Core & Main, Inc. (CNM) is a leading specialty distributor dedicated to advancing reliable infrastructure with local service, nationwide. As one of the largest and most diversified distributors of water, wastewater, storm drainage, and fire protection products, the company plays a critical role in addressing the growing infrastructure needs across the United States.
Company History and Growth
Founded in 1998, Core & Main has grown from a regional distributor to become an industry leader with a national footprint of approximately 350 branches spanning 49 states. The company's journey to prominence included weathering challenges such as the 2008 financial crisis, which impacted construction and infrastructure spending. However, Core & Main maintained its operational discipline and continued to invest in its business during this period.
Over the past two decades, Core & Main has pursued an aggressive acquisition strategy to expand its geographic reach and product capabilities. Notable acquisitions include Acme Supply Co. in 2012, which strengthened the company's presence in the Southeast, and Waterworks Supply Inc. in 2016, which added expertise in water and wastewater treatment equipment. These strategic moves solidified Core & Main's position as one of the largest specialized distributors in the industry.
A significant milestone in the company's history was its initial public offering in 2021, which provided additional capital to fund future growth initiatives and increased its financial flexibility and public profile. During this period, Core & Main also successfully navigated supply chain disruptions and inflationary pressures by maintaining close partnerships with its supplier base and implementing strategic pricing actions.
Product Portfolio and Customer Base
Core & Main's comprehensive product portfolio caters to a diverse customer base comprising municipalities, private water companies, and professional contractors. The company operates through several key product segments:
1. Pipes, Valves & Fittings (PVF) Products: This segment includes pipes, valves, hydrants, and fittings, as well as other complementary products and services. Pipes include PVC, ductile iron, fusible HDPE, and copper tubing. This segment represents the largest portion of Core & Main's net sales, generating $3.88 billion, or 67.7%, of total net sales for the nine months ended October 27, 2024.
2. Storm Drainage Products: This segment primarily includes corrugated piping systems, retention basins, manholes, grates, geosynthetics, erosion control, and other related products. It contributed $886 million, or 15.4%, of total net sales for the nine-month period.
3. Fire Protection Products: This segment includes fire protection pipe, sprinkler heads and devices, as well as custom fabrication services. Fire protection products accounted for $455 million, or 7.9%, of Core & Main's total net sales in the first nine months of fiscal 2024.
4. Meter Products: This segment encompasses smart meter products, meter sets, meter accessories, installation, software, and other related services. It generated $518 million, or 9.0%, of total net sales in the nine-month period.
Financials
Core & Main's financial performance has been consistently strong, with a proven track record of growth. In the fiscal year ended January 28, 2024, the company reported annual revenue of $6.70 billion, a 5.6% increase from the prior year, and net income of $371 million. The company's resilient business model, diversified end-market exposure, and strategic investments have enabled it to navigate various economic conditions, delivering a 10% average annual sales growth over the past 15 years.
For the nine months ended October 27, 2024, Core & Main reported net sales of $5.74 billion, representing a 9.1% increase compared to the same period in the prior year. Gross profit for the nine-month period was $1.53 billion, with a gross margin of 26.6%. Operating income was $595 million, while net income attributable to Core & Main, Inc. was $347 million. The company's Adjusted EBITDA, a non-GAAP financial measure, was $751 million for the nine-month period.
In the most recent quarter (Q3 2024, ended October 27, 2024), Core & Main achieved record quarterly sales of over $2.04 billion, up 11.5% year-over-year, and adjusted EBITDA of $277 million. The increase in quarterly revenue was primarily due to acquisitions and higher end-market volumes, partially offset by slightly lower selling prices. However, net income decreased by 11.4% to $140 million, mainly attributable to higher SG&A and amortization expenses, as well as increased interest expense.
One of the key drivers behind Core & Main's success is its ability to capitalize on the growing demand for infrastructure upgrades and modernization across the United States. The company's diverse product offerings and deep industry expertise position it well to support the repair, replacement, and expansion of critical water, wastewater, and storm drainage systems. Additionally, the company's focus on innovative solutions, such as smart meter technology and engineered products for water and wastewater treatment plants, has allowed it to stay at the forefront of industry trends.
Liquidity and Capital Structure
Core & Main's financial position remains strong, with a healthy balance sheet and ample liquidity. As of January 28, 2024, the company had $1 million in cash and cash equivalents, and $1.88 billion in net debt, resulting in a net debt-to-EBITDA ratio of 2.1x. The company's disciplined capital allocation strategy, which prioritizes organic growth initiatives and strategic acquisitions, has enabled it to maintain a conservative leverage profile and generate robust free cash flow.
As of October 27, 2024, Core & Main reported the following liquidity metrics:
- Debt/Equity Ratio: 1.57x
- Cash and Cash Equivalents: $10 million
- Available Credit Line: $1.0 billion under the Senior ABL Credit Facility, with $235 million outstanding
- Current Ratio: 2.14
- Quick Ratio: 1.28
The company's strong liquidity position and cash flow generation provide flexibility for future growth investments and capital returns to shareholders.
Guidance and Outlook
Core & Main has provided a positive outlook for the fiscal year 2024, raising its full-year estimates. The company now expects net sales to range from $7.35 billion to $7.45 billion, representing a high-single-digit percentage increase from the prior year. Additionally, the company anticipates adjusted EBITDA to fall within the $915 million to $935 million range, reflecting continued margin expansion and operational efficiency.
Looking ahead to fiscal year 2025, Core & Main generally expects end market volumes to be positive, depending on broader economic conditions. The company plans to drive 2 to 4 points of organic above-market growth through its initiatives and anticipates 2 points of growth from acquisitions that have already closed in 2024. Furthermore, Core & Main expects to achieve 30 to 50 basis points of adjusted EBITDA margin expansion annually through the execution of its initiatives.
The company maintains a strong pipeline of acquisition opportunities and expects to continue producing strong operating cash flow at a rate of 60% to 70% of adjusted EBITDA on an ongoing basis.
Industry Trends and Market Position
The water infrastructure market in the United States is estimated to be $39 billion in size and is expected to grow steadily due to aging infrastructure, population growth, and increased focus on water sustainability. The Infrastructure Investment and Jobs Act is allocating $55 billion to invest in water systems across the U.S., which presents significant opportunities for Core & Main.
Core & Main's comprehensive product portfolio, nationwide footprint, and strong customer relationships have been instrumental in its success, positioning it as a trusted partner for infrastructure development and maintenance across the United States. The company's strategic initiatives, which include geographic expansion, product line extensions, and targeted acquisitions, are expected to drive above-market growth and sustainable margin improvement in the coming years.
Despite the challenges posed by macroeconomic uncertainties, Core & Main has demonstrated its resilience and ability to adapt to changing market conditions. With its diverse product offerings, strong financial performance, and focused growth strategy, Core & Main remains well-positioned to capitalize on the favorable industry dynamics and long-term growth opportunities in the infrastructure sector.