Q3 2025 Earnings Summary
- Core & Main is optimistic about increased municipal projects, with bidding activity and backlog continuing to grow, and Infrastructure Investment and Jobs Act (IIJA) funds starting to flow, expecting projects to start delivering in 2025, providing a significant tailwind.
- The company is well-positioned to capture growth from mega projects and data centers, significantly participating in these areas, contributing to momentum in the non-residential sector, and expects to continue benefiting as more projects emerge across the country.
- Core & Main expects to deliver 30 to 50 basis points of operating margin expansion in fiscal 2025, supported by sequential improvements in gross margins and SG&A rates, indicating strong operational momentum heading into next year.
- The anticipated benefits from the Infrastructure Investment and Jobs Act (IIJA) funding are materializing slower than expected, with only about one-third of the $55 billion allocated so far, which may delay growth contributions from federal infrastructure spending into 2025 and beyond.
- Legal issues involving key suppliers, specifically antitrust investigations and subpoenas, could potentially disrupt the supply chain or lead to unfavorable market conditions, which may adversely affect Core & Main's operations, even though the company is not directly involved.
- The company's guidance suggests that volume growth in the fourth quarter is expected to be neutral to slightly positive, relying heavily on an extra week in the fiscal quarter for revenue growth, indicating potential softening demand and a slowdown in underlying growth momentum.
| Metric | Period | Previous Guidance | Current Guidance | Change |
|---|---|---|---|---|
Net Sales | FY 2024 | $7.3–$7.4 billion | $7.35–$7.45 billion | raised |
Adjusted EBITDA | FY 2024 | $900–$930 million | $915–$935 million | raised |
Operating Cash Flow | FY 2024 | 65–75% of adjusted EBITDA | 60–70% of adjusted EBITDA | lowered |
Organic Growth | FY 2024 | no prior guidance | 2 to 4 points of organic above-market growth | no prior guidance |
M&A Growth | FY 2024 | no prior guidance | 2 points of growth from acquisitions | no prior guidance |
Adjusted EBITDA Margin Expansion | FY 2024 | no prior guidance | 30 to 50 basis points | no prior guidance |
| Topic | Previous Mentions | Current Period | Trend |
|---|---|---|---|
Infrastructure Investment and Jobs Act (IIJA) funding dynamics | Q1: Noted increased bidding activity on IIJA‐funded projects but with limited incremental benefits. Q2: Mentioned scarce flow into meter repair and some long-term project funding. | Q3: Approximately one‑third of the $55B funding has been allocated and projects are moving from planning to execution, showing more momentum despite mixed sentiment. | Recurring; sentiment improved with more execution progress though still mixed overall. |
Bidding activity and backlog growth | Q1: Reported strong bidding and growing backlogs with overall positive signals. Q2: Field teams provided encouraging feedback with robust backlogs and bidding activity. | Q3: Bidding activity remains stable with modest backlog growth further enhanced by IIJA‐driven momentum. | Consistently positive with gradual, steady improvement. |
Margin performance and operational efficiency | Q1: Faced competitive pressures and higher costs, resulting in slight gross margin dilution. Q2: Saw margin pressure from elevated inventory costs and rising SG&A expenses. | Q3: Achieved a 20bps sequential gross margin expansion with expectations for 30–50bps operating margin improvement, even with increased SG&A, signaling continued efforts on efficiency. | Recurring; initiatives are showing progress but cost pressures remain a challenge. |
Growth opportunities in mega projects and data centers | Q1: Highlighted solid growth in nonresidential sectors including mega projects, data centers, and large industrial undertakings. Q2: This topic was not mentioned. | Q3: Reemerged with significant emphasis as CNM participates in mega projects and data center opportunities, indicating renewed focus on nonresidential markets. | Recurrent with renewed emphasis in Q3 after an absence in Q2. |
Organic sales growth and market demand trends | Q1: Reported mid‑single digit organic sales growth with varied segment performance. Q2: Noted a trend back to solid organic volume growth with temporary softness in some areas due to weather and phasing. | Q3: Demonstrated a rebound in municipal projects and mid‑single digit organic volume growth across segments, indicating a recovery in market demand. | Consistently positive overall, though subject to temporary segment-specific shifts. |
Acquisition strategy and integration pipeline | Q1: Emphasized an active M&A pipeline with significant acquisitions and disciplined integration, contributing substantially to top‑line growth. Q2: Continued to prioritize acquisitions with a strong pipeline and successful integration yielding about 9% of growth. | Q3: Maintained a robust acquisition strategy with 10 acquisitions year‑to‑date, a strong integration process, and a continued focus on growth across key geographies. | Recurring strategic priority with steady, consistent emphasis. |
Private label product expansion | Q1: Reported positive pull‑through with private label products accounting for roughly 2% of COGS and improved inventory clearance. Q2: Noted modest penetration just over 2% with expectations for increased adoption. | Q3: Expanded private label product share to the 2–3% range of COGS, contributing as a significant driver for margin improvement. | Consistent upward trend with steady contribution to margin enhancement. |
Legal and regulatory risks impacting the supply chain | Q1 & Q2: This topic was not mentioned. | Q3: Addressed for the first time; CEO stated no subpoenas and no antitrust issues impacting suppliers. | New topic emerging in Q3 with no prior discussion. |
Project phasing delays and revenue timing uncertainty | Q1 & Q3: Not discussed. | Q2: Highlighted delays in both residential and nonresidential projects due to financing challenges and weather, creating some timing uncertainty. | Mentioned only in Q2, suggesting a transient concern rather than a recurring trend. |
