Core & Main, Inc. (CNM) Q4 2026 Earnings Call Transcript
Access earnings results, analyst expectations, report, slides, earnings call, and transcript.
Overview
The earnings call reflects a positive sentiment with strong financial performance, a strategic geographic expansion, and a robust share repurchase plan. Despite a slight decline in EBITDA margin, the company has shown growth in adjusted EPS and operating cash flow. The Q&A reveals optimism in growth areas like data centers and treatment plants, and effective management of cost programs. While residential markets face short-term challenges, municipal and nonresidential markets show stability. The company's strong capital allocation strategy and guidance for FY '26 further support a positive outlook.
Key Financial Performance
Net Sales (Q4) $1.58 billion, decreased 7% year-over-year. On an average daily net sales basis, sales increased about 1%. Reasons: 1 fewer selling week compared to last year, flat pricing overall, and severe winter weather affecting construction activity.
Gross Margin (Q4) 27.1%, increased 50 basis points year-over-year. Reasons: Higher private label penetration and disciplined purchasing and pricing execution.
SG&A (Q4) $264 million, decreased 5% year-over-year. Reasons: Lower variable costs from 1 less selling week and benefits from previously announced cost actions.
Adjusted EBITDA (Q4) $167 million, decreased 7% year-over-year. Adjusted EBITDA margin increased 10 basis points to 10.6%. Reasons: 1 fewer selling week.
Net Sales (Full Year 2025) $7.65 billion, increased 3% year-over-year (5% adjusted for 1 less selling week). Reasons: 3 points of organic market share gains, 2 points of sales growth from acquisitions, and flat pricing overall.
Gross Margin (Full Year 2025) 26.9%, increased 30 basis points year-over-year. Reasons: Higher private label penetration and disciplined purchasing and pricing execution.
SG&A (Full Year 2025) $1.15 billion, increased 7% year-over-year. Reasons: Inflation, acquisitions, volume-related growth, and strategic investments to support sales growth and margin expansion.
Adjusted EBITDA (Full Year 2025) $931 million, slightly ahead of the prior year. Adjusted EBITDA margin declined 30 basis points to 12.2%. Reasons: Higher SG&A as a percentage of net sales, partially offset by gross margin expansion.
Operating Cash Flow (Full Year 2025) $650 million, representing 70% conversion from adjusted EBITDA. Reasons: Strong cash generation and disciplined financial management.
Adjusted Diluted EPS (Full Year 2025) $2.97, increased 7% year-over-year. Reasons: Higher adjusted net income from lower interest expense and benefit of a lower share count from share repurchases.
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Operating Highlights
Smart Metering: Core & Main was awarded the largest metering contract in U.S. history, reflecting its leading position in the market. The smart metering business has grown at an average annual rate of approximately 14% over the last 5 years.
Fusible HDPE and Geosynthetics: These product initiatives have grown at an average annual rate of approximately 14% over the past 5 years. They require new supplier partnerships, specialized equipment, and unique logistics solutions.
Treatment Plant Solutions: This initiative has grown at an average annual rate of nearly 25% over the past 5 years, driven by large capital investments in treatment plants and water transmission lines.
Geographic Expansion: Core & Main opened 10 new branches in fiscal 2025 and plans to open 7 to 10 additional locations in fiscal 2026. The company also expanded its presence in Canada and Texas through acquisitions.
Market Share Growth: Core & Main achieved 3 points of organic above-market growth in fiscal 2025, driven by sales initiatives and geographic expansion.
Private Label Penetration: Private label products represented about 5% of sales in fiscal 2025, with a clear path to at least 10% over time. This shift contributed to a 30 basis point improvement in gross margin.
Cost Actions: Implemented $30 million of annualized cost actions, with $6 million realized in fiscal 2025 and the remainder expected in fiscal 2026.
Cash Flow Conversion: Converted 70% of adjusted EBITDA into operating cash flow, generating $650 million in fiscal 2025.
Acquisitions: Completed two acquisitions in fiscal 2025, Canada Waterworks and Pioneer Supply, adding 5 branches and expanding presence in Canada and Texas.
