Core & Main Q1 Earnings Call Highlights

Key Points

• Core & Main reaffirmed fiscal 2026 guidance after a first quarter that showed steady sales and modest profit growth. Net sales were $1.9 billion, adjusted EBITDA rose to $226 million, and adjusted EPS increased 6% to $0.72.
• Municipal demand remained the company’s main growth engine, driven by aging water infrastructure, repair and replacement activity, and non-discretionary spending. Management said it does not expect a federal funding “cliff” from infrastructure programs because state and local funding remains the dominant source.
• Residential markets stayed weak, but non-residential and specialty areas were more resilient. Data centers, manufacturing, fire protection, smart utility, and treatment plant projects helped offset softness in traditional residential and commercial construction.

Core & Main NYSE: CNM reaffirmed its fiscal 2026 outlook after reporting first-quarter results that management said reflected resilient municipal demand, disciplined pricing and margin initiatives, despite continued pressure in residential lot development.

The water, wastewater, storm drainage and fire protection products distributor reported first-quarter net sales of $1.9 billion, roughly in line with the prior year. Adjusted EBITDA was $226 million, up 1% year over year, while adjusted diluted earnings per share rose about 6% to $0.72 from $0.68 a year earlier.

Chief Executive Officer Mark Witkowski said the company delivered “a solid start to fiscal 2026,” citing “disciplined execution and the underlying resilience” of the business. He said the results support the full-year outlook Core & Main issued in March.

Municipal Demand Remains Core Growth Driver

Witkowski said municipal demand remained strong during the quarter and continues to be a “core source of growth” for Core & Main. He pointed to aging water infrastructure, repair and replacement activity, and the largely non-discretionary nature of municipal spending as key drivers.

Management emphasized that municipal water infrastructure funding is largely local. Witkowski said approximately 95% of water infrastructure funding is supported by state and local sources, reinforcing what he described as the durable nature of the market.

Chief Financial Officer Robyn Bradbury said municipal volumes were supported by repair and replacement activity, non-discretionary projects and continued share gains in smart utility and treatment plant initiatives. In response to an analyst question about the Infrastructure Investment and Jobs Act, Bradbury said remaining funding is expected to flow into state revolving funds this year, but added that the company does not see a funding “cliff,” because much of the money remains available for municipalities and because state and local funding remains the dominant source of water infrastructure investment.

Residential Still Soft, Non-Residential Mixed

Core & Main said residential markets remained challenged, with year-over-year declines against a strong prior-year comparison. Witkowski said residential lot development began fiscal 2025 with optimism before pulling back later in the year. Since then, he said conditions have largely stabilized, with no further deterioration from the end of fiscal 2025 but no meaningful improvement either.

Bradbury said residential softness was most pronounced in Sun Belt markets and reflected slower lot development activity compared with the prior year. She said sequential residential demand was stable relative to the fourth quarter and in line with expectations.

Non-residential demand was described as mixed but stable overall. Management cited healthy momentum in data centers and manufacturing facilities, which helped offset softness in traditional commercial construction, including retail and office-related activity. Witkowski said data centers represent a compelling long-term opportunity because they require water, wastewater, storm drainage and fire protection infrastructure, including significant water infrastructure for cooling systems.

Fire protection was a standout category in the quarter. In the question-and-answer session, Witkowski said the business benefited from data center activity, steady-to-positive multifamily demand and higher steel pricing after a period when steel had been a drag. He also said Core & Main’s performance in fire protection has improved over the past 12 to 18 months and that the company believes it is gaining share.

Smart Utility and Treatment Plant Initiatives Continue to Expand

President Brad Cowles highlighted smart utility and treatment plant solutions as important municipal growth drivers. He said municipalities and private utilities are increasingly focused on modernizing metering infrastructure to improve billing accuracy, reduce non-revenue water, enhance visibility and operate more efficiently.

Cowles said Core & Main differentiates itself by offering a turnkey smart utility model that includes hardware, software, analytics, installation, project management and ongoing service. He said the company continues to win large, multi-year projects and referenced a previously announced award that Core & Main believes is the largest smart utility contract in U.S. history.

