driving into the market because the added cost helps with the revenue side. So I think you see a little more competition that way because of it.

RJ: From the highest level, we talked about some individual pricing on fasteners, but overall, how much would you estimate that inflation has affected your inventory costs year over year?

RB: Yes, inflation has impacted our inventory costs. Our inventory is up and we're climbing at about 10% year over year right now. And we've been trying to drive our inventory down. I think overall inventory levels are about flat, but the cost of the inventory itself is actually up that 10%. It's making it harder, as a smaller business, to really stock everything and have the required necessary means to provide a just-in-time inventory to your accounts. And so I think it's really causing a lot more of my distributor buddies, they're probably all the best at having everything yet or tomorrow. You know, they're all pulling it in as they get it ordered because they can't stock everything because that just drives that inventory cost up too much.

RJ: Have you seen any changes in either product availability or shipping times or anything else that would be working against you in that ability to manage that inventory as tightly as you would like?

RB: But we have seen an extension on how long it's taken us to get some of the products. It's not near what it was, but we're seeing, especially on our plumbing products, our brass fittings and black pipe, and stuff like that. Those items are imported a lot still, and so we're seeing delays on some of that stuff that some of them are lasting 2 to 3 months out. But it's kind of one-offs, you know, probably if we order a 100 line item PO, we'd probably get 70% of that in immediately and then the other 30% would trickle in over the next 3 to 4 months. And so we're really - I don't know. It does impact how we can do the just-in-time inventory on some of that kind of product line. And we're seeing some of those delays in the safety side that's still imported as well. And I think that's because of the costing to get some of that stuff in levels are lower than they probably should be, but then also we're seeing a little bit, especially on the safety side; I imagine we're not the only one seeing an increase in safety supply sales, and so maybe that's impacting us as well.

RJ: I'm just curious, that example you gave of that theoretical 100-item PO, and that 70% that would be almost immediately available. If you went back a year or two years, Robert, would that look very different?

RB: So maybe a year ago, we were probably closer to 85% would be coming in immediately. Right after, maybe 2 or 3 years ago, it was probably down around 50%. So there's always a fluctuation in how much that is. Right after the supply chain shortage, during supply chain shortage, we couldn't get anything. And then right after it took us a little while to get our inventories back up and for one or two years there we were probably sitting around 40% to 50% of it. Last year, I think was actually our high on getting back to the just-in-time inventory opportunities for us where product was once you ordered it it was shipped out, we got it within 1 or 2 days. Now we're at a point where less of it is getting stocked in all their different warehouses so they might have to ship it out of the East Coast so it takes another extra 2 or 3 days for us here on the West to get the product, and so that there's a little delay that way. But then there's also less product, I think, in the pipeline and so we're seeing a little bit of delay on some of that product coming in. And honestly, it could be, I don't know cause I'm not there, but I would imagine some of your larger distributors like the Fastenals and the Graingers who direct import a lot of their stuff, they might be using those same importers to

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facilitate any shortages they might have and where their business has been up they might be taking in some of that stock levels which is causing some of that problem for us smaller distributors.

RJ: Anything you see or hear that concerns you that availability or immediate availability might be challenged in 3 or 6 months?

RB: No, not really. Actually, and just thinking about it, some of that could be from, you know, if you look at your tungsten costs, how it's gone up or aluminum, no one wants to really stock up on a lot of that kind of stuff at the higher price because if that price drops, all of a sudden they're stuck with a lot of inventory that they're going to have a hard time moving. And so some of that supply chain shortage could be because of the cost where they're at and the expectation that they could drop.

RJ: How would you describe those pricing tailwinds on your overall inventory as you move from third quarter to fourth quarter? Would you consider or expect them to remain steady or are you seeing increasing inflation coming in or would you characterize it as more moderating?

