Core & Main, Inc. Q2 FY2027 earnings call

• Municipal Strength: Municipal demand remains a key strength, driven by the long-term need for water infrastructure repair and replacement. The EPA estimates over $1.2 trillion in investment is needed over the next 20 years. Funding is largely stable at state/local levels.
• Treatment Plant Growth: The treatment plant initiative delivered strong double-digit growth, now representing a mid-single-digit percentage of total sales. Focus is on expanding higher-value specialty products and technical expertise.
• Data Center Expansion: Data center development is a major growth area, contributing significantly to nonresidential sales. These projects drive demand for water, wastewater, and fire protection infrastructure. Data center-related activity has nearly doubled year-over-year.
• Fire Protection Share Gains: Fire protection sales increased 14%, driven by volume gains from taking market share across various competitors and favorable steel pricing trends.
• Smart Utility Momentum: Smart utility solutions show strong underlying demand with wins across municipalities of all sizes. Large project implementations involve complex pilot phases but offer significant long-term run rates.
• Greenfield Expansion: Seven new greenfield locations were opened year-to-date, including expansions in the Western US, Southeast, and Canada. This strategy aims to deepen local relationships and expand service capabilities.
• M&A Pipeline Acceleration: Following the acquisition of Walker Industries in Hawaii, the M&A pipeline has accelerated. Discussions are ongoing for bolt-on acquisitions that expand geographic footprint and product offerings.
• Capital Allocation: Core & Main executed its second consecutive quarter of record open market share buybacks, deploying $169 million in Q2. Since IPO, nearly $2 billion has been repurchased, representing ~25% of shares outstanding at IPO.

Net sales were approximately $2.1 billion, up 2.5% year-over-year. Adjusted EBITDA grew 3% to $274 million, with an adjusted EBITDA margin of 12.8%. Adjusted diluted EPS increased 8% to $0.94. Key growth drivers included Treatment Plant Solutions and Fire Protection (sales up 14%), while Data Center contributions nearly doubled year-over-year. Residential lot development remained challenged, declining high single digits.

• Full Year Net Sales: Affirmed guidance of $7.8 billion to $7.9 billion.
• Full Year Adjusted EBITDA: Affirmed guidance of $950 million to $980 million.
• Operating Cash Flow Conversion: Affirmed guidance of 60% to 70%.
• Outlook Confidence: Management remains confident in delivering full-year outlook, citing SG&A leverage, strong performance in fire protection/treatment plants/data centers, and record greenfield openings.

• Residential Market Softness: Residential lot development remains challenged due to affordability concerns and higher interest rates, though comparisons are expected to improve in H2.
• Large Project Timing Variability: Large-scale smart utility and data center projects involve complex pilot phases and early-stage variability, which can impact short-term volume recognition.
• Pricing Instability: PVC pricing has stabilized but lacks momentum for increases; HDPE pricing experienced spikes due to resin cost disruptions in the Middle East.
• Federal Funding Uncertainty: While ARPA funding is rolling off, management notes that most municipal work is funded locally via rates, mitigating significant risk from federal funding changes.

Q: Brian Biros asked about the strength of the municipal end market and specific near-term dynamics, noting mixed views in the sector.

A: Robyn Bradbury confirmed municipal demand is stable and steady, growing low single digits, supported by consistent repair/replacement activity and diverse funding sources. Nonresidential was flat to slightly up, uplifted by data centers despite softness in light commercial. Residential declined high single digits, with expectations for flat-to-slight-down performance in H2 as prior-year comps ease.

Q: Matthew Bouley inquired about gross margin pressures versus the unchanged guidance and visibility into the smart utilities business, specifically regarding meter volumes.

A: Robyn Bradbury stated margins are down sequentially from Q1 but offset by SG&A leverage, maintaining confidence in full-year EBITDA guidance. Brad Cowles noted smart utility volume was flat with slight price increases, totaling ~1% growth. Large project timing delays (pilot phases) kept volume flat, but a strong installed base provides steady flow, with significant ramp-ups expected late this year and into 2027.

Q: Matthew Johnson asked for updates on PVC and HDPE pricing trends and the status of the Miami-Dade smart meter contract.

A: Bradford Cowles reported PVC pricing has stabilized after declines, with no immediate indication of increases until demand picks up. Mark Witkowski noted corrugated HDPE pricing is steady, while fusible HDPE saw spikes due to resin disruptions. Regarding Miami-Dade, Brad Cowles explained it is a multi-year project with current pilot stages; volume will ramp to 5-10% by year-end, hitting full run rate (~100k meters/year) by 2027.

Q: David Manthey requested sizing of data center projects as a percentage of sales and whether cooling type (evaporative vs. closed-loop) impacts water demand.

A: Bradford Cowles stated data centers have grown from low to mid-single digits of total sales and high single digits of nonresidential work. He clarified that regardless of cooling method, data centers require significant water infrastructure. Closed-loop systems use more electricity for refrigeration, while evaporative systems use more water, but both drive substantial municipal water demand and underground utility needs.

Q: Keith Hughes asked about the contribution of acquisitions to growth and the future growth potential of the M&A pipeline.

A: Robyn Bradbury noted acquisitions contributed less than 1 point to the 2.5% quarterly growth. Mark Witkowski reiterated that M&A is expected to contribute 2-4 points of incremental sales growth long-term. He highlighted that several deals have advanced through the LOI stage, setting up strong growth for 2027, balancing this with continued share buybacks.