Witkowski said smart utility solutions delivered high single-digit growth during the quarter. In response to analyst questions about meter-market concerns at original equipment manufacturers, Cowles said Core & Main is benefiting from large integrated projects, while some meter manufacturers may be more exposed to smaller ongoing maintenance and residential-related demand, where activity is softer.

Treatment plant solutions delivered double-digit growth in the quarter, according to management. Cowles said treatment plant modernization is being driven by aging facilities, regulatory requirements and greater demands on water and wastewater systems. He said treatment plant projects range from smaller rehabilitation work to major facility retrofits and new construction, though complete new builds are less common.

Witkowski said treatment plant sales are in the mid-single-digit range as a share of Core & Main’s sales, and management sees opportunities to expand the addressable products and services it can provide. Cowles said acquisitions could help add technical expertise and broaden the company’s offering in areas such as actuated valves, engineered pipe stands and metal fabrications used inside plants.

Margins Improve as Company Reaffirms Guidance

Gross margin expanded 50 basis points year over year to 27.2%. Bradbury said the improvement was driven by private label growth, sourcing optimization and disciplined pricing and purchasing execution. Adjusted EBITDA margin rose 10 basis points to 11.8%.

Bradbury said overall pricing was stable during the quarter, with increases across most product categories offset by a year-over-year headwind from PVC. She said PVC pricing remains below prior-year levels but has stabilized sequentially, and supplier price increases could become a modest tailwind later in the year. In the Q&A session, she said the company has begun passing through some PVC increases in bidding and quoting activity, with most of the impact expected in the third quarter.

SG&A expenses increased 2% to $299 million, driven by strategic growth investments, acquisition-related costs and inflation. Bradbury said that excluding the impact of investments and M&A, SG&A declined modestly year over year, reflecting cost management.

Core & Main reaffirmed its fiscal 2026 guidance, including:

• Net sales of $7.8 billion to $7.9 billion;
• Adjusted EBITDA of $950 million to $980 million;
• Operating cash flow conversion of 60% to 70% of adjusted EBITDA.

Bradbury said the company continues to expect overall end-market volumes to be roughly flat for the year, with municipal strength offset by a cautious outlook in private construction. She said the company expects slight growth in the second quarter and low- to mid-single-digit growth in the third and fourth quarters as comparisons ease and backlog activity releases.

Cash Flow, Buybacks and Expansion Remain Priorities

Core & Main ended the quarter with net debt of $2 billion and net debt leverage of 2.2 times, within its target range. Liquidity was nearly $1.4 billion, including $150 million in cash. Operating cash flow was $82 million, up $5 million from the prior-year quarter.

The company repurchased $88 million of stock during the first quarter, reducing share count by about 1.8 million shares. Including post-quarter repurchases, Core & Main had bought back 2.5 million shares in fiscal 2026, representing about 80% of its total buybacks for all of fiscal 2025.

Witkowski said the company opened five greenfield locations during the quarter and remains on track to open a record eight to 10 locations in fiscal 2026. He also said the acquisition pipeline has become more active after a period of lower deal activity, with opportunities ranging from small tuck-ins to larger transactions and deals aligned with municipal and treatment plant capabilities.

“While we do not expect near-term tailwinds in residential, we see plenty of opportunities to capture growth within our municipal and non-residential end markets,” Witkowski said in closing remarks. He added that the long-term fundamentals of aging infrastructure, population growth and reliable water systems remain intact.

About Core & Main NYSE: CNM

Core & Main, Inc NYSE: CNM is a leading distributor of water, sewer, storm drainage and fire protection products across North America. The company's product portfolio includes valves, hydrants, pipe and fittings, meters, couplings and other essential components that support municipal, industrial and environmental infrastructure projects. By combining a comprehensive inventory with logistics and technical support, Core & Main helps customers address complex water system and distribution challenges.

With more than 300 branch locations and over 3,500 employees, Core & Main serves a diverse customer base that includes municipalities, contractors, engineers and utility providers.

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