Core & Main, Inc. 2027 Q2 Earnings Call

Landon, please go ahead. Good morning, and thank you for joining us.

I'm Landon Althoff, Vice President of Investor Relations at Core & Main. We appreciate you taking the time to be with us today for Core & Main's fiscal 2026 second quarter earnings call. Joining me this morning are Mark Witkowski, our Chief Executive Officer, and Robyn Bradbury, our Chief Financial Officer. Brad Cowles, our President, is also with us and will be available for the question and answer portion of today's call. Mark will begin with a business update, highlighting our quarterly performance and the continued momentum across the business, including large project opportunities, greenfield expansion, and our M&A pipeline. Robyn will follow with a review of our financial results and outlook for fiscal 2026. We will then open the line for questions before Mark wraps up with closing remarks.

As a reminder, our press release, presentation materials, and the statements made during today's call may include forward-looking statements. These are subject to various risks and uncertainties that could cause actual results to differ materially from our expectations. For more information, please refer to the cautionary statements included in our earnings release and our filings with the SEC. We will also reference certain non-GAAP financial measures during today's discussion. We believe these metrics provide useful insight into the underlying performance of our business. Reconciliations to the most comparable GAAP measures are available in both our press release and the appendix of today's investor presentation. Thank you again for your interest in Core & Main. I'll now turn the call over to our Chief Executive Officer, Mark Witkowski.

Thanks, Landon, and good morning, everyone. Thank you for joining us today. During the second quarter, we delivered growth in sales, Adjusted EBITDA, and EPS with momentum building across the business. We see it in our healthy backlog, growing participation in large, complex infrastructure projects, and increased activity across our acquisition pipeline. Combined with our strong cash generation and balance sheet flexibility, Core & Main is well positioned to capitalize on the opportunities ahead, drive long-term growth, and create value for shareholders. Net sales in the second quarter were approximately $2.1 billion, up 2.5% compared with the prior year. Adjusted EBITDA grew approximately 3% to $274 million, while Adjusted EBITDA margin expanded 10 basis points to 12.8%, reflecting disciplined cost management and meaningful SG&A leverage. Adjusted Diluted EPS was $0.94, an increase of 8% over the prior year. These results reflect consistent execution throughout the business.

Growth in the quarter was driven by continued strength in treatment plant solutions and fire protection, along with a growing contribution from data center projects, which has nearly doubled year-over-year. Treatment plant, data center development, and other large-scale infrastructure work increasingly draw on what differentiates Core & Main: deep local expertise, strong supplier relationships, and the technical and project support capabilities needed to execute reliably over the multi-year project cycles. As these projects become a more meaningful part of our growth profile, we continue investing in the capabilities and product breadth needed to capture the opportunity ahead. We also continued to execute our long-term growth initiatives, expanded our footprint with new greenfield locations, and advanced strategic opportunities across our M&A pipeline. Additionally, we put our strong cash generation and balance sheet flexibility to work and executed our second consecutive quarter of record open market share buybacks.

Since our IPO, we have repurchased nearly 25% of the shares outstanding. Robyn will work through the details shortly, but these repurchases reflect our confidence in the long-term value of Core & Main and our disciplined, opportunistic approach to allocating capital where we believe returns are most attractive. Turning to our end markets, municipal demand continued to be a source of strength. The long-term need to repair, replace, and expand critical water infrastructure remains significant and continues to support investment across the municipal end market. The EPA estimates the U.S. drinking water, wastewater, and stormwater systems require more than $1.2 trillion of investment over the next 20 years to replace, rehabilitate, and expand aging infrastructure. After decades of underinvestment and deferred maintenance, many water systems face increasing pressure to replace aging infrastructure before failures, water loss, and service disruptions become more frequent or costly.

At the same time, municipalities are investing to improve water quality, comply with evolving regulatory requirements, expand treatment capacity, adopt Smart Utility technologies, and support population-driven growth. These investments are essential, largely nondiscretionary, and supported by a diverse mix of state, local, and federal funding sources. The vast majority of municipal water infrastructure spending is funded at the state and local level, which helps support consistent investment activity regardless of the federal funding environment. While the pace and timing of individual projects may vary, the underlying need remains clear. Water infrastructure continues to be a critical priority for municipalities and utilities, supporting our confidence in the opportunities ahead. Our treatment plant initiative delivered another quarter of strong double-digit growth and remains one of the most compelling growth opportunities within our municipal platform.

