Core & Main, Inc. Q2 FY2025 earnings call

• Business update: Net sales grew nearly 7% in the quarter, organic growth was ~5%. Municipal demand was healthy with traditional repair, advanced metering infrastructure projects, and new water/wastewater treatment facilities. Non-residential end market was stable with strong highway/street projects, steady institutional construction, and momentum from data centers. Residential lot development slowed due to higher interest rates, affordability concerns, etc.
• Gross margin: 26.8%, up 10 basis points sequentially and 40 basis points year over year, driven by private label and sourcing initiatives and accretive acquisitions.
• Operational costs: Elevated operating costs including employee benefits, inflation in facilities/fleet, etc. Implemented targeted cost-out actions to improve productivity and operating margins, expecting savings in second half of 2025 and larger annualized benefit in 2026.
• Acquisitions: Announced acquisition of Canada Waterworks, a three-branch distributor in Ontario, Canada, to enhance position in Canadian market. On organic side, opened new locations in Kansas City and Wisconsin and evaluating additional high-growth markets for expansion.

Net sales grew nearly 7% in the quarter, including roughly 5% organic growth. Municipal demand remained healthy. Non-residential end market was stable. Residential lot development for single-family housing, accounting for roughly 20% of sales, slowed due to macro factors. Gross margin was 26.8%, up 10 basis points sequentially from Q1 and 40 basis points year over year.

• Revised 2025 fiscal year guidance: Net sales expected to be $7.6 to $7.7 billion, adjusted EBITDA $920 to $940 million, operating cash flow $550 to $610 million.
• End market volumes: Municipal end market volumes expected to grow in low single digits, non-residential volumes roughly flat, residential lot development expected to decline in low double digits.
• Adjusted EBITDA margins: Expected to be slightly lower in second half of the year compared to first half, reflecting softer residential market and higher SG&A rate.

• Operating costs: Unusually high employee benefit costs and inflation in facilities, fleet, etc. were more pronounced than expected.
• Residential market: Continued softness due to higher interest rates, affordability concerns, and lower consumer confidence weighing on demand for new homes.

Q: On the guidance changes, how to view the puts and takes on the revenue guidance?

A: Residential lot development is the main driver of the reduction in sales guide, but sales initiatives like treatment plants, fusible HDPE product lines, and strong municipal market are offsetting some of the decline.

Q: Big picture on growth opportunities in the evolving water market?

A: Favorable on overall water market with municipal market healthy due to aging infrastructure and demand from projects like data centers; technical expertise and consistent execution leading to share gains, focusing on larger contractors.

Q: SG&A related questions?

A: SG&A expenses increased 13% this quarter, half related to acquisitions and one-time costs, remainder from volume-related growth, inflation, etc. Expect to see progress on SG&A sequentially as cost-out actions are implemented.