2026.10.09 | GP | Industrials | Grainger & Fastenal Fastener Pricing 4Q

Primary:

GWW

FAST

Associated:

MSM

Viewpoint:

Competitor

Moderator: Robert Jacapraro (RJ)

Scott McDaniel (SM), Executive Vice President - Martin Supply

SUMMARY

Overview

An industrial distribution expert reviewed recent demand, pricing, margins, and competitive trends across maintenance, repair and operations products, personal protective equipment, and fasteners. Industry conditions remained favorable, supported by data- center construction, power infrastructure, HVAC, electrical equipment, and heavy trucking.

Demand was broadly consistent with expectations and stronger than typical seasonal patterns. The expert expects momentum to continue into the next quarter, aided by a favorable holiday calendar, while geopolitical uncertainty and transportation costs remain key risks.

Key Insights

Data-center investment is a major industry growth driver. Excluding this market could reduce overall growth by several percentage points. Fastener demand was slightly better than expected and benefited more from data-center construction than broader industrial categories. Volume contributed more to growth than pricing, particularly in fasteners. MRO products outperformed safety and PPE as employee turnover stabilized, reducing demand for new-worker safety kits. Customers increasingly prioritize dependable service, supply continuity, product quality, and supplier relationships over discounts. Smaller and regional distributors are gaining customers from larger global competitors when service levels fall short. Tariff concerns have largely stabilized, but freight, diesel, and energy costs remain uncertain and harder to pass through. AI adoption remains early. The expert expects it to improve productivity and limit incremental hiring needs rather than broadly eliminate existing jobs. The expert expressed longer-term concern that extensive data-center construction could eventually create excess physical capacity if computing shifts to alternative locations.

Competitive Landscape

Segment

Positioning and trends

Leading national fastener distributor

Appears to be outperforming through deeper penetration of existing accounts and exposure to stronger end markets. Sustaining the recent pace may be difficult.

Large global distributors

Losing some smaller and midsize accounts because customers feel underserved or pushed toward less-personal service models.

Regional and independent distributors

Benefiting from stronger relationships, responsiveness, and customized service.

Alternative cutting-tool suppliers

Gaining consideration as elevated tungsten carbide costs encourage product substitution.

10/11/2026 at 11:35 AM UTC

Quantitative Insights

Metric

Expert assessment

Broad distributor daily sales growth

Mid-single digits overall, with some businesses reaching the high-single-digit range

Pricing contribution to broad growth

Approximately one-third

Volume contribution to broad growth

Approximately two-thirds

Mature-account growth

High single digits to low double digits

Fastener daily sales growth

High single digits and slightly above expectations

Fastener pricing contribution

Approximately one-quarter

Fastener volume contribution

Approximately three-quarters

Next-quarter industry growth outlook

Expected to settle near mid-single digits

Potential fuel-cost shock

A further 25%–50% increase would likely trigger faster customer pass-through

Margins were slightly better year over year for broad distributors, but fastener distributors faced some compression from absorbed freight costs. Supplier price notices were limited, although increases may emerge early in the next planning period if capacity tightens.

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 reads on third quarter 2026 fastener sales and pricing momentum and the fourth quarter outlook teleconference with Scott McDaniel. If you have any questions for our advisor today, please feel free to email them to ask@guidepoint.com. Again, that email address for questions is 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, Scott McDaniel. Scott, 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.

SM: Thank you very much, Rob. So Scott McDaniel, I have been in the industrial distribution space for 20 plus years in a variety of leadership roles with several public, private, and PE-backed fastener and industrial distribution companies.

RJ: Scott, let's start off on the MRO or industrial distribution side of the business. From what you saw out there in your markets, what do you estimate might have been the change in average daily sales for industrial distributors in your markets?

SM: Somewhere in the... I think in the mid to high single digits in some cases. I think mid single digits is a really good target for the overall industry. Business has continued to roll along, and in some cases, some people are doing better than others, but overall, I think it's been a positive second half of the year so far.

10/11/2026 at 11:35 AM UTC

RJ: Okay. And just from any expectations you may have held heading into that third quarter, would you say that those market results were in line with better than or maybe less than you had been hoping heading into the period?

