10-K: Core & Main, Inc. Releases 2023 Annual Report, Highlights Strategic Growth and Financial Performance

Core & Main, Inc.'s 2023 annual report details the company's strategic growth, financial performance, and commitment to advancing reliable infrastructure.

Summary

• Core & Main, Inc. is a leading specialty distributor focused on water, wastewater, storm drainage, and fire protection products.
• The company operates a network of approximately 335 branch locations across 48 states in the U.S.
• Net sales for fiscal year 2023 reached $6.702 billion, a slight increase from $6.651 billion in fiscal year 2022.
• The municipal sector accounted for 42% of net sales, non-residential for 38%, and residential for 20% in fiscal 2023.
• The company's gross profit for fiscal 2023 was $1.818 billion, compared to $1.795 billion in fiscal 2022.
• Adjusted EBITDA for fiscal 2023 was $910 million, a decrease from $935 million in fiscal 2022.
• The company's net income attributable to Core & Main, Inc. for fiscal 2023 was $371 million, compared to $366 million in fiscal 2022.
• The company completed several secondary public offerings and share repurchase transactions during fiscal 2023.
• The company made several strategic acquisitions during fiscal 2023, fiscal 2022 and fiscal 2021 with an aggregate transaction value of $244 million, $124 million and $174 million, subject to working capital adjustments, respectively.

Sentiment

Score: 6

Explanation: The document presents a mixed sentiment. While the company shows growth in net sales and gross profit, there are concerns about declining EBITDA, price fluctuations, and market competition. The company's strategic initiatives and commitment to talent development are positive, but the risks and challenges are significant.

Positives

• The company experienced a slight increase in net sales and gross profit year-over-year.
• The company has a diversified end market exposure across municipal, non-residential, and residential sectors.
• The company has a strong track record of acquiring and integrating businesses.
• The company is focused on margin enhancement initiatives, including private label product expansion and sourcing optimization.
• The company is committed to attracting, retaining, and developing world-class talent.

Negatives

• Adjusted EBITDA decreased slightly year-over-year.
• The company is subject to price fluctuations in product costs.
• The company is subject to inventory management risks.
• The company is subject to risks associated with acquisitions and other strategic transactions.
• The company is subject to competition from other distributors and direct sales by suppliers.

Risks

• The company is exposed to declines and volatility in the U.S. residential and non-residential construction markets.
• Slowdowns in municipal infrastructure spending and delays in appropriations of federal funds could impact the company.
• The company faces risks related to competitive bidding for municipal contracts.
• Price fluctuations in product costs and supply chain disruptions could affect the company's profitability.
• The company is subject to risks involved with acquisitions and other strategic transactions.
• The company is exposed to cybersecurity threats and potential interruptions of IT systems.
• The company has a significant amount of indebtedness that could restrict operating flexibility.
• The company is subject to risks associated with the Tax Receivable Agreements.

Future Outlook

The company expects increased federal infrastructure investment to have a core focus on the upgrade, repair, and replacement of municipal water infrastructure systems, and to address demographic shifts and serve the growing population.

Management Comments

• The Company and our people are committed to advancing reliable infrastructure with local service, nationwide.
• Our mission is to serve as an industry leader, supplying local expertise, products and services to build innovative water, wastewater, storm drainage and fire protection infrastructure solutions for the communities we serve.
• We support our customers and our communities in their efforts to find both shortand long-term solutions to conserve water.
• We embrace our responsibility in contributing to the evolution of our industry over the long term, providing innovative solutions and giving visibility to the critical importance of reliable water infrastructure systems.

Industry Context

The company operates in a fragmented and highly competitive market, facing competition from both national and regional distributors, as well as direct sales by suppliers. The company is one of only two national distributors with a dedicated focus on water and fire protection infrastructure.

Comparison to Industry Standards

• Core & Main's net sales accounted for approximately 17% of its $39 billion addressable market in fiscal 2023, indicating a significant market share but also substantial room for growth.
• The company's gross margin improved by approximately 150 basis points from fiscal 2021 to fiscal 2023, which is a positive trend compared to industry averages.
• The company's strategic acquisitions and margin enhancement initiatives are aimed at improving profitability and market position, which is a common strategy among industry players.
• The company's focus on private label products and direct sourcing is a strategy used by other distributors to improve margins and gain a competitive edge.
• The company's investment in technology and training programs is consistent with industry trends towards improving efficiency and customer service.

Legal Proceedings

• The company is involved in litigation and other legal proceedings and claims in the ordinary course of business related to a range of matters, including, without limitation, environmental, contract, employment claims, product liability, construction defect and warranty claims.

Related Party Transactions

• The company has entered into Tax Receivable Agreements with the Former Limited Partners and the Continuing Limited Partners.
• The company has completed several secondary public offerings and share repurchase transactions with the Selling Stockholders.

Stakeholder Impact

• Shareholders may be impacted by the company's financial performance and strategic decisions.
• Employees are affected by the company's compensation programs and training initiatives.
• Customers benefit from the company's product breadth, technical knowledge, and project management capabilities.
• Suppliers are impacted by the company's purchasing scale and national footprint.
• Creditors are affected by the company's indebtedness and ability to service its debt.

Next Steps

• The company intends to continue pursuing opportunities to strengthen its presence in underpenetrated geographies.
• The company plans to increase share with strategic accounts through its strategic accounts program.
• The company will utilize its national platform to accelerate new product adoption.
• The company will continue to opportunistically pursue strategic acquisitions.
• The company will execute on margin enhancement initiatives.
• The company will invest in attracting, retaining, and developing world-class talent.

Key Dates

Keywords

water infrastructure, wastewater, storm drainage, fire protection, distribution, construction, municipal, acquisitions, supply chain, financial results