Core & Main(US:CNM)2025-09-09 13:30Financial Data and Key Metrics Changes - The company reported nearly 7% net sales growth in Q2 2025, reaching $2.1 billion, with approximately 5% organic growth [4][13] - Gross margin improved to 26.8%, up 10 basis points sequentially and 40 basis points year over year [7][13] - SG&A expenses increased by 13% to $302 million, with half of the increase attributed to acquisitions and one-time costs [14][15] - Adjusted diluted earnings per share rose approximately 13% to $0.87 compared to $0.77 in the prior year [16][17] - Adjusted EBITDA increased 4% to $266 million, while adjusted EBITDA margin declined 40 basis points to 12.7% [17] Business Line Data and Key Metrics Changes - Sales of meter products declined year over year due to project delays, but a growing backlog is expected to support strong full-year sales growth [6][70] - The municipal market remained strong, with healthy demand for treatment plants and fusible HDPE projects [4][6] - Residential lot development slowed, particularly in the Sunbelt markets, leading to a revised lower outlook for residential sales [5][19] Market Data and Key Metrics Changes - Municipal end market volumes are expected to grow in the low single digits, while non-residential volumes are expected to be roughly flat [19] - Residential lot development is anticipated to decline in the low double digits for the full year [19][41] - The company expects pricing to have a neutral impact on full-year sales [19] Company Strategy and Development Direction - The company is focused on organic growth and complementary acquisitions, with a recent acquisition of Canada Waterworks to enhance its position in the Canadian market [10][11] - Investments are being made in new locations and technology solutions to improve efficiency and support long-term margin expansion [15][11] - The company aims to capture growth opportunities in aging U.S. water infrastructure and is confident in its long-term growth and profitability prospects [12][10] Management's Comments on Operating Environment and Future Outlook - Management noted that higher interest rates and affordability concerns are impacting residential demand, which is expected to remain soft [5][19] - The company is taking targeted cost-out actions to improve productivity and operating margins, with some savings expected in the second half of the year [9][15] - Management expressed confidence in the long-term demand characteristics across its end markets and the ability to drive above-market growth [20][12] Other Important Information - The company generated $34 million of operating cash flow during the quarter and returned $8 million to shareholders through share repurchases [10][18] - Total liquidity was reported at $1.1 billion, primarily from availability under the ABL credit facility [18] Q&A Session Summary Question: What are the factors affecting the revenue guidance? - Management indicated that the decline in residential lot development is the main driver for the reduction in sales guidance, but there are bright spots in municipal and treatment plant sales [23][24] Question: What are the growth opportunities in the evolving water market? - Management highlighted increasing demand for water due to projects like data centers and the need for infrastructure improvements, which positions the company well for future growth [25][26] Question: How are operating expenses impacting EBITDA margins? - Management acknowledged that stubborn inflation and higher costs are offsetting cost reduction actions, with more significant impacts expected in FY2026 [31][32] Question: What is the outlook for the residential market? - Management noted that the residential market weakened throughout Q2, with expectations of low double-digit declines for the remainder of the year [36][41] Question: How is the competitive environment evolving? - Management stated that there has been no significant change in the competitive landscape, with typical competition levels observed [86]