SM: I think in line, but I will say that they were better than maybe historical norms for the beginning of the second half of the year. Historically, first half is generally stronger. We were expecting, and most people in the market that I've talked to were expecting a strong second half, which has been true thus far. So I definitely think it's been in line with expectations, but positive in the fact that we didn't see a dip in spite of the expected results.

RJ: Would that be the dip around the beginning of the quarter with the July 4th holidays and summer shutdowns and all the like that just wasn't as pronounced as it may have been in the past this year?

SM: Yes, absolutely. And with all of the global conflicts going on, the oil and gas prices, some of that uncertainty even going into the... as we get closer now to the midterm elections, that can create uncertainty in some markets. So I would say I've been happy with where we're at in the industry overall.

RJ: So that would beg a quick question there, and I realize you may not have the exact answer, but I would appreciate any color you have. That would say to me that they were either trying to catch up or they were trying to get ahead of business that they saw.

SM: Yeah.

RJ: Or it could be both in some cases. How do you think that set up for the unusual July?

SM: Maybe a little bit of both of those things. I think they're trying to get ahead of future government regulations or changes. Historically, it's been very hard to anticipate what the administration and regulations are going to do because they can change so quickly. But I definitely think that as opportunities arise, people have been more cognizant about trying to capture those as quickly as possible and not just letting them lag.

RJ: And wanted to circle back and double click on your comment of some end markets or customer types doing better than others. Who would you highlight as either an end market or a customer type that you see maybe outperforming the average trend?

SM: Definitely anything around data centers, so power generation, power transmission, heating and cooling, so HVAC, some electrical manufacturers, or people that are making electrical boards that are going into the data centers. Obviously, there's a lot of talk around those and a lot of momentum. Other industries have been at fairly consistent levels this year. The automotive space, the agricultural space, the white goods industry, and I would call out the heavy trucking industry as something that's certainly overperformed expectations so far this year.

RJ: When you look at or think about those mid to high single digit market sales comps, how do you estimate the breakdown of those totals by contributions from pricing growth versus underlying volume growth?

SM: I think probably a third of its pricing growth and then the other two-thirds are in just volume. It'll be interesting as we get towards the end of the year on if there's another wave of price adjustments due to tariffs and inventory being burned down off of historical norms. There's a lot of momentum early on, and I think we're now getting to the point of a lot of companies' kind of slow-moving inventories burning out. So things where they may have had 1 year or 18 months or 2 years worth of inventory on the shelf and didn't have to replenish or reorder those things, so they didn't have any adjustments in terms of pricing. I'm anticipating... I was reading an article the other day about that kind of cycle... that now there's some more momentum on slower moving items that are having to get replenished and seeing more, you know, another round of tariff-related impacts just from the current levels, not anticipating anything changing in the rates.

10/11/2026 at 11:35 AM UTC

RJ: Okay. How would you say that your customers' interest in tariffs and their impact on pricing has progressed throughout 2026 and most recently? Are you seeing that those impacts are starting to normalize or wane to some degree?

SM: I think on the tariff side, absolutely. On the freight and transportation side, I think we still have some more room to grow there or adjust there. But again, it depends on what the situation in the Middle East is, what that does to oil and gas prices. But I think that there's been more, in terms of the tariffs, I think people have kind of reached an equilibrium in a lot of cases, at least in terms of their thoughts. But on the transportation and oil and gas prices, I think that's very much still up in the air.

RJ: As a distributor, you face that effect in 2 ways on your incoming buys and then also on any kind of trucking or route management that you are involved with. How would you say that the pass-through or the ability to pass through the higher costs that you've seen to date has been so far?

SM: It was certainly much easier on the tariff side because it was so widespread, it was so well publicized. I think there's more pushback from customers in terms of adjustments, fuel surcharges, simply because there's more things you can do to offset those, whether it's changing the delivery method or the frequency of deliveries. So there's more opportunities to mitigate those things versus the tariffs, when the only mitigation would be to resource and change countries, which, in many cases, was not a viable option.

RJ: The other source of inflation for some of your peers more involved in metalworking and cutting tools has been tungsten carbide pricing. To what extent, if any, have you seen those higher tungsten carbide prices either affect direct pricing or direct product demand or possibly substitutions that are affecting other products?

