Fastenal CEO on US Manufacturing, Emerging Tech, Leadership Challenges

0:00Jeffery M. Watts:They told us to expect change. They warned us about the transition. But honestly, they forgot the best part. This is the chapter where we finally focus on us. LifeMD delivers expert menopause and midlife care right from your home. From hormone health to holistic wellness, LifeMD helps you feel your best for the best years of your life. LifeMD, it's just getting good. Visit LifeMD.com slash goodlife.

0:30Dan Florness:So there's a lot of noise about AI, but time's too tight for more promises. So let's talk about results. At IBM, we work with our employees to integrate technology right into the systems they need. Now, a global workforce of 300 ,000 can use AI to fill their HR questions, resolving 94 % of common questions. Not noise. Proof of how we can help companies get smarter by putting AI where it actually pays off, deep in the work that moves the business. Let's create smarter business.

0:58Jeffery M. Watts:If you follow markets, you know the value of long-term thinking. You plan, you diversify, you prepare for volatility. But even the best strategies can't prevent every bad day. For more than 75 years, Cincinnati Insurance has helped individuals and businesses navigate tough moments with expertise, personal attention, and independent agents who focus on relationships, not transactions. The Cincinnati Insurance Companies. Let them make your bad day better. Find an agent at c-i-n-f-i-n dot com. Bloomberg Audio Studios. Podcasts. Radio. News.

1:42Dan Florness:You're listening to Bloomberg Business Week with Carol Masser and Tim Stenevec on Bloomberg Radio.

1:49Jeffery M. Watts:So something we've already touched upon, and this is this letter from 60 CEOs of Minnesota-based companies, more than 60, I should say, have called for an immediate de-escalation of tensions between state, local, and federal authorities as the state is reeling from another fatal shooting of an American by immigration agents. The chief executive officers of companies, they include Target, Best Buy, Land O 'Lakes, Cargill, General Mills, United Health Group, as well as professional sports teams, including the Minnesota Vikings, among the signatories of the letter that was shared yesterday, Sunday, by the Minnesota Chamber of Commerce.

2:26Jeffery M. Watts:We're laying that out for those who are watching on streaming and TV. Just to get to the crux of it, though, the open letter says, we are calling for an immediate de-escalation of tensions and for state, local, and federal officials to work together to find real solutions. This is why Tom Homan is headed to Minnesota.

2:45Dan Florness:Our next guest is head of a company in the great state of Minnesota. We're talking about Fastenal, recently reported earnings, the stock selling off on the day of the report, but rallying the day after the most in nine months. That trade reaction had us scratching our heads. So we're grateful, Carol, to have back with us to talk about the release of The Outlook. The CEO of the close to$50 billion market cap company, Fastenal, Dan Flournes, is back with us.

3:08Jeffery M. Watts:Yeah, so delighted. Let's get to it. Dan, good to have you here. Happy New Year. We do love talking with you. We feel like we get a great read on the U.S. economy, the manufacturing world. You've seen a lot in your career. We want to get to all of this. But I really do feel like we'd be remiss to not ask you about what's going on in your home state. And I feel like those who are listening might be curious if you were asked to sign this letter of CEOs who want a de-escalation of what's happening in Minneapolis specifically. So were you aware that this letter was happening or were you asked to sign it?

3:46Dan Florness:First off, Happy New Year and thanks for allowing me to participate today. I was not aware of it. We're outstate Minnesota. We're about two and a half hours from the Minneapolis-St. Paul market. and so it's not uncommon. It's a pretty tight-knit group up in the Twin Cities and was not aware of it going out. With that said, was not surprised by going out, and it seemed to be pretty common sense of, hey, let's dial down the heat.

4:13Jeffery M. Watts:So would you have signed it, though, if asked?

4:16Dan Florness:Yeah, I would have signed that.

4:20Jeffery M. Watts:We talk so much about leadership at this time, and I am curious what you see as the responsibility of leaders in the United States when we see situations happening where it feels like, and again, I don't want to get political, I don't want to take sides, but it does feel like Americans are being what some would say is targeted unfairly.

