Release Date: September 04, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Core & Main Inc (CNM, Financial) achieved a new quarterly record of $1.96 billion in net sales, driven by 9% growth from acquisitions.
- The company expanded its operations into Canada through the acquisition of HM Pipe Products, marking its first venture into the Canadian waterworks market.
- Core & Main Inc (CNM) saw a 48% growth in meter sales this quarter, highlighting the success of its meter initiative.
- The company has a deep and expanding pipeline of actionable M&A opportunities, contributing significantly to its top-line growth.
- Gross margins were in line with expectations, driven by solid performance of private label and sourcing initiatives, as well as synergies from M&A.
Negative Points
- Second quarter results were below expectations due to project delays from wet weather conditions and lower end-market volumes.
- Heavy rain and flooding impacted operations, causing significant project delays and complicating underground construction.
- Municipal volumes were slightly lower than expected, primarily due to project delays at the local level.
- Non-residential construction activity saw mixed performance, with fewer projects breaking ground and existing project start dates being pushed back.
- Adjusted EBITDA in the second quarter decreased approximately 5% to $257 million, and adjusted EBITDA margin decreased 140 basis points to 13.1%.
Q & A Highlights
Q: Could you provide more detail on the SG&A expenses for the quarter and what we should expect for the remainder of the year?
A: SG&A grew by about $30 million, primarily due to acquired SG&A. We expect to identify synergies over time to scale these businesses and enhance margins. Organic SG&A was flat for the quarter, with investments in growth offset by reductions in variable compensation.
Q: How are you managing the current market realities, including pricing, commodity pricing, and softening demand?
A: Despite external factors like weather and market softness, we continue to drive M&A performance and gross margin initiatives. We believe many of these challenges are temporary and remain optimistic about long-term demand and backlog strength.
Q: What percentage of sales and gross margin dollars are from PVC pipe, and do you have a contingency plan for potential price drops?
A: About 25% to 30% of our business is related to municipal pipe, split evenly between PVC and ductile iron. We have a flexible cost structure and are experienced in managing through various cycles, focusing on long-term growth opportunities.
Q: Can you quantify the strong sales growth in August and explain why you don't expect to recover the weather-related shortfall later this year?
A: August saw a return to normal growth patterns with stable weather. We don't expect a surge beyond this due to customer capacity constraints, but a longer construction season could provide upside.
Q: What is the outlook for gross margins in the second half of the year?
A: We expect gross margins to grow from the Q2 base, driven by private label and sourcing initiatives. The normalization we anticipated is now behind us.
Q: Can you break down the $200 million reduction in revenue guidance for the year?
A: About $100 million of the reduction is due to Q2 underperformance, split between weather impact and lower market volumes. The remaining $100 million is due to lower expected volumes in the second half, evenly across our end markets.
Q: What are you seeing in terms of pricing stability for commodity versus non-commodity products?
A: We've seen stable pricing overall, with some declines in steel pipe and increases in copper tubing. Municipal PVC pricing has been stable, and we've managed to offset commodity price fluctuations with other product categories.
Q: Can you provide more insight into the end-market softness and your confidence that deferred projects will still materialize?
A: Residential and non-residential projects have seen delays, but we remain confident in long-term demand. Municipal projects are also expected to recover, supported by strong backlog and bidding activity.
Q: What is the current private label penetration, and is there room for acceleration in the second half?
A: Private label penetration is a little over 2% of COGS, with significant runway for growth in the second half as we see more adoption and new product introductions.
Q: How should we think about the ongoing pace of share repurchases?
A: We expect to generate around $500 million in operating cash flow in the second half, allowing us to potentially accelerate share repurchases while continuing to invest in growth and M&A opportunities.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
