Core & Main, a leading specialty distributor of water, wastewater, storm drainage, and fire protection products, reported its fiscal 2024 first quarter results, showcasing the resilience of its business model and the effectiveness of its strategic initiatives. The company's performance in the quarter underscores its ability to navigate the evolving market landscape and capitalize on favorable industry trends.

Financials

In the first quarter of fiscal 2024, Core & Main generated net sales of $1.74 billion, up 10.6% from the prior year period. This strong top-line growth was driven by a combination of organic volume gains and contributions from strategic acquisitions. On the organic front, the company reported mid-single digit volume growth, demonstrating its ability to gain market share and supplement modest end-market expansion.

Segmental Performance

From a segmental perspective, the company's pipes, valves & fittings and storm drainage product categories were the primary contributors to the top-line increase, growing 8.8% and 17.7% year-over-year, respectively. This performance was supported by improved residential lot development, solid non-residential construction activity, and the company's successful execution of its product, customer, and geographic expansion initiatives.

While the fire protection product category saw a 1.2% decline in net sales due to lower selling prices, the meter products segment delivered an impressive 31.0% year-over-year increase. This growth highlights Core & Main's ability to drive the adoption of new technologies, such as smart metering solutions, across its customer base.

Profitability

Gross profit for the quarter came in at $468 million, up 6.6% from the prior year period. Gross margin, however, declined to 26.9% from 27.9% in the year-ago quarter. This contraction was primarily attributable to the normalization of inventory costs, which had reached record levels in the prior year period. Despite this headwind, the company was able to partially offset the margin pressure through the execution of its private label and sourcing optimization initiatives, as well as the accretive impact of recent acquisitions.

On the bottom line, Core & Main reported net income of $101 million, down from $133 million in the prior year quarter. This decrease was largely driven by higher interest expense, which rose to $34 million from $17 million in the year-ago period, due to increased borrowings and rising interest rates. Diluted earnings per share declined 24% to $0.49.

Adjusted EBITDA, a key metric for the company, decreased 1.4% to $217 million, with the Adjusted EBITDA margin contracting 150 basis points to 12.5%. This margin compression was primarily attributable to the lower gross profit margin and the impact of cost inflation, as well as investments made to support the company's growth initiatives.

Liquidity

From a cash flow perspective, Core & Main generated $78 million in net cash from operating activities during the quarter, a testament to the strength of its working capital management. The company's capital allocation priorities remain balanced, with a focus on funding organic growth initiatives, strategic acquisitions, and potential shareholder returns through share repurchases and future dividend considerations.

Outlook

Looking ahead, the company provided an updated fiscal 2024 outlook. Core & Main now expects net sales to be in the range of $7.5 billion to $7.6 billion, reflecting year-over-year growth of 12% to 13%. This guidance incorporates the contributions from recent acquisitions, which are expected to contribute 7% to 8% of total sales growth.

On the profitability front, the company narrowed and raised its adjusted EBITDA guidance to a range of $935 million to $975 million, representing year-over-year growth of 3% to 7%. This outlook reflects the company's ability to navigate the competitive landscape and offset potential gross margin pressures through its operational initiatives.

Conclusion

Core & Main's performance in the first quarter of fiscal 2024 demonstrates the strength of its diversified business model and the effectiveness of its strategic execution. Despite the challenges posed by macroeconomic factors, the company has continued to deliver solid financial results, driven by its focus on market share gains, product innovation, and strategic acquisitions.

Looking ahead, the company's robust pipeline of organic growth initiatives, coupled with its active M&A strategy, positions it well to capitalize on the favorable industry trends, including the ongoing need for infrastructure investment and the increasing adoption of water conservation technologies. As Core & Main continues to execute on its strategic priorities, investors can expect the company to maintain its position as a leading player in the water, wastewater, and fire protection distribution industry.