The quarter against our forecast
Q3 2026 line by line, as the income statement shows it
| Line | Outlook | Our forecast | Reported | Against our forecast |
|---|---|---|---|---|
| Net sales | — | $2.44B | $2.46B | +0.9%beat |
| Cost of sales | — | $1.36B | $1.36B | +0.1%miss |
| Gross profit | — | $1.09B | $1.10B | +1.8%beat |
| Gross margin | — | 44.4% | 44.8% | +0.4 ptbeat |
| Selling, general, and administrative expenses | — | $576M | $574M | −0.3%beat |
| Operating income | — | $509M | $531M | +4.2%beat |
| Operating margin | — | 20.9% | 21.5% | +0.7 ptbeat |
| Interest income | — | $1.3M | $1.2M | −10.0%miss |
| Interest expense | — | $1.0M | $0.8M | −22.6%beat |
| Income before income taxes | — | $510M | $531M | +4.2%beat |
| Income tax expense | — | $124M | $130M | +4.3%miss |
| Tax rate | — | 24.4% | 24.4% | +0.0 ptin line |
| Net income | — | $386M | $402M | +4.2%beat |
| Diluted weighted average shares outstanding (in shares) | — | 1.15B | 1.15B | +0.00Bin line |
| Diluted EPS | — | $0.34 | $0.35 | +1¢beat |
Our forecast was frozen before the release: the average of 6 models as of 2026-10-13 17:32:05 ET. Each reported number is quoted from the release; the 10-Q's tagged facts confirm the statement's lines when it is filed. A cost above our forecast is a miss.
Why earnings per share on the income statement differs: $0.35 against our $0.34
Code works this out from our forecast's lines and the reported ones, one line at a time; the bars add up to the difference.
Why the quarter differed from our forecast
Gross margin+1¢
What we assumedGross margin dips from the second quarter on normal mix decline and a price/cost gap that stays open; refunds left out.I set third-quarter gross margin at 44.4 percent and let it drift toward 44.0 percent by 2028.
grok
What the company printedGross margin was 44.8%; price/cost improved, and sourcing savings, supplier rebates and tariff refunds helped, partly from timing.Gross profit, as a percentage of net sales, decreased approximately 40 basis points to 44.8% in the third quarter of 2026 from 45.3% in the third quarter of 2025. A continued shift in customer mix toward larger customers reduced gross margin by approximately 50 basis points. While these relationships typically carry lower gross margins, they generate higher absolute profit dollars and are accretive to operating margin through fixed-cost leverage, higher volumes, and operating efficiencies. Price/cost reduced gross margin by approximately 30 basis points, an improvement of approximately 10 basis points from the second quarter of 2026. Gross margin benefited from several factors, including direct sourcing savings, supplier rebates, and tariff refunds. Approximately 20 basis points of the benefit reflected favorable timing.
Known before our cutoff?Yes: The June-quarter 10-Q said tariff refund claims were filed and future benefits might be recognized; it gave no amount.On February 20, 2026, the United States Supreme Court issued a decision invalidating the broad-based tariffs imposed under the International Emergency Economic Powers Act (IEEPA). As a result, the United States Court of International Trade ordered the United States Customs and Border Protection to process refunds for tariffs collected under IEEPA. Because we are not the importer of record for most products we sell, our direct exposure to potential tariff refunds is limited. During the second quarter of 2026, we submitted claims for refunds of IEEPA tariffs previously paid on imports for which we were the importer of record. Refunds received through June 30, 2026 were not material. The ultimate availability, timing, and the amount of any additional refunds remain uncertain and subject to regulatory, legal, and administrative developments. Accordingly, as of June 30, 2026, we have not recorded a receivable related to such tariff refunds due to the aforementioned uncertainty; however, we may recognize additional benefits in future periods.
Income tax expense−0¢
What we assumedA tax rate a little under the company's stated ongoing rate, allowing a small stock-option benefit.We believe our ongoing tax rate, absent any discrete tax items or broader changes to tax law, will be approximately 24.6%.
sol
What the company printedThe tax rate was 24.4%, close to the forecasts. Tax expense came in higher because pre-tax income was higher.We recorded income tax expense of $129.6 in the third quarter of 2026, or 24.4% of income before income taxes. Income tax expense was $105.1 in the third quarter of 2025, or 23.9% of income before income taxes. We believe our ongoing tax rate, absent any discrete tax items or broader changes to tax law, will be approximately 24.6%.
Known before our cutoff?Yes: The second-quarter earnings release, 8-K 0000815556-26-000037, gave the ongoing tax rate.We recorded income tax expense of $119.3 in the second quarter of 2026, or 23.8% of income before income taxes. Income tax expense was $106.3 in the second quarter of 2025, or 24.4% of income before income taxes. We believe our ongoing tax rate, absent any discrete tax items or broader changes to tax law, will be approximately 24.6%. Our tax rate in the second quarter of 2026 was below our expected ongoing rate due to return-to-provision adjustments recognized in the quarter and the tax benefits associated with the exercise of employee stock options during the period.
Selling, general, and administrative expenses+0¢
What we assumedExpenses grow slower than sales on labor productivity and fixed occupancy costs, while incentive pay rises with profit.Employee-related expenses, which typically represent 70% to 75% of total SG&A expenses, improved by 70 basis points as a percentage of net sales in the second quarter of 2026 compared to the second quarter of 2025. Base pay leveraged due to increased labor productivity, while bonuses and commissions grew faster than sales as a result of improved business activity and financial performance versus the same period in the prior year.
sol
What the company printedEmployee-related expenses levered even more than in the second quarter, so SG&A came in slightly below the forecasts.Employee-related expenses, which typically represent 70% to 75% of total SG&A expenses, improved 90 basis points as a percentage of net sales in the third quarter of 2026 compared to the third quarter of 2025. Base pay leveraged through increased labor productivity, while bonuses and commissions grew faster than sales as a result of improved business activity and financial performance versus the same period in the prior year.
