10-Q: Core & Main Reports Strong Q2 Growth, EPS Jumps 14.8%

Core & Main, Inc. announced robust financial results for the second quarter of fiscal 2025, with net sales increasing 6.6% and diluted earnings per share rising 14.8% year-over-year.

Summary

• Net sales for the three months ended August 3, 2025, increased by $129 million, or 6.6%, to $2,093 million compared to $1,964 million in the prior year period.
• Gross profit for the quarter rose 8.1% to $560 million, with gross profit as a percentage of net sales improving to 26.8% from 26.4%.
• Net income attributable to Core & Main, Inc. increased 12.6% to $134 million for the quarter, up from $119 million.
• Diluted earnings per share (EPS) for the quarter grew 14.8% to $0.70, compared to $0.61 in the same period last year.
• Adjusted EBITDA for the three months increased 3.5% to $266 million.
• For the six months ended August 3, 2025, net sales increased 8.1% to $4,004 million, and net income attributable to Core & Main, Inc. rose 9.3% to $234 million.
• Diluted EPS for the six months increased 9.9% to $1.22, and Adjusted EBITDA grew 3.4% to $490 million.
• Cash provided by operating activities for the six months was $111 million, a decrease from $126 million in the prior year, primarily due to higher investment in working capital.
• The company repurchased 959,103 shares of Class A common stock for $47 million during the six months ended August 3, 2025, with $277 million remaining under the authorized program.
• John R. Schaller, Executive Vice President, will retire on October 31, 2025, and transition to a six-month consulting role.

Sentiment

Score: 8

Explanation: The company delivered strong financial performance with growth across key metrics, improved margins, and reduced interest expense. While SG&A expenses grew faster than sales and operating cash flow slightly decreased due to working capital investment, the overall outlook is positive, supported by infrastructure spending tailwinds and active capital management through share repurchases. The management transition is a minor, planned event.

Positives

• Strong net sales growth of 6.6% for the quarter and 8.1% for the six months, driven by higher volumes and prior year acquisitions.
• Improved gross profit margin, increasing to 26.8% for the quarter and 26.7% for the six months, attributed to gross margin initiatives and accretive acquisitions.
• Significant increase in net income attributable to Core & Main, Inc. (12.6% for the quarter, 9.3% for six months) and diluted EPS (14.8% for the quarter, 9.9% for six months).
• Reduced interest expense by $5 million for the quarter and $9 million for the six months, due to fiscal 2024 amendments, lower interest rates, and decreased average ABL borrowings.
• Share repurchase program actively reducing Class A common stock outstanding, contributing to EPS growth.
• Substantially less cash used in investing activities ($28 million vs. $618 million) compared to the prior year, as the prior year included significant acquisition outflows.
• Effective tax rate decreased to 22.5% for the quarter and 23.8% for the six months, primarily due to tax windfall benefits from equity award exercises.

Negatives

• Net sales of meter products declined 7.0% for the quarter due to project delays.
• Net sales for fire protection products declined 1.0% for the six months due to lower selling prices.
• Selling, General and Administrative (SG&A) expenses increased 12.7% for the quarter and 13.3% for the six months, outpacing net sales growth and increasing as a percentage of net sales.
• Cash provided by operating activities decreased by $15 million for the six months, primarily due to a higher investment in working capital.
• The shift from cash provided by financing activities ($504 million) in the prior year to cash used in financing activities ($66 million) in the current year, driven by decreased net borrowings and increased outflows for share repurchases and Tax Receivable Agreements.

Risks

• Declines, volatility, and cyclicality in the U.S. residential and non-residential construction markets.
• Slowdowns in municipal infrastructure spending and potential delays in appropriations of federal funds, including a temporary pause in IIJA funding disbursements.
• Price fluctuations in product costs, including effects of tariffs, and the ability to pass these changes to customers.
• Ability to manage inventory effectively, particularly during periods of supply chain disruptions.
• Risks associated with acquisitions and other strategic transactions, including identification, acquisition, closing, or integration challenges.
• Fragmented and highly competitive markets, and 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 a sufficient number of qualified suppliers and the potential termination of exclusive or limited supplier 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.
• Potential harm to brand or reputation.
• Interruptions in the proper functioning of information technology systems, including from cybersecurity threats.
• Impairment in the carrying value of goodwill, intangible assets, or other long-lived assets.
• Indebtedness and potential for additional indebtedness to restrict operating flexibility, along with limitations and restrictions in debt agreements.
• Increases in interest rates on variable rate indebtedness.
• Organizational structure, including significant payment obligations under Tax Receivable Agreements.
• Greater product availability from supply chain improvements potentially leading to increased competition and price/volume declines.