Leveraging our deep municipal relationships, we continue to expand our product offering, technical expertise, and project support capabilities to support a larger share of treatment plant projects. As a result, treatment plant projects have grown to a mid-single-digit percentage of our sales mix, with substantial opportunity for further expansion. We are particularly focused on increasing our mix of higher-value specialty products, which deepen our involvement and expand the content we provide on each project. With significant runway ahead, we see meaningful opportunities to grow this business through both organic expansion and strategic acquisitions. Within Smart Utility, we continue to see strong underlying demand and are winning projects across municipalities and utilities of all sizes. Recent wins reinforce our confidence in the business's growth trajectory, with a number of larger projects expected to continue over multiple periods as deployments ramp.

We believe Smart Utility is well positioned to benefit from continued investment in system visibility, water loss reduction, billing accuracy, and operational efficiency. Within non-residential construction, performance continued to vary across project types, but we saw encouraging strength across several key categories. Fire protection delivered another strong quarter, with sales increasing 14%. Growth was driven by higher volumes on continued share gains and higher steel pricing. Momentum remains strong across the business, supported by our expanding geographic footprint, broad capabilities, and a steady stream of project wins. Data center development remains one of the most active areas of infrastructure investment today and continues to drive opportunities across multiple product categories. We support these projects from the earliest stages of site development, providing the water, wastewater, and storm drainage infrastructure needed to prepare and serve these facilities.

As construction progresses, we also provide the fire protection systems that support these critical assets. We continue to see a growing contribution from data center-related activity across our business. The impact extends beyond the data center itself. These large-scale developments often require municipalities and utilities to expand water and wastewater capacity and can spur additional commercial and residential growth in surrounding communities. As a result, data center investments can create broader infrastructure demand over time. Residential lot development remained challenged during the quarter, as expected, particularly in markets that benefited from strong development activity last year. While affordability concerns and higher interest rates continue to influence near-term activity, we expect comparisons to become considerably more favorable in the back half of the year. Over the long term, the fundamentals remain strong.

Population shifts, household formation, and a structural housing shortage continue to support the need for additional residential development, giving us confidence in the long-term opportunity within this end market. As we look ahead, we continue to build for the long term, expanding our large project capabilities, extending our geographic reach, and advancing opportunities across our acquisition pipeline. Geographic expansion remains an important part of our growth strategy. So far this year, we've opened seven new greenfield locations, including two recent openings in attractive markets where we see opportunities to improve our customer proximity, expand our reach, and gain share. We evaluate new locations based on market size, infrastructure demand, customer needs, and our competitive position. While greenfield locations require investment and time to mature, they allow us to strengthen local relationships, expand service capabilities, and build market density over time.

We are on track to open a record number of greenfield locations this year, extending our national capabilities into new and under-penetrated markets. Alongside our organic expansion efforts, we continue to see compelling opportunities to grow through M&A. Following quarter end, we completed the acquisition of Walker Industries, a provider of storm drainage products in Hawaii. This acquisition broadens our product offering in the market, complements our existing operations, and represents just one example of a growing number of larger opportunities ahead. More broadly, our M&A pipeline has meaningfully accelerated. We continue to advance discussions across a range of opportunities, including acquisitions that expand our geographic footprint, broaden our product offering and capabilities, and strengthen our position in attractive end markets. These opportunities span a range of transaction sizes from complementary bolt-on acquisitions to larger strategic transactions.

Many of these businesses are seeking a long-term partner that can provide additional resources, expand product breadth, and future growth opportunities while preserving the local relationships that have driven their success. For Core & Main, these acquisitions expand the solutions we can offer customers, help simplify increasingly complex projects, and create opportunities to deepen customer relationships and drive long-term growth. Our customer-focused operating model, strong culture, long record of successful integrations, and commitment to local market leadership continue to resonate with business owners, and we believe Core & Main remains uniquely positioned to be that partner. Supported by our strong balance sheet, ample liquidity, and proven acquisition playbook, we remain well-positioned to pursue opportunities that expand our capabilities, extend our geographic reach, and create long-term value for shareholders. With that, I'll turn it over to Robyn for the financial update.