10-Q: Core & Main Reports Strong Nine-Month Growth, Strategic Acquisitions

Core & Main, Inc. announced increased net sales and net income for the nine months ended November 2, 2025, driven by acquisitions and higher volumes, alongside a significant increase in cash and a new share repurchase authorization.

Summary

• Net sales for the nine months ended November 2, 2025, increased by $323 million, or 5.6%, to $6,066 million compared to $5,743 million in the prior year period, primarily due to higher volumes and acquisitions.
• Gross profit for the nine months increased by $102 million, or 6.7%, to $1,631 million, with gross profit as a percentage of net sales rising to 26.9% from 26.6%.
• Net income for the nine months increased by $22 million, or 6.0%, to $389 million, while net income attributable to Core & Main, Inc. rose 6.9% to $371 million.
• Diluted Earnings Per Share (EPS) for the nine months increased by 8.4% to $1.94, up from $1.79 in the previous year.
• Adjusted EBITDA for the nine months increased by $13 million, or 1.7%, to $764 million.
• Cash and cash equivalents significantly increased to $89 million as of November 2, 2025, from $8 million at February 2, 2025.
• The company completed the acquisition of Canada Waterworks Inc. on September 30, 2025, for an aggregate transaction value of $49 million.
• The board of directors authorized an additional $500 million increase to the existing share repurchase program on December 1, 2025, bringing the total available for repurchase to $727 million.

Sentiment

Score: 8

Explanation: The company demonstrated strong financial performance for the nine-month period with significant increases in net sales, gross profit, net income, and EPS. Strategic acquisitions and active capital management through share repurchases further bolster a positive outlook, despite a slight dip in quarterly operating income and Adjusted EBITDA due to higher SG&A.

Positives

• Net sales for the nine months ended November 2, 2025, grew by 5.6% to $6,066 million, indicating strong top-line performance.
• Gross profit margin improved to 26.9% for the nine months, reflecting effective gross margin initiatives and disciplined purchasing/pricing.
• Net income for the nine months increased by 6.0% to $389 million, demonstrating enhanced profitability.
• Diluted EPS for the nine months rose by 8.4% to $1.94, benefiting from increased net income and lower Class A share counts due to repurchases.
• Interest expense decreased by $15 million for the nine months, primarily due to amendments to the Senior Term Loan Credit Facility and lower interest rates.
• Cash and cash equivalents increased substantially from $8 million to $89 million, improving liquidity.
• The company actively manages capital, repurchasing $97 million of Class A common stock and authorizing an additional $500 million for the repurchase program.
• Strategic acquisitions, such as Canada Waterworks, contribute to growth and market expansion.

Negatives

• Operating income for the three months ended November 2, 2025, decreased by 1.3% to $220 million, primarily due to higher Selling, General and Administrative (SG&A) expenses.
• Adjusted EBITDA for the three months ended November 2, 2025, decreased by 1.1% to $274 million, also impacted by higher SG&A expenses.
• SG&A expenses for the nine months increased by 11.4% to $890 million, outpacing net sales growth, driven by acquisition-related costs, personnel expenses, and inflation.
• Cash flows provided by operating activities slightly decreased by $4 million for the nine months, due to a higher investment in working capital.

Risks

• Declines, volatility, and cyclicality in the U.S. residential and non-residential construction markets.
• Slowdowns in municipal infrastructure spending and potential delays in federal funding appropriations, including a temporary pause on some IIJA funding.
• Price fluctuations in product costs (including effects of tariffs) and the ability to pass these changes to customers in a timely manner.
• Ability to manage inventory effectively, especially during supply chain disruptions.
• Risks associated with acquisitions, including identification, successful integration, and realization of anticipated benefits.
• Fragmented and highly competitive markets, and potential consolidation within the industry.
• Development of alternatives to distributors in the supply chain.
• Ability to hire, engage, and retain key personnel, including sales representatives and management.
• Dependence on relationships with qualified suppliers and the risk of termination of exclusive or limited distribution rights.
• Changes in supplier rebates or other terms of supplier agreements.
• Availability of freight and fluctuations in petroleum costs.
• Ability of customers to make payments on credit sales.
• Exposure to product liability, construction defect, and warranty claims, including ongoing asbestos-related litigation.
• Interruptions in the proper functioning of IT systems, including from cybersecurity threats.
• Indebtedness and potential for additional debt to restrict operating flexibility, along with increases in interest rates on variable-rate debt.
• Organizational structure and significant payment obligations under Tax Receivable Agreements (TRAs).