RB: Right now on the inflationary side, I think it's more moderated. We are seeing a little bit. It's been over the last few years, it's actually inflation has really increased our inventory costs and really helped us honestly in our revenue sales as well, where we're getting a little added benefit because of the inflationary costs helps make our revenue numbers look higher, but we're really seeing the impact negatively on the profits because we're not getting as much for those sales as we would have before.

RJ: Based on what you've seen and what you expect, you talked about margins facing some pressure through the third quarter. Are you expecting similar type of headwind as you go out into the fourth quarter?

RB: Repeat that question, Rob. Sorry.

RJ: As far as margins go, you outlined some of the pressures that you've seen through the third quarter. I'm just wondering if you expect the same level of headwinds to continue in the fourth quarter or do you see something that might change that trend?

RB: Really, it'll all come down to, you know, if midterms finish out and you get maybe a war finished out, that would change things pretty quickly, I think. Overall, though, my expectation. We've been kind of hoping that some of those pressures would release over the last 3 or 4 months and they haven't. So I'm in the boat that I think these will continue throughout the fourth quarter and probably we'll see the change first part of next year.

RJ: What have you seen from your customers in terms of their payment activity? Have you seen any extensions or any requests for term resets this year, Robert, that indicate any unusual stress on their side?

RB: Yeah, yeah. No, that's actually one of the areas we really watch as days out get pushed out, you know, as customers take longer to pay their bills, you can really see the impact that they have. They're trying to save that money to use it as a growth metric for them to use that as the working capital that they can extend, and do that a lot. A lot of distributors like myself, we have a set term. We're a net 30 company. And then really we're pretty giving when it comes to late payments up to about 60 days, and then we really have to get aggressive at getting some of that with some added finance costs and that kind of stuff. But, you know, if you can take that money that you're spending and extend it for an extra 30 days, it really saves you from an opportunity to have to get a loan or something like that. And so a lot of companies, when they get tight, they expand that out a ways. And we have seen that stretch this year. It's probably worse now than it has been throughout the whole year. Q3 has been pretty tight when it comes to people paying their bills. We're really happy to stay on it to make sure that people are trying to fulfill that obligation. And it

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really puts a pressure on us as well because we use those terms and have to pay our distributor or our manufacturers for the product as well. And when we get pushed out from the majority of our accounts, we end up having to push our accounts out as well, and I prefer not to do that. But we are seeing that pressure, and it is a sign, like you were saying, Rob, it's a sign that the stresses are there, you know, where they can allocate their money. They don't have a lot of extra workflow right now when it comes to the profits and that working capital is limited. It's been eaten up by fuel costs and labor costs and all those other expenses that have gone up over the last year, but our revenues are all up and so we still have a pretty high demand on our time, you know, where we can invest. If we want to hire new employees, we have to find ways to bring in extra dollars to do that. And so that helps when you can stretch it out a little bit to give you that extra edge to try to get the way. Otherwise, we're all taking on that extra, you know, we grew at 25% last year and that, but our expenses grew at 22%. And so it makes it to where you're working 25% harder for the same amount of cost, and it makes it harder to invest into people when you need to because it's eating up all that just in the inflation. So hopefully that answered your question, Rob.

RJ: That will conclude our agenda for today's teleconference. I would like to thank Robert Brown again for his time today, as well as his valuable and extensive contributions to today's topic and our audience for their interest in this topic. A final reminder for the audience that a replay and a transcript of this call will be available shortly following. Robert, it's always a pleasure to have these discussions with you. I wish you a great rest of your day, and I look forward to our next opportunity to catch up.

RB: Yeah, thanks, Rob. I appreciate it. Always have a good discussion with you, and, you know, hopefully I was able to bring some insight into the market for those listening. So I hope you have a great day and a great rest of the week.

DISCLAIMER: The statements or opinions expressed today are those of the Advisor and not Guidepoint, who disclaims all liability for the content provided. The Advisor may not disclose material nonpublic or confidential information or any information that would cause the Advisor to breach any duty or obligations. Guidepoint is not a registered investment advisor and the information provided is not intended to constitute investment advice.

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