Financial Data and Key Metrics Changes - Average daily sales improved by 2.7% year over year in Q4, driven by core customer growth and public sector strength [10][16] - Gross margin was 40.4%, declining 60 basis points year over year and sequentially, primarily due to tariff-driven cost escalations [11][12] - GAAP EPS was $1.1 compared to $0.99 in the prior year's quarter, with adjusted EPS growing nearly 6% to $1.9 from $1.03 [13][20] Business Line Data and Key Metrics Changes - Core customer daily sales grew 4.1% year over year, while national accounts declined 0.7% [23] - Public sector sales grew 8.5% year over year and 10% sequentially, although there was a negative impact from the government shutdown in October [23][24] - Vending machine count grew 10% year over year, contributing approximately 19% to total company sales [25] Market Data and Key Metrics Changes - Average daily sales in the quarter outpaced the Industrial Production Index, indicating strong performance relative to broader industrial trends [15][16] - Aerospace remains a strong vertical, while heavy equipment and agriculture markets are stabilizing after previous weakness [15][72] Company Strategy and Development Direction - The company is focused on three priorities: maintaining momentum in high-touch solutions, reenergizing core customers, and optimizing cost to serve [6][7] - Leadership changes are aimed at strengthening growth and customer experience, with a new SVP of Sales and a dedicated SVP for customer experience [30][31] Management Comments on Operating Environment and Future Outlook - The operating environment is characterized as stable with pockets of improvement, though uncertainty remains due to ongoing tariff impacts [14][15] - The company expects average daily sales growth of 3.5% to 4.5% in Q1 of fiscal 2026, with adjusted operating margins projected between 8% and 8.6% [32][33] Other Important Information - The company maintained a healthy balance sheet with net debt of approximately $430 million, representing about 1.1 times EBITDA [20] - Free cash flow for the fourth quarter was $58 million, representing 104% of net income, with a full-year conversion of 122% [21] Q&A Session Summary Question: Can you elaborate on the gross margin decline and supplier price increases? - Management noted that the recent surge in supplier price increases was unusual, with significant inflation occurring in a short time frame, leading to a negative impact on gross margins [50][51][54] Question: What are the expectations for gross margins and SG&A as a percentage of sales? - Management expects gross margins to stabilize and incremental margins to improve, with SG&A expenses increasing due to investments in marketing and operational efficiency [56][59] Question: How is the government shutdown impacting sales? - The public sector experienced strong growth prior to the shutdown, but sales have softened since, particularly in federal accounts, which are expected to recover once the shutdown ends [93][95] Question: What is the company's federal exposure and how is it affecting sales? - The company has about 2-3% exposure to federal government contracts, primarily in military and defense, with some pockets experiencing significant declines in October [108][109] Question: What product categories are seeing the most inflation? - Inflation is most pronounced in products sourced from China and those made of steel, such as fasteners and OEM products, while some private brands have been shielded due to domestic manufacturing [111][112]

Core Insights - The article discusses the importance of investing in dividend stocks, particularly those with a history of consistent dividend growth, which can provide stability during economic downturns [2][3] Dividend Stocks Overview - Companies that consistently raise dividends are often strong, profitable, and financially stable, making them valuable during economic slowdowns [2] - Dividend-growth stocks tend to have durable competitive advantages, allowing them to maintain profit margins even during high inflation [2] - Historically, dividends have grown at an average annual rate of 5.7% since 1957, outpacing the average inflation rate by over 2% [3] - Stock prices are noted to be more than twice as volatile as their dividend cash flows, indicating that dividend stocks may offer a more stable investment [4] Methodology for Stock Selection - The article outlines a methodology for selecting dividend stocks based on year-to-date highest-returning stocks as of October 9, 2025 [6] Featured Dividend Stocks - **Fastenal Company (NASDAQ:FAST)** - YTD Return as of October 9: 31.55% - Fastenal is linked to the health of the US and global economies and has a strong dividend history with 26 consecutive years of increases [8][10] - Current quarterly dividend: $0.22 per share, with a dividend yield of 1.88% [10] - **General Dynamics Corporation (NYSE:GD)** - YTD Return as of October 9: 31.7% - The company is a major player in military shipbuilding and has raised its dividend for 28 consecutive years [11][12] - Current quarterly dividend: $1.50 per share, with a dividend yield of 1.75% [12] - **Cardinal Health, Inc. (NYSE:CAH)** - YTD Return as of October 9: 33.7% - Cardinal Health is a major distributor of healthcare products and has increased its dividends for 39 consecutive years [13][15] - Current quarterly dividend: $0.5107 per share, with a dividend yield of 1.30% [15]

Core Insights - Fastenal Co reported a third-quarter profit miss, while revenue met expectations, attributing the decline to economic uncertainty and changing trade policies affecting demand [1] - The stock is experiencing its third consecutive daily drop and sixth loss in the last seven sessions, currently trading at $43.51, down 5% [1][2] - Despite recent losses, the stock is still up 22% year-to-date [2] Trading Activity - The stock is gapping below the 80-day moving average for the first time since April, indicating a potential bearish trend [2] - Options trading has been notably bullish over the past 10 weeks, with a 50-day call/put volume ratio of 2.06, higher than 80% of annual readings, suggesting a potential unwinding of optimism could further pressure the shares [3] - Current options volume is significantly elevated at 11 times the intraday average, with a notable interest in the October 42.50 put and new positions being opened at the 43.75 put [4]