SM: We definitely have seen it. I have seen it from the industry overall. I think the biggest impact has been just on the willingness for substitution. So I've seen opportunities realized where somebody had proposed their cost savings or cost mitigation in the past and they weren't really open to it, but with the higher tungsten rates, some of those opportunities are being relooked at. So there's definitely been a cost impact and a greater willingness for customers to pursue alternate products or alternate solutions that still meet their application but at an equal or less of an increase.

RJ: I'd like to circle back on your comment about customers or even distributors having slower moving portions of their inventory burned down that potentially saves some cost. After the tariffs and other prices have increased, now that they're looking at restocking, Scott, are there any signs initially, or even if it's more advanced, that that action is having any effect on lead times or availability of those normal slow moving products?

SM: In some cases, yes, absolutely. I think the hard part about that is depending on the customer requirements. In a lot of cases, the slower moving items may only be worth $500 a year in spend, so you're placing a $1,000 order. The cost to try to resource that can be more significant than even the tariff impact on it. Again, there's kind of a sliding scale there, but the distributors certainly cannot eat those in mass. So trying to work with the existing manufacturers in Asia or in other production countries, trying to minimize some of the tariff impact costs, but again, they don't have the ability to absorb all of that themselves either. So you see this kind of dance or balance between trying to find opportunities and minimizing the impact to your customers but ultimately the costs have to get absorbed somewhere or shared in a certain manner.

RJ: Do you see any different trends in the market for sales growth rates, whether it be MRO products or specifically safety and PPE categories?

SM: I think I've seen a slightly higher rate of growth for the MRO products over the safety and PPE products, and that

10/11/2026 at 11:35 AM UTC

goes, you know, it's a little bit different than it was 2 years ago where I think there's been a lot more. I attributed a lot of the growth in the safety and PPE space 1 year, 2 years ago when there was a lot more change in employment rates and a lot more turnover where companies were going out and having to re-kit or reset up newer employees at a higher rate. I've seen a lot more consistency just with employees, with our customers not having to turn over employees quite as quickly as we have over the last several years. So I've seen more growth in the MRO space where people are actually, you know, manufacturing and repairing equipment and getting it back up and running versus just the safety and PPE where people are keeping themselves safe with the right gloves or cut protection.

RJ: In speaking with a peer of yours yesterday, he described that his mix of PPE was growing faster because of some customer and market specific items, which was weighing on his margin percentages, specifically as for him, fasteners are a higher margin contributor than PPE. For other distributors, Scott, with a broader assortment and a broader footprint, would that similar type of mix happen if MRO or fasteners outgrew PPE for you?

SM: It certainly could, again, depending on the kind of the customer mix and what types of products they're using, but that's certainly a potential outcome.

RJ: I wonder if you look at a different slice and you look at the organic volumes that are coming from existing, more mature accounts as opposed to the growth that's provided from more recent customer additions. Are you seeing consistency there or have you seen any change in patterns as 2026 has moved forward?

SM: I definitely see more growth from the new customer addition. So when you're going in and trying to maximize the efficiency and throughput for a newer customer or somebody that's growing, there will be additional vending systems or additional product setups in other areas. In some cases... or in many cases, we're able to pull out some of those hardware requirements where they're not being fully utilized or well utilized, but investing and allowing the customer to spend the right things in the right places. But we definitely do see more growth on the new customer additions versus existing historical accounts.

RJ: Understanding, but maybe perhaps I should ask it better. How would you characterize the growth from that more mature cohort? Would it be in line with the sales trends that you outlined at the beginning at the top or something different?

SM: I think slightly higher than those sales trends. So either high single digits, low double digits would be appropriate for those spaces.

RJ: Okay. I'm curious as to what types of indications or anecdotes you've gotten from MRO and PPE customers about how they're looking at the fourth quarter of 2026 and their potential order outlooks.

