Core & Main Inc Q2 2021 Earnings Call Transcript

The following is excerpted from the question-and-answer section of the transcript.

Question: David Manthey - Robert W. Baird - Analyst : Thank you. Good morning, everyone. Of the 43% growth that you saw in PVC, can you approximately quantify the impact of inflation versus volume growth? And I think you had previously been assuming that PVC would start to decline in the second half. Are you now assuming that it will be sustained in 2022 at current price levels?

Question: David Manthey - Robert W. Baird - Analyst : Okay, thanks. And as it relates to the $55 billion in the current infrastructure bill, if that goes through and if those dollars start to filter down to the municipalities, might there be some crowding out relative to already stretched municipal budgets or do you think that's all incremental? And then second, if you can just comment on just the debate around infrastructure? Do you view that as a positive long-term? That maybe there's changing attitudes, changing priorities in the US as it relates to infrastructure spending today at any level?

Question: David Manthey - Robert W. Baird - Analyst : Sounds great. Thanks very much, guys.

Question: Jamie Cook - Credit Suisse - Analyst : Hi, good morning. Nice quarter. I guess just two questions, sorry to harp on PVC pipe again, but your margins in this quarter were really impressive. Your gross margins I think might be a record for you guys. I'm just wondering was a lot of that PVC pipe and can margins sustain in that level in the back half? I'm just trying to think about how we get to your increased EBITDA guidance. And then can you help us understand what the EBITDA contribution is from the two acquisitions in the back half? Thanks.

Question: Jamie Cook - Credit Suisse - Analyst : I'm sorry, can gross margins sustain at the 25% range in the back half? And then just the EBITDA contribution from the two acquisitions in the back half, what's implied?

Question: Jamie Cook - Credit Suisse - Analyst : Okay, thank you.

Question: Keith Hughes - Truist Securities - Analyst : Thank you. A question on the effects of Ida. I know you said it was still to be figured out. But do you now have a timeframe of what your suppliers are telling you in terms of when they will know what the situation looks like? Is this within a week or is this going to drag on for months?

Question: Keith Hughes - Truist Securities - Analyst : Okay. And just along the same lines, are you able to do any substitution with the customers with ductile iron or HDPE or anything to kind of bridge the gap or is that just too much?

Question: Keith Hughes - Truist Securities - Analyst : Okay, thank you.

Question: Keith Hughes - Truist Securities - Analyst : Okay, thank you.

Question: Pat Bowman - JPMorgan - Analyst : Good morning, everyone. Can you frame for us in the quarter relative to that 18% volume growth, how each of the end markets trended relative to that? I had assumed [Reggie] was above that maybe. I don't know, I'll let you answer that. And then as a follow-up to that, can you give a sense on expectations for second-half volume growth across those end markets, like which ones are being most impacted by supply constraints? Just curious if you could flesh it out a little bit more.

Question: Pat Bowman - JPMorgan - Analyst : Okay. And relative to volume versus price growth in the second half. How would you frame -- it sounds like you'll get more price growth than volume growth. So I just wondered if you could flesh that out a little bit as well -- on the revenue side.

Question: Pat Bowman - JPMorgan - Analyst : Okay, and then my follow-up is on the M&A pipeline. Can you guys just update us on the size of the pipeline? And then your opportunity execute on that given the current balance sheet leverage post these recent deals that you've executed on?

Question: Pat Bowman - JPMorgan - Analyst : Great. Thanks for the color. Best of luck.

Question: Joe Ritchie - Goldman Sachs - Analyst : Thanks, good morning, everybody. So, my first question is really just around pricing for 2022. So, clearly a lot of pricing going through this year. I'm just curious, how does that look then potentially four 2022? You give back a little bit to your customers on price if we start to commodity prices kind of stabilize? And then also I'm just curious on how to think about the gross margin implications as well. REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. SEPTEMBER 14, 2021 / 12:30PM, CNM.N - Q2 2021 Core & Main Inc Earnings Call

Question: Joe Ritchie - Goldman Sachs - Analyst : Okay, that's fair. I guess maybe just -- maybe one follow on to that though. I guess, Steve, would you expect there to be some stickiness to price depending on what happens with commodities, if commodities were, let's say, flattened from here? Or is there typically some type of -- if you're getting double-digit pricing this year, you've got to give back like half of that next year? I'm just trying to figure out if there is a heuristic around it.

Question: Joe Ritchie - Goldman Sachs - Analyst : Got it, that makes sense. And maybe my one follow on is free cash flow. Clearly you're building a little bit of working capital this year just given the environment that we are in. Again, I know it's probably really difficult to answer for 2022. But at some point if the supply chain environment, again, stabilizes should we get some type of working capital relief from your business?

Question: Joe Ritchie - Goldman Sachs - Analyst : Got it. That makes sense. Thanks, everybody, and congrats.