Future Outlook

The company anticipates increased federal infrastructure investment, particularly in municipal waterworks systems, to benefit its business in the coming years, partly due to the Infrastructure Investment and Jobs Act (IIJA). Management expects current liquidity sources to be sufficient for working capital, capital expenditures, debt obligations, and Tax Receivable Agreements for at least the next 12 months. The company will continue to opportunistically pursue strategic acquisitions and may return capital to shareholders through further share repurchases or dividends, subject to board approval and financial conditions. Interest rate cuts in the second half of 2024 may lead to increased activity in the U.S. residential and non-residential construction markets.

Management Comments

• Our current sources of liquidity, including cash generated from operations, existing cash and cash equivalents, and available borrowing capacity under the Senior ABL Credit Facility, will be sufficient to meet our working capital, capital expenditures, and other cash commitments, including obligations relating to our indebtedness and the Tax Receivable Agreements, over the next 12 months, at minimum.

Industry Context

The company operates within the U.S. municipal, non-residential, and residential construction markets, which are subject to cyclical pressures. The Infrastructure Investment and Jobs Act (IIJA) is expected to drive significant investment in water infrastructure, creating a favorable funding environment for the company's business. While a temporary pause on some IIJA funding was issued by President Trump in January 2025, it was not related to water or road projects. Recent interest rate cuts in the second half of 2024 could stimulate activity in the residential and non-residential construction sectors, which are key end markets for Core & Main.

Comparison to Industry Standards

• NA

Management Changes

Corporate Governance

Legal Proceedings

• Not currently party to any material legal proceedings.
• Involved in litigation incidental to the ordinary conduct of business, including personal injury, workers' compensation, and business operations.
• Faces inherent risk of exposure to product liability claims, including allegations of defects, failure to warn, negligence, strict liability, or breach of warranties.
• Continues to be a defendant in asbestos-related litigation matters.

Related Party Transactions

• The company is party to Tax Receivable Agreements (TRAs) with certain stockholders affiliated with Clayton, Dublier & Rice (CD&R) and Core & Main Management Feeder, LLC.
• Payments under the TRAs are 85% of the tax benefits realized by the company from tax attributes, reducing future tax payments.
• Payments under TRAs for the nine months ended November 2, 2025, were $18 million, up from $11 million in the prior year period.
• Expected payments under TRAs within the next 12 months are $41 million.

Stakeholder Impact

• Shareholders: Benefit from increased net income, EPS growth, and an expanded share repurchase program, indicating management's commitment to returning capital.
• Employees: Higher personnel expenses and variable compensation costs reflect investment in the workforce, though higher SG&A could impact overall profitability metrics.
• Customers: Continued strategic acquisitions aim to expand product offerings and service reach, potentially improving customer solutions.
• Suppliers: The company's ability to manage price fluctuations and maintain supplier relationships is crucial for product availability and cost stability.
• Creditors: Decreased long-term debt and interest expense, along with compliance with debt covenants, indicate sound financial management, reducing credit risk.

Next Steps

• Continue to pursue strategic asset and business acquisitions opportunistically.
• Evaluate capital allocation strategies, which may include further debt reduction, stock repurchases, or dividend payments.
• Monitor and evaluate the ongoing impacts of tariffs and other trade policies on product costs.
• Manage exposure to interest rate volatility through existing and potential new interest rate swap instruments.
• Integrate recent acquisitions into existing operations and realize anticipated benefits.

Key Dates

Recommendation

Core & Main demonstrates solid financial health and growth, with increased net sales, gross profit, and net income for the nine-month period. The company's strategic acquisitions expand its market presence and product offerings, while effective gross margin initiatives contribute to profitability. A significant increase in cash and an expanded share repurchase program signal strong liquidity and a commitment to shareholder value. The long-term outlook is favorable, supported by anticipated federal infrastructure spending. While SG&A expenses increased, the overall positive trends in key financial metrics and proactive capital management make Core & Main an attractive investment.

Keywords

Waterworks, Infrastructure, Specialty Distributor, Pipes Valves Fittings, Storm Drainage, Fire Protection, Meter Products, Acquisitions, Share Repurchase, SEC Filing, 10-Q, Financial Results, Construction Market, Municipal Spending, Supply Chain, Interest Rates, Adjusted EBITDA, EPS