Core & Main(US:CNM)2022-09-13 16:41Financial Data and Key Metrics Changes - The company reported a net sales increase of 43% to $1.86 billion for the quarter, driven by price inflation, mid-single-digit volume growth, and contributions from acquisitions [26] - Gross profit increased 54% to $501 million, with a gross profit margin improvement of 190 basis points to 26.9% [27] - Adjusted net income for the second quarter was $169 million compared to $61 million in the prior year, reflecting strong sales growth and gross margin improvement [29] - Adjusted EBITDA increased approximately 79% to $277 million, with an adjusted EBITDA margin improvement of 300 basis points to 14.9% [30] Business Line Data and Key Metrics Changes - Municipal repair and replacement activity, which constitutes roughly 40% of net sales, remains strong with favorable bidding and backlog trends [9] - Nonresidential development, also making up 40% of net sales, showed positive activity despite some softness in certain metro areas [10][39] - Residential volume was healthy through the second quarter, but there are signs of potential softening in lot development due to rising interest rates [12][37] Market Data and Key Metrics Changes - The company noted strong demand across all end markets, with municipal budgets supporting repair and replacement activities [9] - There is a growing need for maintenance and repair of aging water and wastewater infrastructure, with an estimated $2.2 trillion required for repairs over the next 20 years [20] - The company expects funds from the Infrastructure Bill to strengthen investments in municipal water infrastructure repair starting in 2023 [21] Company Strategy and Development Direction - The company remains active in M&A, having closed several acquisitions that are expected to contribute approximately $95 million in annual net sales [17] - The focus is on executing key growth strategies, deepening competitive advantages, and building a foundation for long-term profitable growth [23] - The company aims to leverage its diversified end markets and customer base to provide stability compared to smaller distributors [13] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the resilience of the business despite challenges from inflation and supply chain constraints [6][19] - The company anticipates that demand for its products will remain strong, even as commodity prices may moderate [8] - There is an expectation of continued positive end market demand, although rising interest rates may impact residential lot development [36] Other Important Information - The company has a capital allocation plan that prioritizes maintaining financial strength while pursuing growth opportunities [34] - Net debt at the end of the quarter was $1.627 billion, with improved leverage to 1.9x due to increased adjusted EBITDA [32] Q&A Session Summary Question: Can you provide a breakout of price and volume expectations for the second half? - Management expects volume to be flat to slightly down, with price contributions in the low to mid-teens and acquisitions contributing a couple of points [42] Question: What are you seeing regarding inflation and product pricing? - Management noted stabilization in commodity-based products and some non-commodity products showing price increases [43] Question: Can you elaborate on the slowdown in residential lot development? - Management indicated that major metro areas are experiencing a pause in nonresidential and commercial construction, impacting fire protection products [46] Question: How are municipalities dealing with inflationary pressures? - Management reported that while some projects are being deferred due to product availability, municipal repair and replacement activity remains steady [56] Question: What is the outlook for the Infrastructure Bill's impact? - Management does not expect to see significant benefits from the Infrastructure Bill until 2023, as projects utilizing those funds are not yet evident [60] Question: Can you discuss the M&A pipeline and acquisition multiples? - Management indicated a strong pipeline for acquisitions, with multiples in the range of 6 to 9x adjusted EBITDA pre-synergies [69]