SM: Most customers that I've spoken with and heard about just in the industry from people I talk to expect the fourth quarter to be maybe better than historical norms for the fourth quarter. Usually once you get past Thanksgiving in the US, everything kind of starts slowing down and people are getting ready for the following year. But I think there's some well-placed hope that we'll see higher than normal daily sales across the industry and a little bit more economic strength. There's always the chance of having a slowdown after the midterm elections in the US, but I don't know that that'll have a big impact on the current production forecasts.

RJ: Is that a more supportive commentary about how the pace of business heading into that fourth quarter might be stronger than expected and then the later quarter holiday and year-end adjustments may or may not have as much of an impact this year?

SM: I think that's spot on. I think with the way the holidays line up this year, it's a little bit of a tailwind for us. So we've

10/11/2026 at 11:35 AM UTC

got more billing days and maybe less midweek interruptions with holidays. So I think that's definitely a positive.

RJ: Sure. And since you highlighted the data center and adjacent markets, I apologize, I didn't prepare you with a specific question on this, but if you in your mind tried to separate that cohort of customers from your remaining customers or the market trends, how differential might those growth tailwinds be when looking at that data center cohort versus the all others.

SM: The data center impact is certainly material to the overall number. I think if you pull that out, you lose maybe several points of that growth. And there's some kind of parallel things where there's still a lot of investment in terms of power transmission, keeping the US power grid refreshed and investing in that. You know, starting to see some other government investments in some other areas. But that's the space that I'm familiar with. I know there's other spaces, I've got very little exposure to the kind of aerospace and defense. I think that's probably a very different story there, but that's outside of my expertise.

RJ: I appreciate that delineation. And just 1 quick follow-on there. I've had some contacts provide anecdotal commentary that business from that data center cohort seemed to accelerate in the third quarter and kind of with the normal provisos of customer mix and geographic differences, how would you frame how you saw from second quarter to third quarter those activities that you could as all of those directly tied to the data center and market as possible.

SM: We definitely have seen that. I've seen that just even in driving down the road and seeing products getting shipped across the country. So that's definitely been a real thing. I think my opinion is that AI has evolved or maybe the AI production impact has evolved through the year from maybe a lot more planning last year and talking about it to really seeing the material impact in terms of production and throughput. So I've definitely seen that strengthen over the course of the year.

RJ: And any tangible concern or change in opinion that you've been able to pick up on with some of the more recent news regarding either state or local level permitting or process changes that the industry is having to navigate?

SM: I have, and I think it'll be very interesting to see how it turns out over the next several years or so. I do have a personal concern just about the fact that data centers have been driving so much of the growth that at some point the data centers will get built out. But I've also read and you've probably seen some of the articles about how do we better utilize other environments for data centers. I've seen talk about putting them on oceans or on the water so the water can help cool them, and then the competing arguments about impact on marine life, and then recently we've seen articles about putting AI data centers in space where they can be powered through solar power and cooled just through the vacuum of space. So I do wonder if in 5 years we'll have a bunch of empty shell data centers. Thank you. In small towns and in rural areas in America that aren't being fully utilized anymore and that computing power has moved elsewhere, but that will be very interesting to see how that rolls over the next couple of years.

RJ: One of the other things that some of your peers have mentioned, Scott, is that quoting activity may have been a bit more active in the third quarter than expected. Just giving all these price changes and tariff impacts and other cost pressures that customers are finding themselves under. So they're looking for ways to at least stay on top of their MRO and PPE spend a little more actively. How does that fit with what you saw with levels of quoting in the market?

SM: I actually have seen them increase and they were relatively strong levels earlier in the year. What I see and hear more is that it's not customers so much chasing better pricing or benchmarking their current suppliers. It's trying to make sure they've got the right suppliers that have the right relationships, the right quality that align with their needs and their company. So I have seen that pick up, but it's more around service and relationship than just price and cost.

10/11/2026 at 11:35 AM UTC

RJ: That ties in well with another set of comments where some are seeing maybe a pickup in the rate of small to midsize customers who might be unhappy with the service that they're getting from the larger national or regional distributor cohort. Does that fit in with what we were just discussing?

SM: That would align exactly with what I've seen, yes.

RJ: Hmm. If you could, to the ability that you could provide color to it, what do you think in the service equation is driving these customers to shop their business more? What do they feel that they're not getting as much from a larger distributor as they might from someone smaller or midsize independent?