Future Outlook

The company anticipates increased federal infrastructure investment, particularly in waterworks systems, driven by the IIJA and demographic shifts, creating a favorable funding environment. Further declines in interest rates are expected to boost activity in U.S. residential and non-residential construction markets. Core & Main plans to continue its growth strategy through opportunistic acquisitions and may return capital to shareholders via share repurchases or dividends, while expecting cash savings from tax deductions to exceed Tax Receivable Agreement payments over time.

Management Comments

• Management believes that increased federal infrastructure investment, coupled with expanding municipal budgets, creates the backdrop for a favorable funding environment and accelerated investment in projects that will benefit the business.
• The company continues to monitor factors affecting product costs and resulting price impacts, proactively evaluating customer pricing and strategic buying opportunities.
• Current sources of liquidity, including cash from operations, existing cash, and available borrowing capacity, are believed to be sufficient to meet working capital, capital expenditures, and other cash commitments for at least the next 12 months.

Industry Context

Core & Main operates in the specialty distribution sector for water, wastewater, storm drainage, and fire protection products, which is heavily influenced by municipal infrastructure spending and residential/non-residential construction. The Infrastructure Investment and Jobs Act (IIJA) is a significant tailwind, though a temporary pause in some funding was noted. The industry faces cyclical market pressures, interest rate sensitivity, and supply chain volatility. Core & Main's focus on acquisitions and gross margin initiatives positions it to capitalize on infrastructure investment and manage competitive dynamics.

Comparison to Industry Standards

• NA

Management Changes

Corporate Governance

Legal Proceedings

• The company is not currently party to any material legal proceedings, but is involved in litigation incidental to ordinary business, including personal injury, workers' compensation, and business operations.
• The company faces inherent risk of exposure to product liability claims, including allegations of defects, negligence, strict liability, or breach of warranties.
• The company has been and continues to be a defendant in asbestos-related litigation matters.

Related Party Transactions

• The company is party to Tax Receivable Agreements with certain stockholders affiliated with Clayton, Dublier & Rice (CD&R) and Core & Main Management Feeder, LLC, which provide payments of 85% of realized tax benefits.
• Payments under the Tax Receivable Agreements within the next 12 months are expected to be $41 million.
• Further exchanges of Partnership Interests by Management Feeder will result in additional tax deductions for the company and require additional payables under Tax Receivable Agreements.

Stakeholder Impact

• Shareholders benefit from increased EPS due to strong financial performance and share repurchases.
• Shareholders may experience dilution or increased debt leverage if the company issues additional equity or debt for future acquisitions.
• Employees are impacted by changes in management, such as John R. Schaller's retirement and transition.
• Customers may experience project delays, as noted with meter products, but generally benefit from the company's focus on reliable infrastructure and expanded product offerings through acquisitions.
• Suppliers are critical to the company's operations, and changes in supplier rebates or terms could impact profitability.
• Creditors are affected by the company's debt levels and compliance with debt covenants, which the company was in compliance with as of August 3, 2025.

Next Steps

• John R. Schaller will transition from Executive Vice President to a consultant role for six months, effective October 31, 2025.
• The company will continue to evaluate its capital allocation approach, which may include further acquisitions, capital expenditures, greenfields, debt reduction, stock repurchases, dividends, and payments on Tax Receivable Agreements.
• Management will continue to monitor all factors affecting product costs and resulting price impacts, proactively evaluating customer pricing and strategic buying opportunities.

Key Dates

Recommendation

Core & Main's Q2 2025 results demonstrate strong operational execution with significant growth in net sales, gross profit, and net income, leading to a notable increase in diluted EPS. The company's strategic focus on infrastructure, supported by federal funding initiatives, provides a favorable long-term backdrop. While SG&A expenses are rising, the overall financial health, effective debt management (evidenced by reduced interest expense), and ongoing share repurchase program make it an attractive investment. The planned management transition is well-managed, and the company's liquidity position appears robust for future growth and capital allocation.

Keywords

Water Infrastructure, Wastewater, Storm Drainage, Fire Protection, Specialty Distributor, Municipal Spending, Construction Markets, Acquisitions, Share Repurchase, SEC Filing, 10-Q, Financial Results, EPS, Adjusted EBITDA, Debt Management, Supply Chain, Interest Rates