Core & Main’s Earnings Call: Mixed Outlook Amid Growth

Core & Main, Inc. Class A ((CNM)) has held its Q2 earnings call. Read on for the main highlights of the call.

Core & Main, Inc. Class A’s recent earnings call painted a mixed picture for investors. While the company celebrated significant net sales growth and strategic expansion into the Canadian market, these positive developments were tempered by challenges such as a decline in the residential market, elevated operating costs, and a downward revision in financial guidance for fiscal 2025.

Strong Net Sales Growth

Core & Main reported a robust nearly 7% net sales growth in Q2 2025, with approximately 5% attributed to organic growth. This growth was largely driven by healthy municipal demand, bolstered by ongoing infrastructure projects.

Market Share Gains

The company achieved significant sales growth and market share gains in treatment plant and fusible HDPE projects. These gains were attributed to Core & Main’s technical expertise and strong execution capabilities.

Gross Margin Improvement

Core & Main saw an improvement in gross margins, which rose to 26.8%, up 10 basis points from Q1 and 40 basis points year over year. This improvement was driven by private label and sourcing initiatives.

Positive Cash Flow and Share Repurchase

The company generated $34 million in operating cash flow and repurchased $47 million of shares, effectively reducing the share count by nearly 1 million.

Canadian Expansion

Core & Main announced its acquisition of Canada Waterworks, marking a strategic expansion into the multi-billion dollar Canadian market.

Strong Adjusted EPS Growth

The company reported a 13% increase in adjusted diluted earnings per share, rising to $0.87 compared to $0.77 in the prior year.

Residential Market Decline

Lot development for single-family housing, which accounts for roughly 20% of sales, slowed during the quarter. This slowdown was particularly evident in the fast-growing Sunbelt markets, attributed to higher interest rates and lower consumer confidence.

Elevated Operating Costs

Operating costs remained elevated due to high employee benefit costs, inflation, and increased costs from recent acquisitions, resulting in lower than expected operating margins.

Revised Downward Guidance

Core & Main revised its guidance for fiscal 2025 downward due to higher operating costs and softer residential demand. The company now expects net sales of $7.6 to $7.7 billion and adjusted EBITDA of $920 to $940 million.

Decline in Meter Product Sales

Sales of meter products declined year over year, impacted by project delays and a comparison to a high growth rate in the previous year.

Forward-Looking Guidance

During the earnings call, Core & Main adjusted its outlook for fiscal 2025, citing softer residential demand and higher operating expenses. The company anticipates net sales between $7.6 and $7.7 billion, adjusted EBITDA of $920 to $940 million, and operating cash flow of $550 to $610 million. Municipal end market volumes are expected to grow in the low single digits, while residential lot development is projected to decline in the low double digits. Despite these challenges, the company is implementing targeted cost-out actions to improve productivity, with savings expected in the second half of 2025 and more substantial benefits anticipated in 2026.

In summary, Core & Main’s earnings call highlighted a mixed outlook, with strong sales growth and strategic expansion efforts being overshadowed by challenges in the residential market and elevated operating costs. Investors will be keen to see how the company navigates these challenges and executes its strategic initiatives in the coming quarters.