SM: There's obviously been, the industry continues to evolve and change, and it has, and it always will. In some cases, it's where the suppliers are putting their focus or how they're investing their resources. To me, every customer is, in their own eyes, the most important customer. So whether they buy $50,000 a year or $50 million a year, to them, they are the most important customer for their suppliers. So I think that's a piece of it and how you align your resources and try to drive efficiencies. There's always going to be something... maybe some people will be always a little bit happier, some people will be, maybe left behind a little bit and it can go on waves, but I definitely have seen that impact.

RJ: There's been a lot of volatility since tariffs have entered the picture. Is this potentially tied to the personal interaction or at least, I won't say, necessary transition to technology that these larger distributors are pushing their customers more towards? Anything to that line of thought?

SM: In some places, I would say yes. I think there's still probably another round of technology rollout that's going to occur in the next couple years that'll maybe provide more real-time visibility to customers. We've gone through the RFID setup, the vending setup. I do think there's another round of technology still to come. I'm not sure what that technology looks like exactly, but I do think there'll continue to be some changes in perpetuity.

RJ: Sure. Well, are you hearing from customers that are seeking you to incorporate AI tools into your daily management of the business and the interactions with them?

SM: In some places, yeah, generally with the larger customers, they're a little bit more comfortable with it. Some of the smaller customers that are maybe in rural areas, AI is still a little bit scarier, depending on what you're utilizing it for, right? So I think a lot of people have discovered, you know, making emails easier, making your presentations look nicer, but to me, that's really not the true power of AI. It's the ability to multitask and to continue to get more done in a given day without having to add additional resources. I think the concern over AI replacing people's jobs or existing people's jobs has maybe been overblown, but I do think as we go forward, the companies' need to hire additional workers may be slightly lower if they find additional opportunities to incorporate AI to provide service and logistics support to the customers.

RJ: Yeah, I just saw a survey that came from the National Association of Wholesaler-Distributors. At least the respondents would lead one to believe that we're in the early innings of the industry's both study and even planning to embrace the technology. Does that sound to you like a very accurate picture?

SM: It does. It does. And I think there's still, you know, when I talk to different people, it seems like almost everybody uses some different variation or tools. There's quite a few companies out there already that I think, you know, people are still kind of trying to find their way around. Is ChatGPT the right solution? Is it Copilot? Is it another tool that's out there? So I think there'll be some continued learning and growth, and it'll be very telling who emerges as the dominant players in that space.

10/11/2026 at 11:35 AM UTC

RJ: For the underlying sales trends in the market that you see specific to MRO and production consumables, moving from third quarter to fourth quarter, would you say the underlying trend appears likely to sustain, or do you see it possibly getting stronger or more moderate?

SM: I think overall it will sustain just, you know, keeping in mind the holiday impacts, but I think from at least through the middle of November, I think it'll sustain where our current rates. And then it'll, you know, certainly go down slightly just because of the holidays, but as we talked earlier, it should be less of an impact, less of a downturn or negative impact than it has in years prior.

RJ: So with the underlying business trends as well as those holiday comps and where they fall in the calendar, compared to what you saw for the market in terms of sales growth in the third quarter, how would you be thinking about how that setup for the fourth quarter would translate into year-over-year growth?

SM: I think by the end of the year, it'll probably drop back a little bit to maybe mid-single digits. I think earlier I said it's been mid to high single digits. I think we'll settle somewhere comfortably in the mid-single digits overall, but that will be better than historical norms as well.

RJ: And anything about that fourth quarter outlook where you found yourself rethinking or changing your assumptions since the beginning of the third quarter?

SM: No, not really. I think, again, it's kind of waiting for the next shoe to drop. Does some of the political unrest in the Middle East and in Europe settle down? And if it does, you know, how quickly we see benefits from that. There will certainly be, you know, a large cost to rebuild in some areas. So I think that's a completely separate thing. I do think that the fourth quarter has been, if I look back to the beginning of the year, I think the fourth quarter is certainly better than I would have anticipated early in the year. Obviously, as you get closer to the event horizon, you can see things more clearly. But overall, it's been a positive.

