CNM — Core & Main, Inc.

Core & Main Q4 and Full Year 2025 Earnings Call Summary

1. Key Financial Results and Metrics

• Q4 2025 Results:

  • Net sales decreased 7% to $1.58 billion (1 fewer selling week).
  • Average daily net sales increased 1%, driven by organic volume growth.
  • Gross margin improved to 27.1%, up 50 basis points year-over-year.
  • Adjusted EBITDA was $167 million, down 7% year-over-year, with an adjusted EBITDA margin of 10.6%.

• Full Year 2025 Results:

  • Net sales grew approximately 3% to $7.65 billion (5% adjusted for 1 fewer selling week).
  • Adjusted EBITDA was $931 million, slightly ahead of the prior year, with a margin of 12.2% (down 30 basis points).
  • Adjusted diluted EPS increased 7% to $2.97.
  • Operating cash flow was $650 million, representing a 70% conversion from adjusted EBITDA.

2. Strategic Updates and Business Highlights

• Core & Main operates as a leading distributor of water infrastructure products with a diverse portfolio of over 225,000 products.
• The company achieved its 16th consecutive year of sales growth, driven by strong performance in the municipal market (44% of sales) and growth in nonresidential sectors (38%).
• Notable growth initiatives included:
  • Expansion of the smart metering and treatment plant solutions, both growing at an average annual rate of 14% over the past five years.
  • Opening of 10 new branches in fiscal 2025, with plans for 7 to 10 additional locations in fiscal 2026.
  • Successful acquisitions, including Canada Waterworks and Pioneer Supply, contributing to 2% growth from acquisitions.

3. Forward Guidance and Outlook

• For fiscal 2026, Core & Main expects:
  • Net sales between $7.8 billion and $7.9 billion.
  • Adjusted EBITDA of $950 million to $980 million.
  • Continued operating cash flow conversion of 60% to 70% of adjusted EBITDA.
• The company anticipates stable demand in the municipal market while remaining cautious about the residential and nonresidential markets due to geopolitical volatility and interest rate uncertainties.

4. Bad News, Challenges, or Points of Concern

• Residential Market: Expected to decline in the first half of fiscal 2026, with low double-digit to mid-teens declines anticipated.
• Nonresidential Market: Expected to remain flat, with mixed demand across project types.
• Cost Pressures: Higher inflation and operating costs have limited SG&A leverage, although the company implemented $30 million in cost actions.
• Pricing Environment: Flat pricing expected overall, with PVC pricing remaining a headwind due to previous declines.

5. Notable Q&A Insights

• Growth Disconnect: Management acknowledged differences in growth rates compared to competitors, attributing it to market presence and product mix, particularly in treatment plants and data center construction.
• Cost Management: The company is focused on managing inventory effectively in light of potential price increases in raw materials due to geopolitical events.
• M&A Strategy: Core & Main remains confident in its M&A pipeline, despite a lighter year in 2025, and expects to return to a growth cadence of 2% to 4% from acquisitions.
• Market Conditions: The leadership emphasized the importance of a stable municipal market and the potential for pent-up demand in residential construction, although timing remains uncertain.

Overall, Core & Main demonstrated resilience in its financial performance while navigating challenges in specific end markets, maintaining a focus on strategic growth initiatives and operational efficiency.