Core & Main, Inc. Q2 FY2026 earnings call

• Municipal Strength: Municipal demand remains a key strength, supported by significant long-term infrastructure needs (EPA estimates >$1.2 trillion over 20 years) and stable state/local funding sources.
• Data Center Growth: Data center activity is a major growth driver, doubling YoY. These projects drive demand for water, wastewater, storm drainage, and fire protection systems, often spurring broader municipal infrastructure upgrades.
• Greenfield Expansion: Opened seven new greenfield locations YTD, including two recent openings, extending national capabilities into underpenetrated markets.
• M&A Pipeline Acceleration: Completed acquisition of Walker Industries (Hawaii). M&A pipeline has accelerated significantly after a period of limited targets; several deals are at the Letter of Intent (LOI) stage.
• Capital Allocation: Executed second consecutive quarter of record share buybacks ($169 million in Q2). Nearly 25% of shares outstanding repurchased since IPO.
• Smart Utility Wins: Secured large contracts, including Miami-Dade (ramping slowly through pilot phases) and Connecticut Water, reinforcing position in Northeast region.

Net sales increased 2.5% to $2.1 billion. Adjusted EBITDA grew approximately 3% to $274 million, with an adjusted EBITDA margin of 12.8%. Key growth drivers included Treatment Plant Solutions (mid-single-digit contribution to sales mix), Fire Protection (sales up 14%), and Data Center projects (contribution nearly doubled year-over-year, now mid-single digits of total business). Residential lot development remained challenged, declining high single digits in the quarter.

• Full-year Net Sales: Affirmed at $7.8 to $7.9 billion.
• Full-year Adjusted EBITDA: Affirmed at $950 to $980 million.
• Operating Cash Flow Conversion: Affirmed at 60% to 70%.
• Outlook Confidence: Management expressed confidence in delivering guidance, citing SG&A leverage, strong performance in fire protection/treatment plants/data centers, and improving residential comps in H2.

• Residential Headwinds: Residential lot development continues to face challenges from affordability concerns and higher interest rates, though comps are expected to improve in H2.
• Project Timing Variability: Large-scale projects, particularly in Smart Utilities, involve complex pilot phases and pre-work that can delay full run-rate revenue recognition (e.g., Miami-Dade project ramping up late 2026/2027).
• Pricing Pressure: PVC pricing increases did not stick due to market conditions; HDPE pricing saw mixed results with spikes in fusible HDPE due to resin cost disruptions.
• Light Commercial Softness: Traditional light commercial and retail construction remains weak, offsetting some non-residential strength.

Q: Analyst asked about municipal end-market strength and near-term visibility given mixed views on the sector. / A: President Brad Cowles stated municipal demand is stable and steady, growing low single-digits, driven by consistent repair/replacement needs and diverse funding sources. Non-residential was flat-to-slightly-up, uplifted by data centers but weighed down by light commercial. Residential declined high single-digits, with expectations for flattish-to-slight decline in H2 as prior-year comps ease.

Q: Analyst questioned gross margin dynamics, asking if margins were lower than expected and what offsets would support full-year guidance. / A: CFO Robyn Bradbury confirmed guidance is unchanged. While gross margin dipped slightly from Q1 due to mix shifts, SG&A leverage improved. Management expects EBITDA margin expansion in H2, driven primarily by Q4, supported by both slight gross margin improvement and continued SG&A efficiency.

Q: Analyst sought details on pricing trends for PVC and HDPE pipes, noting previous announcements didn't stick. / A: Brad Cowles noted PVC pricing signals failed to gain traction due to market capacity, so prices remain steady. HDPE pricing was mixed: corrugated HDPE was steady, while fusible HDPE saw spikes due to Middle East resin disruptions. Mark Witkowski added that without demand pickup, PVC pricing unlikely to change soon.

Q: Analyst asked about the status of the Miami-Dade smart utility contract and potential margin impact of larger projects. / A: Brad Cowles explained Miami-Dade is a multi-year, 100k-meter/year project currently in pilot phases, with volume ramping late 2026 and full run-rate by 2027. He noted that while large projects are competitive, the inclusion of services/software/integrations supports attractive margin profiles, keeping them inline with overall meter business margins.

Q: Analyst inquired about the size of data center contributions to sales and whether cooling type (evaporative vs. closed-loop) impacts water demand. / A: Brad Cowles stated data centers now represent mid-single digits of total sales and high single digits of non-residential work. Regarding cooling, all data centers require water; evaporative systems use more water, while closed-loop uses more electricity. Regardless, data centers drive significant underground water utility demand and often spur secondary municipal water investments.