Known before our cutoff?Yes: The second-quarter earnings release, 8-K 0000815556-26-000037, showed employee-related expense leverage from labor productivity.Employee-related expenses, which typically represent 70% to 75% of total SG&A expenses, improved by 70 basis points as a percentage of net sales in the second quarter of 2026 compared to the second quarter of 2025. Base pay leveraged due to increased labor productivity, while bonuses and commissions grew faster than sales as a result of improved business activity and financial performance versus the same period in the prior year.
Interest expense+0¢
No line written.
Interest income−0¢
No line written.
Diluted weighted average shares outstanding (in shares)−0¢
No line written.
The company's new outlook
For 2026, we continue to expect our investment in property and equipment, net of proceeds from sales, to be between $310.0 and $330.0, an increase from $230.6 in 2025. The expected growth on a year-over-year basis reflects three items. First, we expect increased spending to replace our Atlanta hub facility and improve our picking capacity and efficiency across our hub network. Second, we expect elevated IT spending as projects that were expected in 2025 experienced delays and are expected to continue throughout 2026. Third, we expect increased trucking spend.
We signed 7,484 weighted FASTBin and FASTVend devices in the third quarter of 2026. Our goal for weighted FASTBin and FASTVend device signings in 2026 is between 27,000 and 29,000 MEUs (our previous goal was between 28,000 and 30,000 MEUs).
We recorded income tax expense of $129.6 in the third quarter of 2026, or 24.4% of income before income taxes. Income tax expense was $105.1 in the third quarter of 2025, or 23.9% of income before income taxes. We believe our ongoing tax rate, absent any discrete tax items or broader changes to tax law, will be approximately 24.6%.
Each item as the release prints it. Our forecast stands beside an item only when the item is one of our two numbers, for our quarter or year, in our unit.
The company's reasons, from the release
- daily sales growth “•Daily sales increased 15.5% year-over-year, primarily driven by share gains with larger customers, pricing actions, and broad-based demand across core end markets.”
- operating margin improvement “•Operating margin was 21.5%, a 90 basis point improvement year-over-year, as selling, general, and administrative expense leverage more than offset customer mix-related gross margin pressure.”
- net sales increase “Net sales increased $330.0, or 15.5%, in the third quarter of 2026 when compared to the third quarter of 2025 (both periods had the same number of business days). Sales performance reflects the contribution from improved customer contract signings since the first quarter of 2024, product pricing, and a modest improvement in industrial production in the first nine months of 2026. Foreign exchange rates negatively impacted sales growth by approximately 10 basis points in the third quarter of 2026 as compared to the third quarter of 2025 when foreign exchange rates contributed approximately 10 basis points to sales growth. The impact of product pricing on net sales in the third quarter of 2026 was an increase of approximately 240 basis points, compared to an increase of 240 to 270 basis points in the third quarter of 2025.”
- manufacturing and other end market growth “From an end market standpoint, we have four categories: heavy manufacturing, other manufacturing, non-residential construction, and other, the latter of which includes reseller, government/education, transportation, warehousing and storage, and data centers. Our manufacturing end market growth was mainly due to the relative strength we are experiencing with key account customers with significant managed spend, where our service model and technology are particularly impactful. The non-residential construction end market experienced growth for the sixth quarter in a row. Other end market sales were favorably impacted by growth with transportation and reseller customers.”
- gross margin decline “Gross profit, as a percentage of net sales, decreased approximately 40 basis points to 44.8% in the third quarter of 2026 from 45.3% in the third quarter of 2025. A continued shift in customer mix toward larger customers reduced gross margin by approximately 50 basis points. While these relationships typically carry lower gross margins, they generate higher absolute profit dollars and are accretive to operating margin through fixed-cost leverage, higher volumes, and operating efficiencies. Price/cost reduced gross margin by approximately 30 basis points, an improvement of approximately 10 basis points from the second quarter of 2026. Gross margin benefited from several factors, including direct sourcing savings, supplier rebates, and tariff refunds. Approximately 20 basis points of the benefit reflected favorable timing.”
- employee-related SG&A leverage “Employee-related expenses, which typically represent 70% to 75% of total SG&A expenses, improved 90 basis points as a percentage of net sales in the third quarter of 2026 compared to the third quarter of 2025. Base pay leveraged through increased labor productivity, while bonuses and commissions grew faster than sales as a result of improved business activity and financial performance versus the same period in the prior year.”
- occupancy expense leverage “Occupancy-related expenses, which typically represent 14% to 19% of total SG&A expenses, improved 50 basis points as a percentage of net sales in the third quarter of 2026 compared to the third quarter of 2025, driven mainly by fixed cost leverage.”
- other SG&A increase “Combined, all other SG&A expenses, which typically represent 10% to 15% of total SG&A expenses, increased 10 basis points as a percentage of net sales when compared to the third quarter of 2025. This slight increase was driven mainly by higher fuel and general insurance expense, partially offset by increased joint marketing efforts with our suppliers.”
- net interest income “Net interest income was $0.4 in the third quarter of 2026, compared to net interest expense of $0.9 in the third quarter of 2025, primarily from lower debt balances.”