Technology and Innovation: Investing in AI-enabled solutions to reduce administrative burden and enhance customer experience, supporting long-term growth and efficiency.
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Risk or Challenges
Residential Lot Development: Declined low double digits due to housing affordability and higher mortgage rates, impacting demand. Near-term dynamics remain challenged.
Nonresidential Volumes: Relatively muted throughout the year with softness in traditional commercial lot development activity, despite growth in data centers, street and highway projects, and multifamily developments.
Municipal Demand: While resilient, it was not enough to fully offset softness in other areas of end markets.
Economic and Geopolitical Uncertainty: Heightened geopolitical volatility, including the developing Middle East conflict and ongoing tariff uncertainties, along with continued uncertainty around the interest rate environment and overall builder confidence.
Inflation and Operating Costs: Higher-than-normal inflation on operating costs limited the ability to achieve SG&A leverage.
Pricing Environment: Flat pricing overall, with specific declines in PVC pipe pricing, impacting revenue growth.
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Guidance & Outlook
Fiscal 2026 Net Sales: Expected to be between $7.8 billion to $7.9 billion.
Adjusted EBITDA for Fiscal 2026: Projected to range from $950 million to $980 million.
Operating Cash Flow Conversion: Anticipated to be 60% to 70% of adjusted EBITDA for fiscal 2026.
Municipal Market Outlook: Expected to remain strong due to stable funding sources and nondiscretionary demand.
Private Construction Market Outlook: Cautious outlook due to geopolitical volatility, tariff uncertainties, interest rate environment, and builder confidence.
End Market Growth: Overall end markets expected to be roughly flat for fiscal 2026.
Above-Market Volume Growth: Anticipated through sales and geographic expansion initiatives, including strong performance in meters and treatment plant solutions and opening 7 to 10 greenfields.
Adjusted EBITDA Margins: Expected to grow due to gross margin initiatives and cost action benefits.
Capital Allocation Priorities: Focus on investing in business growth (organically and through M&A) and returning capital to shareholders via share repurchases.
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Shareholder Return Plan
Dividend Program: No specific mention of a dividend program was made during the call.
Share Repurchase Program: Core & Main returned $155 million to shareholders through share repurchases during fiscal 2025, reducing the share count by approximately 3.2 million. An additional $39 million was deployed subsequent to the fiscal year to repurchase 800,000 shares. Since the 2021 IPO, the company has repurchased over 20% of its original shares outstanding.
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Key Q&A
Q:What are the differences in growth between Core & Main and its largest competitors?
A:Core & Main has a strong presence across municipal, nonresidential, and residential markets. While competitors have been ahead in areas like treatment plants and data center construction in Northern Virginia and Texas, Core & Main is rapidly gaining ground. The company is benefiting from the broader geographic spread of data centers and its strong local relationships, which have driven share gains, particularly in the smart meter business.
Q:What is the timeline and impact of the $30 million cost-out program?
A:The $30 million cost-out program was completed during FY '25. $1 million of the benefit was realized in Q3, $5 million in Q4, and the remainder will be realized in the first three quarters of FY '26. The benefits will continue to positively impact costs through 2026 and into early 2027.
Q:How is Core & Main addressing energy and commodity inflation following the Middle East conflict?
A:Core & Main is monitoring the situation closely. While fuel price increases have a small direct impact on delivery expenses, the company is seeing potential increases in global resin prices, which could affect products like PVC and HDPE pipes. These increases are embedded in the guidance, and the company views them as neutral to positive for pricing stability in certain product lines.
Q:What investments is Core & Main making in growth areas like data centers and treatment plants?
A:Core & Main is investing in areas with attractive growth dynamics, such as smart utilities and treatment plants. The company plans to add 30 more personnel to its national complementary team structure in 2026 to enhance local branch capabilities and support large projects like data centers and water treatment plants.
Q:What is the guidance for FY '26 EBITDA and its components?
A:The FY '26 EBITDA guidance is $950 million to $980 million, implying 2% to 5% growth. Key components include flat pricing, stable gross margins, and SG&A leverage. Residential markets are expected to be a headwind in the first half, while municipal markets are expected to grow in the low single digits. Nonresidential markets are expected to remain flat.