RJ: How would you describe the number and degree of price increase notices that suppliers sent out in third quarter of 26?

SM: Fairly minimal. Again, I think we're kind of on the cusp of maybe another round of them. But in the actual third quarter, we didn't see a lot. Particularly in the MRO PPE space, you see a lot more adjustments at the beginning of the year. People have reset their price lists, which is a fairly normal historical trend. And then, obviously, if there's any large regulation changes like the tariff impacts, there can be another one during the course of the year. But in terms of actual material impacts in the third quarter, it's been fairly minimal.

RJ: And... Tying it back to what we were talking to earlier, just to make sure it sounds like the freight and transportation component might be behind anything that is on the cusp, as you described.

SM: Yes, I would agree with that.

RJ: So tying all these disparate influences together, Scott. If you thought about how the average industrial distributor's margins might have performed in the third quarter versus the prior year, what type of picture might you paint?

SM: I think they're maybe slightly better, just as there was, but not to a significant level. I don't know that there's been as much margin compression in the overall industry as I would have expected a year ago. I thought we'd see more of it. But last year, most of the tariff pass-throughs occurred last year, so by late summer. So now we're at the point where there's not a lot of year-over-year. Not a material impact in the year-over-year margin that we would have seen in summer, last summer and in late Q2, where the year-over-year comps were much better in terms of the customer companies had the margin pricing impacts in there, so they were selling at a higher rate than they were in the year

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prior.

RJ: And then anything in that move from third quarter to fourth quarter other than, as we were talking about, maybe stronger underlying sales trends and perhaps less of a holiday impact in the Q4 that would go into the picture of how those margins might compare year over year.

SM: Nothing in my line of sight today that is either overly concerning or overly hopeful. I think we'll see continued consistency. I think that's the... to me, that's the headline is that we'll see kind of more of the same without any expected mass changes.

RJ: Well, let's switch our discussion to something that's nearer to you, and that's the fastener category. And with Fastenal's earnings report coming up, it's a great time to dive in a little deeper there. What do you estimate the market change in average daily sales for fasteners through distribution was for the third quarter?

SM: I think probably in the high single digits overall. Again, I think we've seen a bigger impact from the data center build outs on the fastener side than we do in some of the other side and then the MRO and PPE side. So I think that's been a bigger tailwind on the fastener side.

RJ: And would you say that that type of sales trend in the market would have been in line with, above, or below your expectations heading into third quarter?

SM: Maybe slightly above expectations. Again, I think we're seeing momentum building on the data center side. And obviously, this has been one of the big drivers of a lot of the spend in terms of power transmission and power generation or natural disasters or large storms, hurricanes, things like that. We just certainly want to wish everybody in the Gulf Coast a safe weekend. But having such a late start to the hurricane seasons had a headwind in terms of production in some of those markets, but a positive for all the vacationers out there.

RJ: How would you characterize what you've seen from Fastenal, their monthly sales reports? For July, they were at almost 15% and for August, closer to 17% when it comes to their manufacturing growth year over year on non- residential construction, closer to something like 10%. Where do you think they're seeing or how they're seeing results that might be either at the high end or better than what you just described?

SM: I think that it's probably a couple different things. I think they've certainly been able to penetrate more deeply with some of their existing customers. Obviously, over the last several months, I've been surprised every month with the kind of acceleration in that space. And they're certainly doing several things correct. I don't know if that trend can continue forever, but they're in some of the right markets that they're not seeing the negative impact of some of the markets that are maybe lagging or trailing or not seeing the growth. But I think the biggest driver has been just a widening and deepening of their existing accounts.

RJ: And we'll be right back. Thank you for joining us. Similar to the earlier question for MRO and PPE, with those market level sales trends that you outlined, how would you break those down between growth in pricing year-to-year and growth in volume year-to-year?

SM: I would say they're very similar where it's maybe a little bit more on the volume. So probably 3 quarters, I think I had said a third was based on pricing for the MRO and PPE. I'd say it's probably only a quarter for the fastener side. So a little bit more on the volume side for the fastener business. Again, because there hasn't been a lot of changes in terms of tariff costs, the impacts that we have seen have been on the transportation side, but it's definitely been a little bit more volume in the fastener space.

