Fastenal Company (Fastenal (FAST)) reported its second-quarter 2026 results on Tuesday, and the numbers were a mixed bag that left investors selling first and asking questions later. The stock was down 3.43% to $45.43 at the time of publication, even though the industrial distributor beat sales estimates and delivered double-digit earnings growth.

Let's break it down: Earnings per share came in at 33 cents, right in line with what analysts were expecting. Sales rose 14.7% year over year to $2.387 billion, topping the $2.338 billion consensus estimate. That's a solid beat, so why the red ink?

The answer lies in the margins. Gross margin fell 75 basis points to 44.6%, and the company pointed to an approximately 40-basis-point unfavorable price-cost impact. Tariff-related costs, customer mix, transportation costs, and customer rebates all took a bite. Fastenal said pricing actions helped mitigate some of the tariff and inflation pain, but fuel inflation pushed transportation costs higher, and a continued shift toward larger customers—who often get better pricing—weighed on gross margin.

On the bright side, SG&A expenses improved to 23.5% of sales from 24.4% a year ago, which fully offset the gross-margin pressure. Operating margin held steady at 21%. So the company is managing costs well, but the tariff overhang is real.

Digging into the details, the daily sales rate increased 14.7%, driven by customer contract wins, pricing actions, and a modest improvement in industrial production. Product pricing contributed about 290 basis points to sales growth, while foreign exchange added roughly 10 basis points. Contract customer daily sales rose 17.6% and now represent 75.8% of quarterly revenue. Non-contract daily sales increased 7.3%. Fastenal's contract count grew 7.2%, and the number of sites generating at least $50,000 in monthly sales jumped 16.5% to 3,125.

Manufacturing, which makes up 75.9% of sales, showed broad strength: heavy manufacturing daily sales rose 18.1%, other manufacturing increased 10.8%, and non-residential construction advanced 17%. Direct-material daily sales grew 16.5%, outpacing the 14.1% growth for indirect materials.

Fastenal's digital expansion continues to gain traction. Digital Footprint daily sales rose 16.2% to $1.49 billion, representing 61.6% of revenue. FMI daily sales increased 16.4% to $1.08 billion, while eBusiness daily sales grew 12.6% to $711.9 million. The company signed 6,993 weighted FASTBin and FASTVend devices, up 8.3%, and the installed device base increased 6.5% to 140,789 units.

Cash flow was a bit of a sore spot. Operating cash flow declined 4.6% to $265.7 million, representing 69.4% of net income. Higher receivables reflected strong mid- and late-quarter sales, including 20.5% year-over-year growth in June. Cash and cash equivalents totaled $204.70 million, while total debt declined to $120 million from $230 million. Free cash flow was not disclosed.

Fastenal returned $305.1 million to shareholders, including $275.4 million in dividends and $29.7 million in share repurchases. Trailing-12-month return on invested capital increased 180 basis points to 31.4%.

Looking ahead, the company continues to expect 2026 capital spending of $310 million to $330 million. It now expects Digital Footprint sales to represent 63%–64% of annual sales and targets 27,000–29,000 weighted device signings. Management said broader market conditions continued to improve, while it remained focused on pricing neutrality and managing the effects of tariffs.

So, the takeaway? Fastenal is executing well in a challenging environment, but tariff-related margin pressure and a cautious outlook are keeping investors on edge. The stock's dip suggests the market is focused on the headwinds rather than the underlying growth story. For now, it's a wait-and-see game on how tariffs and pricing dynamics play out.