Core & Main Inc Q2 2024 Earnings Call Summary

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

Question: Kathryn Thompson - Thompson Research Group - Analyst : Hi. Just my first question is just a little bit more housekeeping around SG&A in the quarter, you saw higher. You had noted that it was mostly related to your M&A activity, which has been very active in the quarter. Could you parse out a little bit in greater detail the puts and takes for SG&A for the quarter as related to that and other factors and what we should expect for the remainder of the year? Thank you.

Question: Kathryn Thompson - Thompson Research Group - Analyst : Okay. You had quite a handful of headwinds you had to navigate from pricing, commodity pricing, softening demand, weather, but still outperforming the industry from a margin standpoint, although obviously not meeting expectations just for the quarter. How are you what are the puts and takes that you're doing to manage in the facing the current market realities. And just a reminder, are you seeing any meaningful shifts in commodity-type products as a percentage of cost of goods sold and any commentary about how you're managing those more commodity-type products? Thank you. 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 04, 2024 / 12:30PM, CNM.N - Q2 2024 Core & Main Inc Earnings Call

Question: Kathryn Thompson - Thompson Research Group - Analyst : Okay, great. Thank you.

Question: Dave Manthey - Baird - Analyst : Thank you. Good morning. A couple of quick questions on the PVC pipe. Approximately what percentage of sales and gross margin dollars are PVC pipe today? And related to that and again, regardless of whatever happens with suppliers or anything else, do you have some sort of contingency plan to right-size the business if you were to see a material drop further from here in PVC pipe pricing? 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 04, 2024 / 12:30PM, CNM.N - Q2 2024 Core & Main Inc Earnings Call

Question: Dave Manthey - Baird - Analyst : Okay, thanks. And second, can you quantify the strong sales growth that you saw in August just to differentiate that versus what you saw during the quarter? And then, I'm trying to square that with your belief that you will not recover the weather-related shortfall later this year. And I'm just trying to put those two things together, if you could help me with that.

Question: Dave Manthey - Baird - Analyst : Got it. Thanks very much.

Question: Matthew Bouley - Barclays - Analyst : Good morning, everyone. Thank you for taking the questions. On the gross margin side, it sounded like a lot of that normalization is now fully behind you and I think the commentary was around really focusing from here going forward on the private label and your sourcing initiatives, et cetera. So is the implication and forgive me if I missed this, but is the implication that you do expect gross margins to be stable or increasing going forward given these initiatives, or any additional color on that cadence of margins in the second half? Thank you.

Question: Matthew Bouley - Barclays - Analyst : Okay. Got it. That's helpful. Thanks, Mark. And then secondly, following up on the change to revenue guidance and the August commentary, I guess if we look at that $200 million reduction of the revenue guide for the year. I mean, could you kind of break out what were the largest and or maybe even rank the largest contributors to that, whether it be weather, the each individual end market, and if you can therefore tell, what or at least if there's a number around what you might be expecting for what is pushed into 2025. So that's part one. And part two is the for August, is the organic growth actually better or worse, the same as it was in Q2?

Question: Matthew Bouley - Barclays - Analyst : Yeah, go ahead. 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 04, 2024 / 12:30PM, CNM.N - Q2 2024 Core & Main Inc Earnings Call

Question: Matthew Bouley - Barclays - Analyst : Got it. Thanks, Mark. Thanks, everyone. Good luck, guys.

Question: Nigel Coe - Wolfe Research - Analyst : Thanks. Hey, good morning, everyone. Just wanted to dig in a bit deeper on some of the commentary already given. So on pricing, it sounds like pricing fairly stable sequentially in the second quarter. But I'm curious what the second-half outlook is for price. Are we looking at fairly flat year-over-year price in the back half of the year, i.e., the deflation is more in the first half and then we're sort of stabilizing in the back half of the year? And then, Mark, the commentary you made on gross margins growing, I think your third-quarter guide is still relatively tough. So are we talking about growing sequentially off that second quarter base into the back half of the year?

Question: Nigel Coe - Wolfe Research - Analyst : Great. And then a quick one on SG&A. Just obviously, we're working here with rough numbers, but it seems like the SG&A attached to the acquisitions, backing into the contribution from acquisition revenue, it feels like SG&A is about 20 points of acquired revenues for the acquisitions. Number one, is that the right number? And secondly, what is the right level for SG&A on a fully absorbed basis for these acquisitions?

Question: Nigel Coe - Wolfe Research - Analyst : Okay. Thanks a lot.

Question: Joe Ritchie - Goldman Sachs - Analyst : Hey guys, good morning. So I know we've talked a bunch.

