Fastenal Co. continues to ride the nationwide rebound in manufacturing activity, but the company acknowledged Thursday that it needs to respond faster to raise its prices to offset higher fuel and other production costs.

The Winona-based distributor of nuts, bolts and industrial supplies reported a 26 percent increase in earnings to $100.2 million for its first quarter.

But earnings per share of 34 cents missed analysts' estimates by a penny, and its gross margin was lower than expected.

"Moving on, there is only one negative in our report this quarter, one major negative, and that was margin," CEO Will Oberton said on a conference call. Later in the call, officials said the company had not been boosting its prices enough to keep up with inflation.

"Everyone is completely aware of what we need to do, we just have to get it done," Oberton added.

Sales for the quarter ended March 31 were $768.9 million, up 20 percent from last year and higher than analysts' estimates of $768.6 million. Sales for stores open for more than two years increased 18.8 percent in January, 17.1 percent in February and 16.8 percent in March compared to the same months a year ago.

"We were encouraged by the fact that in its core markets it still is growing at those kinds of rates," said Mariann Montagne, an analyst and portfolio manager at Marks Group Wealth Management in Minnetonka.

Fastenal opened 28 stores in the quarter, bringing the total to 2,611. The company also continued to expand its network of industrial vending machines. It ended the first quarter with 9,798 installed machines, up from 7,453 in the previous quarter.

Fastenal shares slipped 1.5 percent Thursday, closing at $48.87. Although the stock has risen more than 50 percent in the last year, it has drifted down since hitting a 12-month high of $54.65 on April 2.

Montagne said the drop in Fastenal's stock price may have been tied to a broader decline in industrial stocks earlier this month on speculation that Alcoa Inc. would report a weak first quarter. She noted that Fastenal has lagged the market, which has been moving up since Alcoa surprised Wall Street with better-than-expected results.

Susan Feyder • 612-673-1723