RJ: What would you estimate as how much inflation has come in year over year on fastener prices from the suppliers.

10/11/2026 at 11:35 AM UTC

SM: Over historical levels, I think most of the inflation, I don't think we've seen a lot of impact on labor rates. I think the 2 big impacts have been just health care costs for employers and then obviously the transportation costs. I think those are the 2 big inflationary pieces. And because we haven't seen as much turnover, there's been more consistency, employees aren't going out and leaving jobs for an extra $1 somewhere down the street, which is good for businesses and allows them to kind of regain some consistency and some better processes and ultimately pass through more efficiency to their customers. But I think those have been the 2 big things. The health care piece is kind of outside of most people's control, but the transportation piece, I think the 1 area where people have been able to maybe mitigate some cost is just on readjusting and relooking at their routes on how they're delivering things, the frequency in which they're delivering and maybe the mode and method of their deliveries.

RJ: Thank you for joining us today. How about the underlying activity on quoting and orders for fasteners that you saw in the market and maybe what that might be signaling to you for potential fourth quarter market sales growth?

SM: I think what we've seen on the quoting side for fasteners has been very much in line with my earlier comments. We're not seeing a lot of customers looking for better pricing, but they're really looking for better service, better relationships out of their suppliers. So, the things I see, it's customers are more interested in just maintaining their current spend. They aren't necessarily looking for a 10% or 25% discount if they kind of understand that, but really want to make sure they're getting the right service levels and having the right relationships with their supply partners.

RJ: At this point, would you be expecting to see any fastener price increases either in the fourth quarter or possibly early in 2027?

SM: I would not be surprised to see anything in the fourth quarter, but in the first quarter of next year, I definitely could see some price increases, especially if the capacity continues or if the capacity tightens up. And in some cases, manufacturers will, you know, maybe slow down production or take some machines offline to enable themselves to rebuild their backlog. The overall supply chain has been very consistent. Availability has been very consistent over the last 2 plus years now. So I would not be surprised at all to see that, again, depending on how the first quarter here starts out.

RJ: How are you thinking about margins for the average fastener distributor based on what you saw in the third quarter of 2026 and maybe what that might portend for the fourth quarter of 26?

SM: I think that there's... yeah, I think a lot of people have been absorbing a lot of the freight costs. I'm not sure how much pass-through there's been. Again, the tariffs, I think, were passed through quite consistently. In fact, just from the fact that there wasn't anywhere to go and they were such a big material impact. The freight costs are a little bit harder because they can change so quickly. So, you know, getting out in front of customers and either doing surcharges or price adjustments is, I think, more challenging for most people. So I think there's been some margin compression where a lot of distributors have been absorbing some of those costs themselves.

RJ: Going on there, just from your experience on the fastener distribution side, are the week-to-week changes in diesel fuel more impactful immediately than, say, shipping container costs out of Asia in terms of the speed or lack of it for manufacturers trying to pass through those costs?

SM: It certainly is a quicker impact but also maybe a little bit more volatile impact as well. So, you know, the shipping costs can change, but there's maybe a longer tail to it because of just the time that it takes, where the diesel impacts are kind of immediate. So, when they go up, they go up really, really quickly because people are refilling their trucks. But when they come down, they come down much slower. So, those are, I think, a little bit similar but different, but the actual fuel prices are felt much more quickly.

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RJ: Have you seen any changes in customer order behavior in this environment, or might that be expected if come early next year, there's a more higher chance of price increases coming through?

SM: I don't think there's been any significant changes thus far, but I would expect it. And if there's another, I think people have kind of reached their... my opinion is they've kind of reached... the maximum allowable level for fuel prices, you know, diesel, where that is historical highs. But I think that, if there's another 25% or 50% increase, I think that would be pushed out to customers and dealt with much more rapidly than we've seen so far.

RJ: Is that somewhat surprising to you given past experience that there's been a bit of a lag or lack of urgency to pass those costs through since they've been rising since the spring?