Question: Joe Ritchie - Goldman Sachs - Analyst : Good morning, yeah. So I know we've talked a bunch about volumes, but I want to kind of parse it out a little bit further. Steve, I think you mentioned weather impacting volumes by approximately $50 million. When you take into account the M&A contribution now expected for the year, it still seems like there is about a $200 million reduction in volume expectations for the 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 04, 2024 / 12:30PM, CNM.N - Q2 2024 Core & Main Inc Earnings Call And I recall last quarter, we talked about competition normalizing in the space. I'm just wondering, like, how much of this is really end-market weakness versus you guys being a little bit more judicious about the projects that you're going after as we head into the back half of the year. Any commentary on that would be helpful.

Question: Joe Ritchie - Goldman Sachs - Analyst : Got it. Okay. That's helpful, Steve. So I mean, basically expect maybe some choppiness in the back half of the year, but that normalizes into 2025, and I mean, weather is always a swing factor, but that's the expectation at this point.

Question: Joe Ritchie - Goldman Sachs - Analyst : Okay. And then maybe just my one other question. I know that you don't want to talk about the lawsuit. There's a lot of noise in the market regarding pricing and capacity. And specifically, it seems like you are planning on maintaining your pricing discipline as the year progresses. But there's been some commentary around third-party providers entering the market and selling at lower prices. Is that something that you are seeing today across any of your specific products that you distribute?

Question: Joe Ritchie - Goldman Sachs - Analyst : Okay, fair enough. Thank you, guys.

Question: Mike Dahl - RBC Capital Markets - Analyst : Good morning. Thanks for taking my questions. Just one more follow-up on the pricing conversation. When we're thinking about the stability both in 2Q and expected through year-end sequentially. Can you break that out between commodity versus non-commodity? Because I think obviously a lot of fear has been that some of the commodity baskets that people can track would seem to have declined sequentially. So are you seeing that, but you've been able to offset it with pricing opportunities on the non-commodity side, or are you just seeing a different trajectory on in the products that you're specifically serving?

Question: Mike Dahl - RBC Capital Markets - Analyst : Okay, that's helpful. Thanks, Mark. And then on the sales discussion, the obviously, the weather is I think everyone can understand that. In terms of the market weakness, I think some of your commentary characterized it as these deferrals and you suspect there are different things going on. I guess, can you just give us a little more insight into if you don't get the project, what gives you the confidence that it's still out there, it's just being deferred versus it's just not moving forward? Give us insight into whether it's your backlog or your conversations with the contractors or customers in the field recently, in particular, because it seems like there was potentially a shift in July across end markets. So I think it would help if people had a little more confidence that business is still out there. 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 04, 2024 / 12:30PM, CNM.N - Q2 2024 Core & Main Inc Earnings Call

Question: Mike Dahl - RBC Capital Markets - Analyst : Okay. Thanks, Steve.

Question: Anthony Pettinari - Citi - Analyst : Good morning. Just following up on the end market softness that you saw. Given your largest end market is muni, can you talk about kind of maybe funding environments and appetite to spend among municipalities, understanding you have hundreds, maybe thousands of customers is hard to generalize, but can you tell us what you are kind of seeing there in terms of underlying demand?

Question: Anthony Pettinari - Citi - Analyst : Okay. That's very helpful. And then just one last one, if I could. And sorry if I missed this, but can you update what your private label percentage was in the quarter? And maybe is there some runway to maybe accelerate that in the back half as you work down some inventory or just any thoughts on that private label penetration?

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

Question: Patrick Baumann - JPMorgan - Analyst : All right, thanks. Couple cleanups, I guess. On the second-half expectations, can you help us with the cadence, third-quarter, fourth-quarter for sales growth and margins? And I know you have the extra week in the fourth quarter, which is part of the reason for asking this. Just wondering what that how that impacts sales and EBITDA for having that extra week in the fourth quarter.

Question: Patrick Baumann - JPMorgan - Analyst : Do the sales from an extra week drop down at like a similar margin to normal sales or is there a better margin.

Question: Patrick Baumann - JPMorgan - Analyst : Okay. And maybe on M&A in the quarter, what did that contribute in terms of sales growth? And then the additional deals that haven't closed yet. I think you said $100 million of spend. How much extra sales are you getting from those deals? Are those are the I guess the green name deals?

Question: Patrick Baumann - JPMorgan - Analyst : Okay, thank you.

Question: David Ridley-Lane - Bank of America - Analyst : Got it. And then how do how should we think about the kind of ongoing pace of share repurchase? Are you guys going to be more optimistic? Should we take the second quarter level as a proxy for a run rate? How should we think about that?

Question: David Ridley-Lane - Bank of America - Analyst : Understood. Thank you very much.