Core & Main(US:CNM)2024-03-19 11:35Financial Performance - Core & Main's net sales for fiscal 2023 reached approximately $1.5 billion, with 42% derived from municipal construction, 38% from non-residential construction, and 20% from residential construction [22]. - Approximately 67% of net sales in fiscal 2023 were attributed to pipes, valves, and fittings, while storm drainage products accounted for 15% and fire protection products for 10% [50][52][54]. - The company's net sales accounted for approximately 17% of its $39 billion addressable market in fiscal 2023 [63]. - Smart meter products accounted for approximately 8% of the company's net sales in fiscal 2023 [56]. - Sales through the strategic accounts program represented approximately 5% of fiscal 2023 net sales, targeting large-scale projects requiring technical expertise [36]. - Approximately 20% and 38% of Core & Main's net sales in fiscal 2023 were directly related to the U.S. residential and non-residential end markets, respectively [102]. - Approximately 42% of Core & Main's net sales in fiscal 2023 were related to the municipal market [105]. Market and Growth Opportunities - The company estimates its addressable market in the U.S. for water, wastewater, storm drainage, and fire protection products to be approximately $39 billion in fiscal 2023 [28]. - The Infrastructure Investment and Jobs Act allocated $55 billion for water infrastructure, expected to enhance investment in municipal water systems and benefit Core & Main's business [30]. - The company has identified approximately 165 metropolitan statistical areas (MSAs) for potential greenfield expansion, having opened nearly 20 new locations since 2017 [35]. - The company aims to pursue strategic acquisitions to expand into new geographies and enhance its product offerings, supported by a strong acquisition platform [39]. Operational Structure - Core & Main operates a network of approximately 335 branch locations across 48 states, serving over 60,000 customers and connecting with around 5,000 suppliers [20]. - The company employs approximately 5,000 associates, with around 1,800 customer support representatives and 575 field sales representatives [78][74]. - Each branch sells an average of 4,500 SKUs, with many items in stock and others available for delivery [70]. - Field sales representatives have an average of over 13 years of experience in the industry, contributing to strong customer relationships [75]. - The company has a pay-for-performance philosophy, linking compensation to branch or region-specific profitability and working capital efficiency goals [79]. Financial Risks and Challenges - The company faced price fluctuations in product costs due to supply and demand changes, economic conditions, and supply chain constraints [110]. - Interest rate increases throughout calendar year 2023 contributed to slowing new lot development and contraction in the residential end market [102]. - The company may lose business to competitors through competitive bidding processes, impacting its ability to secure contracts [109]. - The operational strategies implemented by the company to address market conditions may not be successful, leading to potential fluctuations in operating results [104]. - Fluctuations in federal funding can negatively impact municipal spending, affecting demand for Core & Main's products [108]. - The company experienced supply chain disruptions due to natural disasters, impacting product availability and costs [111]. - The company faces risks related to inventory management, where insufficient inventory may lead to lost sales opportunities, while excess inventory could negatively impact gross margin [114]. - The company may experience pricing pressure from customers during periods of declining product costs, which could adversely affect revenue and profitability [112]. - Changes in supplier terms could adversely affect income and margins, as rebate programs are subject to renegotiation and may lower gross margins [131]. Compliance and Regulatory Risks - Compliance with environmental, health, and safety laws may incur substantial costs, potentially exceeding current estimates and reserves [136]. - The company is subject to various federal, state, and local regulations, which could increase operational costs and affect profitability [138]. - The company is exposed to risks related to environmental compliance, which may lead to increased costs and operational challenges [140]. - Changes in ESG and sustainability expectations could impose additional costs and risks, potentially affecting the company's stock price [142]. - The introduction of new SEC climate-related disclosure rules could lead to increased compliance costs, impacting financial condition [143]. Debt and Financial Obligations - Total consolidated indebtedness as of January 28, 2024, was $1,893 million, with $218 million in outstanding lease commitments [174]. - The company entered into a $750 million incremental seven-year term loan maturing on February 9, 2031 [174]. - Core & Main LP's cash flow from operating activities may not be sufficient to meet its debt service obligations, potentially leading to asset sales or restructuring [185]. - The company is exposed to the risk of increased interest rates due to a significant portion of borrowings being at variable rates [175]. - A one percentage point increase in interest rates would result in an approximately $27 million increase in annual interest expense on the Senior ABL Credit Facility and the 2028 Senior Term Loan [182]. Stock and Shareholder Considerations - The market price of the company's Class A common stock may be volatile, influenced by various factors including market conditions and regulatory changes [204]. - Future sales of shares by the company or existing stockholders could lead to a decline in the stock price, impacting market perception [206]. - Future issuances of debt or equity securities may dilute the economic and voting rights of Class A common stockholders, potentially reducing the market price of the stock [211]. - Anti-takeover provisions in the Certificate of Incorporation and By-laws may discourage or prevent changes in management or control, affecting the trading price of Class A common stock [213]. - The existence of "blank check" preferred stock could be used to thwart takeover attempts, impacting stockholder benefits from potential premium offers [214]. - The company may face securities class action litigation due to stock price volatility, which could divert management's attention and adversely affect business [217].