Question: Matthew Bouley - Barclays Capital - Analyst : Good morning, everyone. Thanks for taking the questions. The first one on the gross margin side. You talked about some of that opportunistic pre-buying I guess ahead of price increases. And I think at the same time I heard you say that in the second half you expect costs to more so catch REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. SEPTEMBER 14, 2021 / 12:30PM, CNM.N - Q2 2021 Core & Main Inc Earnings Call up. So, my question is -- is there any reason why we wouldn't see a similar prebuy benefit in the second half given some of these more near-term inflationary trends? How do you balance those two together? Thank you.

Question: Matthew Bouley - Barclays Capital - Analyst : Understood. Okay, very helpful there. And then the second one on the nonresidential end market. I think you made a comment at the top, you sounded relatively confident kind of being I think you said at the beginning of a non-res cycle. I'm just curious what you've seen in your own business in terms of whether it is backlog or quoting in certain verticals. Actually seeing a tangible uptick yet or are you making a longer term call based on some of the longer-term indicators you're seeing.

Question: Matthew Bouley - Barclays Capital - Analyst : Thanks, Steve, and thank you, Mark.

Question: Kathryn Thompson - Thompson Research Group - Analyst : Thank you for taking my questions today. There has been some focus on the headwinds from weather events like Ida -- Hurricane Ida. But what are the opportunities and how do weather events like these highlight Core & Main solutions, particularly around climate change and other disruptive weather events? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. SEPTEMBER 14, 2021 / 12:30PM, CNM.N - Q2 2021 Core & Main Inc Earnings Call

Question: Kathryn Thompson - Thompson Research Group - Analyst : Okay, thank you. And then my follow-on question -- you provided a lot of detail today on supply chain, how you're managing it, everything from meters to PVC have been impacted. But against this backdrop, you are not alone from a distribution standpoint in managing supply chain. What if any ways have you been able to determine if you're gaining market share given your size, your specialty nature and your national footprint?

Question: Kathryn Thompson - Thompson Research Group - Analyst : Okay, and then just a final follow-up just on your guidance, which was better than expectations. What has been relatively better and what has been relatively worse versus your expectations as you were planning for this fiscal year. REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. SEPTEMBER 14, 2021 / 12:30PM, CNM.N - Q2 2021 Core & Main Inc Earnings Call

Question: Anthony Pettinari - Citi - Analyst : Good morning. With the availability issues that we've seen in PVC and other materials and the labor challenges you just mentioned, are you seeing any outright demand destruction or is this a matter of projects maybe getting pushed out a few months or a few quarters? I'm just wondering if you could talk a little bit about how your customers have responded to shortages. You talked about substitution earlier. Is there a big difference between new construction versus repair and replace or different customer types or regions? Just wondering if you can give any more color there.

Question: Anthony Pettinari - Citi - Analyst : Okay, that's very helpful. And then apologies if I missed this, but what was your organic volume growth ex-M&A in 2Q? And is there way to think about what level of organic volume growth is embedded for the guidance for 2021? And then understanding you're not giving guidance for 2022, but is that kind of 2021 organic growth rate -- is there any reason to think it's not directionally sustainable for 2022?

Question: Anthony Pettinari - Citi - Analyst : Okay, that's helpful. I'll turn it over.

Question: Nigel Coe - Wolfe Reserch - Analyst : Thanks. Good morning, everyone, and thanks for the question. We have covered a lot of ground so there's not a whole lot to go here. But the internal margins were clearly very good, especially given the commodity inflation and the price pass through. It seems like you get a margin on that commodity push and that's very unusual. So, is that normal when you see these swings on commodities? So, was it a function of you prebuying some of the inventory? And I am curious on the back end of that how you think incremental margins might look in the back half of the year relative to Q2.

Question: Nigel Coe - Wolfe Reserch - Analyst : Great, thank you. And my follow on is supply chain related. And you alluded to this in your commentary around meters. And we've certainly seen particularly acute challenges, especially in smart meters. So, I'm just curious, are you seeing stable supply in meters here or do you expect there to be a little bit of deterioration in the second half of the year, improvement? Any color there would be helpful.

Question: Mike Dahl - RBC Capital Markets - Analyst : Good morning, thanks for fitting me in. Just wanted to start out as a follow-up to the supply chain question. It seems like by and large you've still been able to serve the customer and serve the products even with some of the challenges. But wondering if you could put a finer [point] on maybe quantifying what some of these constraints have meant from a volume standpoint; i.e., how much it's negatively impacted your expectations for this year. And maybe as a part two of the question, the other thing we've heard recently is some renewed issues on the labor side and an uptick in absenteeism. Can you comment on what you are seeing on puts and takes around labor right now?

Question: Mike Dahl - RBC Capital Markets - Analyst : It was really around labor, yes.

Question: Mike Dahl - RBC Capital Markets - Analyst : Got it, got it, okay. And then my follow-up question is still kind of a related track. But I understand private label is currently small, but when you think about your growth plans and but then balanced by some of the supply constraints that you're seeing, do some of these product availability constraints or global supply constraints push out the rollout or expansion of your private label efforts?