Financial Data and Key Metrics Changes - Total company reported sales for the quarter were nearly $4,600,000,000, up 5.6% or 5.1% on a daily constant currency basis [10] - Operating margins for the company were 14.9%, and diluted EPS finished the quarter at $9.97, up $0.21 or 2.2% compared to the prior year [13] - Operating cash flow came in at $377 million, allowing the company to return a total of $336,000,000 to shareholders through dividends and share repurchases [10][13] Business Line Data and Key Metrics Changes - The High-tech Solutions segment saw sales up 2.5% on a reported basis, driven by volume growth and modest price inflation, with a gross profit margin of 41%, down 70 basis points year-over-year [14] - The Endless Assortment segment experienced a sales increase of 19.7% or 16.3% on a daily constant currency basis, with Zoro U.S. up 20% and MonotaRO achieving 16.4% growth [17] - Operating margins for the Endless Assortment segment increased by 200 basis points to 9.9%, with MonotaRO's margins at 13.2% [18] Market Data and Key Metrics Changes - The MRO market remained muted but was softer than expected, with strong performance from contractor and healthcare customers helping to offset slower growth in other areas [14] - Preliminary total company July sales were up slightly north of 6% on a daily constant currency basis, with expectations for total company sales for the third quarter to be up north of 5% [26] Company Strategy and Development Direction - The company is focused on helping customers drive efficiencies, lower purchasing costs, and improve inventory management, especially in uncertain times [6][7] - Strategic investments in product information and digital capabilities are enhancing the company's supply chain and customer service [9] - The company is committed to maintaining price competitiveness and achieving price-cost neutrality over time [23] Management's Comments on Operating Environment and Future Outlook - Management noted that the external environment continues to present uncertainty, but the company remains confident in its ability to deliver value [6][10] - The company updated its earnings outlook for 2025, reflecting tariff-related price-cost timing headwinds and a current full-year estimate for LIFO valuation impact [24] - Management expects gross margin to recover over time as pricing actions take effect and as the company works towards price-cost neutrality [23][25] Other Important Information - The company is adjusting its sales outlook to reflect the latest FX rates and pricing actions, with gross margin now expected to be between 38.6% and 38.9% [25] - The company plans to continue optimizing Zoro's assortment, with a reduction of 1,100,000 SKUs in the quarter to improve customer experience [19][20] Q&A Session Summary Question: Impact of LIFO accounting on operating income - Management indicated that if the company were on FIFO, the second half outlook would not have included the negative impacts of LIFO, but underlying operations would remain similar [30] Question: Progression from Q3 to Q4 - Management expects revenue trends to follow normal seasonality, with improvements in gross margins anticipated due to pricing changes [31][33] Question: Decision-making process for pricing actions - Management decided to keep price increases on a normal schedule to maintain customer stability, despite being slightly upside down in price-cost [39] Question: Zoro's pricing optimization and SKU reduction - Management stated that the pricing decision has been in the works for about a year, aimed at improving customer experience by eliminating low-volume items [41][42] Question: Customer reliance on Grainger during disruptions - Management noted that the current disruption is less about supply and more about market demand, with confidence in passing prices through to customers [48][49] Question: Gross margin pressures - Management clarified that the majority of the gross margin pressure is due to LIFO impacts, with price-cost timing being a smaller factor [51][73] Question: Future pricing and tariff impacts - Management expressed uncertainty about the impact of new tariffs but indicated that the current announcements would not have a significant effect [76] Question: Long-term strategic goals related to pricing - Management emphasized that long-term strategy focuses on providing exceptional service and building customer loyalty rather than solely on pricing [82] Question: Dynamics within government customers - Management reported stability in government contracts, with military business performing well while non-military federal business has struggled [123]

Core Viewpoint - The anticipated widespread price increases due to new tariffs have largely not materialized, surprising economists, but the reality is that the transmission of tariffs to inflation is gaining momentum [1] Group 1: Price Trends and Tariff Impact - In June, prices for frequently imported goods such as furniture, sports equipment, and appliances rose at the fastest pace in years, indicating that the cost transmission from tariffs is having a tangible impact on specific product categories [1] - The overall inflation data has been suppressed by declines in automobile prices and certain service categories, providing arguments for tariff proponents who claim that tariffs have not affected inflation [1][4] - Economists predict that inflation driven by tariffs will continue to strengthen in the coming months as companies face increasing pressure to raise prices [1][7] Group 2: Corporate Strategies and Inventory Management - Many companies have delayed the full impact of tariffs on consumer prices by absorbing increased costs rather than passing them on, and some have built inventory buffers before tariffs took effect [2][3] - Fastenal reported that despite attempts to diversify supply chains and build inventory, they have had to raise prices multiple times recently and may need to do so again in the future [4] Group 3: Global Price Dynamics - Foreign suppliers have partially offset the impact of tariffs by lowering export prices to the U.S. to maintain competitiveness, with global factory prices remaining subdued [5] - Japan's export prices have contracted for three consecutive months, and Chinese export prices for various goods have also shown declines [5][6] Group 4: Future Inflation Expectations - Economists warn that the current calm in inflation is temporary, and as companies deplete their pre-stocked inventory, they will be less willing to sacrifice profits [7] - If tariffs are fully transmitted, it is estimated that the recent tariffs could raise the preferred inflation indicator by approximately 0.4 percentage points [7]