4:42Dan Florness:Yeah, you know, I think as a leader, one of our tasks are to create some calm in the air. You know, I think back a few years ago when COVID was going on, it seemed like everybody every day turned everything into a political thing. And sometimes it's a case of, you know, if you're around a bunch of people that are high at risk in the case of COVID, put a mask on. If you're not and you don't want to be there, then go someplace else. You know, same thing here. Let's try to dial the heat down and focus on what we're trying to accomplish, not how we can see who can be the most boisterous in the market of throwing ideas out.

5:25Dan Florness:And that's on both sides of the fence. Dan, one thing that we're trying to figure out is getting a good read on the economy. And you guys have such a great read on it, given that you touch so many sectors. I mean, if you're using nuts, bolts, screws, anchors, rivets, any kind of fastener, industrial janitorial safety supplies, you guys do it. On earnings, you mentioned the broader market conditions remained mixed. What exactly did you mean by that? When you say mixed, what's the good? What's the bad? Well, Mick, from the standpoint, we focus a lot on the purchasing managers index published by ISM.

6:02Dan Florness:And that's been sub 50 for 36 of the last 38 months. So from the standpoint of the economy has not given us any lift, we are getting good traction in the marketplace. And we finished out the last half of 2025 with double digit growth. So that's really an exercise of taking market share more than the wind is to our backs.

6:25Jeffery M. Watts:And I know we've talked about this, too, Dan, with you about being in a prolonged downturn in the industrial economy. Any green shoots that you are seeing or signs of an inflection? And if so, I'm just curious, what markets might you be optimistic and which are maybe running weaker than you anticipated and maybe will continue to this year?

6:43Dan Florness:Yeah, it's a little bit of an anecdotal answer, so I apologize for that. we're seeing in some of the published data some industrial production numbers improving late in the year we aren't seeing that directly in our business but for us november december is a seasonally week period so that doesn't surprise me that we won't see it so don't know if there's some green shoots there i can tell you this from my travel if it's a business that's you know linked to certain industries and and data center is an example from a recent trip i had on the east coast where I was visiting a mechanical contractor, and their business was on fire, and 70 % of their activity was around data centers.

7:26Jeffery M. Watts:So that's the good part, right? That's the good part. That story we keep hearing about the AI build-out, the data center build-out, you saw it firsthand. It's real.

7:37Dan Florness:It's real. It's real. In fact, I spent a big chunk of my time having conversations with our district leaders. We have about 240 district managers. They each run about a$35 million business. You add them all up, that's an$8 billion fast and all. So I had a conversation with our team in Atlanta this morning, one of our district managers, and most of his discussion was about business pickup he's seeing in his market because of data centers. Now, Atlanta is unique in that it's one of a handful that are really being impacted by that buildup. What is the pricing power, Dan, that the company has right now?

8:15Dan Florness:Because historically, during periods of inflation, you've been able to be pretty aggressive with price increases. I think people would argue you weren't as aggressive as you could have been in 2025. What's the barrier to pushing price more aggressively? Well, you know, the one barrier is the size of the customer, the nature of the products, how much of it is production-centered versus maintenance-centered. Because when it's production-centered business, you have customers buying a very large volume of a narrow band of SKUs, and their price sensitivity is different than if it's MRO and they're buying, you know, $100 of this and$100 of that.

8:55Jeffery M. Watts:You know, one of the things I want to ask you, too, there was a story on my read-in this morning, Dan, in terms of Volkswagen saying that they're going to, they had plans for a possible Audi factory in the United States. They're not progressing due to President Donald Trump's tariffs and unsuccessful talks for local incentives. So we have certainly seen an administration that talks about all the investment money coming into the U.S., and I think we here at Bloomberg continue to try and figure out how much of this is actually going to play out. You can say you're going to invest, and then there's the reality of actually building facilities.

9:25Jeffery M. Watts:First of all, tariffs, and I know we've talked about this with you in the past, so forgive me if I'm repeating, but you're thinking about outsourcing. How have tariffs changed that, especially when it comes to fasteners? I think primarily sourced from China and Asia. So I'm just curious how any of it's been shifting for you. Yeah.

9:43Dan Florness:So you are absolutely correct. Most of the fasters in this country, in North America in general, come from northern Asia, China, primarily. Obviously, huge impacts. And for us, what it's meant is for about the last six years, seven years, we've been actively expanding our ability to import fastener. Because there's still not a lot of domestic production. And so when I think back to 2018, our primary sourcing entity was based in Shanghai with a secondary location in southern Taiwan. Today we have personnel in Bangkok, we have personnel in India, and that's where all of our growth and movement of sourcing personnel has occurred over the last seven, eight years to just broaden our ability to be a little more agile and where you source from, depending on the geography it's going into.

