Core & Main(CNM) - 2026 Q2 - Earnings Call Transcript

Financial 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 [5][15] - Gross margin improved to 26.8%, up 10 basis points sequentially and 40 basis points year over year [9][15] - Adjusted diluted earnings per share increased approximately 13% to $0.87 compared to $0.77 in the prior year [17][18] - SG&A expenses rose 13% to $302 million, with half of the increase attributed to acquisitions and one-time costs [16][66] Business Line Data and Key Metrics Changes - Municipal demand remained strong, driven by repair and replacement activities and new construction projects [5][7] - Sales of meter products declined year over year due to project delays, but a growing backlog is expected to support future sales growth [8][76] - The residential market, accounting for roughly 20% of sales, saw a slowdown, particularly in Sunbelt markets, leading to a revised lower outlook [6][7] Market Data and Key Metrics Changes - Municipal end market volumes are expected to grow in the low single digits, while non-residential volumes are projected to be roughly flat [20][21] - Residential lot development is anticipated to decline in the low double digits for the full year [20][21] - The company expects pricing to have a neutral impact on full-year sales [22] Company Strategy and Development Direction - The company is focused on organic growth and complementary acquisitions, with recent acquisition of Canada Waterworks enhancing its position in the Canadian market [12][87] - Investments are being made in new locations and technology solutions to improve efficiency and support long-term margin expansion [12][16] - The company aims to align its business with current demand trends while maintaining growth opportunities [11][22] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in long-term growth prospects, particularly in the municipal market due to aging infrastructure investments [13][30] - The company is taking targeted cost-out actions to improve productivity and operating margins, with expected savings in the second half of the year [10][11] - Management acknowledged macroeconomic headwinds affecting the residential market but remains optimistic about pent-up demand in the future [41][85] Other Important Information - The company generated $34 million of operating cash flow in the quarter and returned $8 million to shareholders through share repurchases [11][19] - Total liquidity stood at $1.1 billion, primarily from availability under the ABL credit facility [19] 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 [25][26] 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, positioning the company well for future growth [27][30] Question: How are operating expenses impacting EBITDA margins? - Management noted that while cost actions are being implemented, stubborn inflation and higher costs are affecting margins, with more significant impacts expected in FY2026 [34][35] Question: What is the outlook for the residential market? - Management reported that the residential market weakened throughout Q2, with expectations of low double-digit declines for the remainder of the year [40][45] Question: How is the competitive environment evolving? - Management stated that the competitive environment remains stable, with no significant changes noted, and emphasized the company's value proposition to customers [91][92]