Q:What is the outlook for M&A activity in FY '26 and beyond?
A:Core & Main expects M&A activity to be within the 2% to 4% growth range in FY '26, with a strong pipeline of opportunities. The company is also opening a record number of greenfield locations to capture market share.
Q:What is the expected growth for the meters business in FY '26?
A:The meters business is expected to continue its low double-digit growth trajectory, supported by a strong base of municipal sales and large projects, which account for about one-third of the volume. The company is investing additional resources to maintain this growth.
Q:What is the outlook for the residential, nonresidential, and municipal markets in FY '26?
A:Residential markets are expected to decline in the low double digits to mid-teens in the first half of FY '26, improving to flat by year-end, resulting in a mid-single-digit decline for the year. Nonresidential markets are expected to remain flat, while municipal markets are expected to grow in the low single digits, supported by ample funding.
Q:How is Core & Main managing inventory in light of potential price volatility?
A:Core & Main is leveraging its expertise in inventory management to capitalize on price volatility. The company aims to secure inventory ahead of price increases to drive gross margin expansion.
Q:What is the company's approach to share buybacks?
A:Core & Main has repurchased $155 million worth of shares in FY '25 and $40 million in Q1 FY '26. With over $600 million remaining in its authorization, the company plans to continue buybacks as part of its capital allocation strategy.
Q:Review of Unclear Management Responses
A:Management avoided providing specific quantitative details on the expected contribution from large meter contracts in FY '26, stating only that these projects account for about one-third of the volume. Additionally, while discussing the potential for price increases due to resin costs, management did not provide precise figures or timelines, citing uncertainty in the market.
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Earnings Word Cloud
The most frequently occurring keywords in this quarter's earning call
Canada
Director Investor
HDPE geosynthetics
Pioneer Supply
ability market
advantage
area
base
brand
burden team
capability industry
capability resource
capability value
contractor
creation
delivery
development support
driver
equipment technician
footprint
gain margin
housing
industry technology
insight
installation
lever
market greenfield
meter treatment
network
partnership
path
quality
rate year
repair replacement
replacement activity
runway
solution metering
sourcing
talent
upgrade
CNM Transcript
Core & Main, Inc. (CNM) Q4 2026 Earnings Call Transcript
Positive3-24
The earnings call reflects a positive sentiment with strong financial performance, a strategic geographic expansion, and a robust share repurchase plan. Despite a slight decline in EBITDA margin, the company has shown growth in adjusted EPS and operating cash flow. The Q&A reveals optimism in growth areas like data centers and treatment plants, and effective management of cost programs. While residential markets face short-term challenges, municipal and nonresidential markets show stability. The company's strong capital allocation strategy and guidance for FY '26 further support a positive outlook.
Core & Main, Inc. (CNM) Q3 2025 Earnings Call Transcript
Unknown12-9
The earnings call summary provides mixed signals: strong financial metrics are offset by slightly lower guidance, and residential market softness is concerning. The Q&A reveals positive insights on municipal growth and smart meter adoption, but concerns about cost inflation and unclear responses temper enthusiasm. Overall, the sentiment is neutral, reflecting balanced positives and negatives.
Core & Main, Inc. (CNM) Q2 2025 Earnings Call Transcript
Unknown9-9
Despite positive net sales growth and stable financial health, the outlook for the residential market is negative, with significant declines expected. While stable gross margins and strategic initiatives are positives, the lack of clear guidance on cost-out actions and organic revenue growth introduces uncertainty. The Q&A section highlighted concerns about residential market declines and management's reluctance to provide specific details, balancing the overall sentiment to neutral.
Core & Main, Inc. (CNM) Q1 2025 Earnings Call Transcript
Unknown6-10
The earnings call presents a mixed picture. Financial performance shows growth in net sales and EPS, but margins have declined slightly, and there are concerns about economic conditions affecting residential construction and interest rates. The Q&A reveals management's optimism for SG&A productivity and flat pricing, but there is a lack of clarity on cost-out initiatives and residential market slowdown. Share repurchases are positive, but the guidance is cautious with only modest growth expected. Overall, the sentiment is balanced, leading to a neutral prediction for stock movement.
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