10:41Dan Florness:So that's on the sourcing side, but what about on your customer side and about customers moving manufacturing back to the U.S.? Are you seeing that happen? Are you hearing discussions of that? Yeah, I guess, you know, anecdotally, yes. I can't say that we've seen a tremendous influx. What I would say is I hear less about stuff leaving than maybe I would have, you know, 10 years ago or five years ago. And that in itself is a win from the standpoint of production. But, you know, a lot of it is folks are getting closer to where the end customer is for a lot of our customers. And so when I see customers expanding production facilities in North America, and I'll say more broadly than North America rather than just the United States, it's usually to service more efficiently the local market.

11:40Jeffery M. Watts:Which makes sense, which we've seen that trend happening, I feel like, over time. Hey, Dan, you mentioned about maybe less companies leaving the U.S. Speaking of leaving, you are stepping down as CEO come July. You've been CEO since 2016. You were CFO before that going back to 2002. You've been there a long time. And I know last time you were on, I asked you a question about this cycle, and I was not very kind. I got yelled at by my team because I think I gave you 20 seconds. But we do get yelled at.

12:12Dan Florness:You get 25 seconds now.

12:13Jeffery M. Watts:No, no, no. You've got almost two minutes. How do you describe this cycle? Because it feels unusual.

12:21Dan Florness:Well, it's unusual in that, you know, you hear about everything. Whereas in years past, there was so much of this political stuff that went on. But most of it, if you weren't in the midst of it, you were oblivious to. And you just went around about your life. Now everybody hears about everything when it happens. So that's just a lot more noise. On the flip side, what's really different is I mentioned on that conversation with the team in Atlanta this morning, we were talking about data centers. And one of the people on the call, he leads our business in the southern U.S., he said, hey, Dan, I'm going to flip you something.

13:00Dan Florness:And he punched in a bunch of questions. And he came back with a 29-page report on the data center industry in the United States. And so I read through a bunch of it. It's actually pretty accurate and pretty good. I mean, there's stuff in there I can pick apart, but it's pretty good. Yeah, I know.

13:22Jeffery M. Watts:Well, you know, okay, now.

13:23Dan Florness:Dan still had to do the reading, though. It didn't read the report for him. So I probably would have, but I'm old school, I guess.

13:30Jeffery M. Watts:Is that, just quickly, I know this is truly like 30 seconds. Is that the most transformative change you think we'll see over the next decade? is just the continued impact of AI and things like ChatGPT and everything else connected. Just your quick thought on that.

13:44Dan Florness:Yeah, because I mean, when I think of our business, we're selling tens of thousands of different parts to customers every day and the ability to improve the visibility for folks sourcing, all that stuff.

13:56Jeffery M. Watts:Got it.

13:57Dan Florness:It's an incredible efficiency tool.

13:59Jeffery M. Watts:All right, Dan, come back soon, especially before you leave in the summer. Dan, thank you.

14:08Dan Florness:We buy insurance for peace of mind, but every year millions of claims are denied. Not because people did anything wrong, but because their policies quietly excluded what happened. Insurers know every detail. Policyholders rarely do. That's why My Policy Advocate exists. For just 27 cents a day, their platform reads your policies and explains where you are vulnerable. They don't sell insurance, they deliver transparency. Before you trust your policy to protect you, let My Policy Advocate tell you what it really says. Go to MyPolicyAdvocate.com.

14:39Jeffery M. Watts:Do you ever feel like you're drinking from a firehouse? PayCore's intelligent HR solution empowers leaders to turn down the pressure. Their unified platform includes payroll, talent management, compliance software, and a lot more, connecting you to the people, data, and expertise you need to drive long-term business results. Visit PayCore.com slash leaders and go from work flood to workflow. Oh, that's paycord.com slash leaders.

15:08Dan Florness:Shake it up with Vital Proteins Collagen and Protein Shake. It's a high-quality, ready-to-drink shake with 30 grams of protein and 10 grams of collagen to support healthy hair, skin, nails, bones, and joints.

15:21Jeffery M. Watts:With zero grams of added sugar, no artificial sweeteners, and absolutely no carrageenan,