SM: A little bit, but I think that was kind of intertwined with the AIFA tariff refund, which again had very minimal impact on the fastener side because the fasteners are coded under different tariff codes. And all of the initial excitement about tariff refunds kind of got mitigated because it seems like there's very little pass-through to companies or consumers that people may have thought initially that people were going to get these giant refund checks. And I don't think that's been the case in a lot of, very often.

RJ: I apologize for circling back there, but the timing is at least coincidental where some smaller and mid-sized accounts are investigating their options while some of the larger companies have had to announce publicly that they have received refunds SM: Mm-hmm.

RJ: or are in the process of it. Is that playing anything in the customer's mind in this process at all?

SM: I think it does, but I also think there's been so much confusion over, you know, the different rules and regulations because, again, the AIFA tariffs, there was the early piece that got refunded, but then those tariffs quickly became the, I think it was the Section 121 tariffs that were pretty much the same rate and then I think are now under 301. So, you know, the prices people were paying or the tariffs people were paying are still pretty much the same. So it's hard to go back in time and try to recoup some of those things, especially if you're not the importer of record. And I think that's really the piece that's been challenging for a lot of people, companies that are buying from master distributors. The master distributors may have seen some of those things, but unless they pass them through, and there are material impacts on the MRO side or places where they did see the AIFA tariffs come through. That's kind of the piece. I think it's been much more complicated and more confusing for most people, especially that aren't in, maybe that are on the side of the industry or consumers than the people that actually know it really well.

RJ: But another part of the puzzle in here is the opportunity to earn rebates from suppliers. Anything that's going on in 2026 that would make that performance or at least part of a distributor's margin pool, you know, any different in 26 versus 25?

SM: No, not really. I don't think there's any material impact there. Again, just because of the way the products are delivered to customers, they're often in many cases just-in-time deliveries or VMI deliveries, so they're not able to or don't want to stock up at the end of a quarter, the end of a year to hit a rebate or a volume rebate. They kind of want the products there when they need them. For the people that do have some sort of rebate, it's more on the overall volume for the year. So if their business continues to grow where they're more consolidating spend and spending more with one of their suppliers, they may see, you know, something, but they're generally not significant to the bottom line.

RJ: Well, tying some of our earlier discussions into inventories, at least it sounds to me from your comments that inventories might be leaning towards the leaner side versus overstock side. And we all know that with public

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companies, there's always a year-end incentive to manage inventories.

SM: Mm-hmm.

RJ: So in terms of restocking activity, if I'm reading your comments correctly, would you expect that to be any greater than normal early in 2027?

SM: I think I don't expect to see a significant delta over what we've seen historically where companies try to lean out their inventory as much as possible at the end of the year, because there's also the subsequent impact of receiving docks getting flooded at the first and second weeks of January and then inventory kind of resizing itself. So, a lot of those financial impacts probably get washed away at the end because your savings are offset with additional overtime costs or potentially expedited freight trying to keep your customers running on maybe items you're a little bit leaner than you want to be. So I would expect more of the same thing where companies are trying to get as much out of their year-end results as possible, but not anything more than what we'd normally see.

RJ: We've already talked about the opportunities that are coming the way of the small and mid-sized independent distributor. Conversely, have you seen any changes in the competitive actions of those large national distributors in terms of taking customers either during the third quarter or year-to-date 2026?

SM: No, I think I've actually seen more of the large distributors... and maybe with the exception of Fastenal... I've seen more movement of customers from the larger distributors, the global players, to some of the regional and smaller distributors than vice versa.

RJ: And when it comes to the levels of churn, it sounds like it might be a little bit higher in 26 than 25 based on some of your comments, but is that actually the case or would you consider net adds or losses to be more in line with historic experience.

SM: I think they're certainly higher than historical, but maybe slightly above 25 levels, but not by any meaningful increase. So I think it's been a movement as much as anything just over the last couple of years coming out of the early, earlier in the decade. So I think it's just been refocusing on customers being able to refocus on what's important to them and what they value. Historically, cost used to be the number 1 driver, especially annual cost reductions. Many customers have been less focused on that and more focused on supply chain stability, supply chain consistency, and just the relationships with their suppliers.

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

SM: Thank you, Rob.

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.

10/11/2026 at 11:35 AM UTC

10/11/2026 at 11:35 AM UTC