Commodity pricing challenges and competitive pressures | Q1: Acknowledged deflation pressures on steel products and competitive squeezing affecting margins. Q2: Reported headwinds from lower steel pipe pricing and intensified competitive pressures impacting margins and cost structures. | Q3: Focus shifted to pricing stability with strategic initiatives (including sourcing and private label) mitigating pressures, though commodity challenges remain part of the broader context. | Recurring challenge with sentiment shifting from initial pressure to a more managed and stable outlook. |
Residential construction growth concerns | Q1: Expressed caution due to macroeconomic challenges such as high interest rates, expecting low‐to‐mid single‑digit growth. Q2: Concern raised as residential lot development slowed amid anticipation of lower rates leading to project delays. | Q3: No explicit caution mentioned; focus shifted to long‑term demographic and infrastructure needs, indicating less short‑term concern in this segment. | Previously a concern in Q1 and Q2, but less emphasized in Q3. |
Operating cash flow utilization for growth initiatives | Q1: Generated $78M operating cash flow and balanced investments in growth initiatives with significant share repurchases and M&A. Q2: Projected roughly $500M of operating cash flow in H2 to support further acquisitions, investments, and potential accelerated share buybacks. | Q3: Generated robust operating cash flow of $260M; continued disciplined capital allocation with acquisitions and a $100M share repurchase, maintaining a healthy approach to growth and shareholder returns. | Consistently strong; the focus on using operating cash flow for both growth initiatives and share repurchases remains unchanged. |
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2025 Growth and Margin Outlook
Q: What are your expectations for growth and margins in fiscal 2025?
A: We anticipate a more typical year in 2025, expecting slightly positive end markets and delivering on our commitment of adding 30 to 50 basis points of operating margin next year. Our initiatives should contribute 2 to 4 points of above-market growth, and we have good momentum with sequential increases in gross margins and improved SG&A rates. -
Impact of IIJA Funding
Q: How much of the $55 billion IIJA water funding has been allocated, and what's its impact?
A: Approximately one-third of the IIJA water funding has been allocated to date, leaving significant room for additional funding. We are optimistic about the increased project bidding and expect this momentum to continue into 2025, providing a tailwind for our business. -
Pricing Environment in 2025
Q: What are your expectations for pricing in 2025, especially for PVC and steel products?
A: We expect a neutral impact from pricing in 2025, with no significant positive or negative contributors. Steel pipe pricing appears to have bottomed out in Q3, and we foresee stabilization. PVC, representing less than 15% of our business, has been relatively stable with no significant movements expected next year. -
M&A Pipeline and Leverage
Q: How does the M&A pipeline look for 2025, and what are your leverage targets?
A: Our M&A pipeline remains very strong, with many sole-sourced deals. We have completed 10 acquisitions so far this year and expect continued robust activity in 2025. We aim to maintain leverage between 1.5 to 3 times, ensuring ample capacity to pursue our M&A strategy while generating over $250 million in cash in the fourth quarter. -
End Market Momentum
Q: What is the outlook for municipal and non-residential end markets?
A: Municipal markets are stable, with IIJA funds starting to flow, leading to increased bidding activity and backlog. Non-residential markets remain strong, particularly in roads, bridges, and mega projects, although multifamily is still struggling as anticipated. -
Data Center Exposure
Q: Do you have exposure to data center development, and is it a meaningful tailwind?
A: Yes, we participate significantly in data center projects nationwide, providing infrastructure for water, sewer, storm drainage, and sometimes fire protection products. This area has contributed to momentum in the non-residential space, and we are well-positioned to capture growth as more data centers emerge. -
Recovery from Weather Impacts
Q: Did you recover the $50 million revenue lost due to weather disruptions in Q2?
A: We returned to expected trend lines in Q3, recovering a majority of the disrupted projects. There may be some remaining impacts in Q4 or into 2025, but sequentially, we saw a significant improvement from Q2. -
Strategic Sourcing and Private Label
Q: What drove the sequential improvement in gross margins, and where does private label stand?
A: The 20 basis point increase in gross margins was primarily due to strategic sourcing and optimization efforts, followed by contributions from private label products, which now represent 2% to 3% of our cost of goods sold. -
Greenfield Expansion Plans
Q: What is your plan for greenfield expansion, and what's the typical ramp time?
A: We continue to open new branches based on strategic opportunities, with no set target for greenfields. Typically, a greenfield reaches break-even within the first year and attains typical branch size in 3 to 5 years, contributing to our 2 to 4 points of above-market growth. -
Utility Detection Acquisitions
Q: Can you provide more color on acquisitions in utility locating and damage prevention equipment?
A: We have acquired businesses that enhance our offerings in utility servicing, such as line detection devices. These technologies complement our municipal services and help customers locate infrastructure for replacement or maintenance, covering a growing number of states. -
Labor and Tariffs Impact
Q: How might labor conditions and tariffs affect your business?
A: We don't anticipate significant changes in labor conditions affecting our contractors. Regarding tariffs, they are generally neutral to positive for us, as the vast majority of our products are produced in the U.S., with less than 15% imported and less than 2% direct imports. -
Multifamily Market Exposure
Q: What percentage of your revenue comes from multifamily projects?
A: Less than 5% of our sales are from multifamily projects, which we include in our non-residential category due to the nature of the work, including fire protection components.
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