Core & Main(US:CNM)2024-03-19 18:19Financial Data and Key Metrics Changes - Core & Main reported record net sales of over $6.7 billion for fiscal 2023, reflecting a 1% increase compared to the previous year, driven by acquisitions and higher average selling prices despite softer end market demand [17][62] - Adjusted EBITDA for fiscal 2023 decreased approximately 3% to $910 million, with an adjusted EBITDA margin of 13.6%, down 50 basis points year-over-year due to cost inflation and investments for growth [33][64] - Gross margin for fiscal 2023 was 27.1%, a slight increase of 10 basis points from the previous year, attributed to margin initiatives and acquisitions, although impacted by higher cost inventory [31][28] - The company recorded a net income of $531 million for fiscal 2023, down from $581 million in fiscal 2022, with diluted earnings per share increasing to $2.15 from $2.13 due to lower share counts from repurchase transactions [65] Business Line Data and Key Metrics Changes - The company experienced a 16% growth in its smart metering product line and above-market growth in its fusible HDPE offering, alongside advancements in stormwater management and erosion control systems [7] - Non-residential construction, which represents about 38% of sales, was soft in 2023 but is expected to stabilize in 2024 due to a diverse mix of project types [69] - Residential construction, accounting for about 20% of sales, is anticipated to grow in 2024 after two weak years, with positive momentum in new residential lot development [36][120] Market Data and Key Metrics Changes - Approximately 42% of net sales in fiscal 2023 were attributed to municipal projects, 38% to non-residential projects, and 20% to new residential construction [6] - The company estimates a low single-digit growth in municipal repair and replacement activity for fiscal 2024, supported by healthy municipal budgets and the need to repair aged water infrastructure [37] Company Strategy and Development Direction - Core & Main aims to achieve $10 billion in net sales by 2028, with a focus on organic growth, acquisitions, and margin expansion initiatives [24][58] - The company has a robust acquisition strategy, having deployed over $1.6 billion across more than 30 acquisitions since 2017, which continues to add key talent and expand product offerings [53][54] - Investments in private label products are expected to grow from over 2% of total COGS to more than 10%, enhancing gross margins significantly [21] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the ability to navigate a dynamic environment and maintain market share despite competitive pressures and supply chain normalization [63] - The company anticipates significant cash flow generation in 2024, with a focus on capital allocation towards organic growth and M&A, while also considering share repurchases and dividends [40][92] - Management noted that while the Infrastructure Investment and Jobs Act (IIJA) presents potential upside, they are not heavily factoring it into their current guidance due to the slow rollout of funds [102][118] Other Important Information - The company ended fiscal 2023 with a net debt leverage of 2.1x and available liquidity of over $800 million, indicating a strong financial position to support growth initiatives [34] - Core & Main opened nearly 20 new locations over the last several years, enhancing its geographic footprint and market presence [18] Q&A Session Summary Question: What is the expected impact of M&A on future performance? - Management indicated that M&A is expected to contribute positively to growth, with the Dana Kepner acquisition anticipated to be slightly accretive to EBITDA without significant dilution [101] Question: How does the company view the impact of IIJA funding? - Management views IIJA funding as potential upside but is cautious, noting that significant material movement is not yet evident [102][118] Question: What are the expectations for gross margin and SG&A in 2024? - Management expects some normalization in gross margin due to the release of low-cost inventory but aims to offset this through margin initiatives [71][97] Question: Can you elaborate on the growth in residential construction? - Management noted strong sentiment in residential lot development, indicating a recovery from previous downturns and a robust demand for housing [120]