Core & Main Inc Q3 2024 Earnings Call Summary

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

Question: Kathryn Thompson - Thompson Research Group - Analyst : Oh, great. Thank you for taking my questions today. This first is just on, focusing on end markets in good first focus on the municipal end market in particular. You have current expectations for up low single digits for 2024 and not that we're necessarily looking for '25 guidance, but any thoughts on kind of the pace and momentum going into next year with large amounts of [IID] money still to be spent and municipalities granted are generally steadier versus in markets, but there could be some unique tail winds helping with that and market. And if you could have just a similar commentary on the non res market too, I guess the same backdrop. Thank you.

Question: Kathryn Thompson - Thompson Research Group - Analyst : So just stepping back and forth with, is it a fair test meant to say that momentum is generally better versus declining as you head into the next year?

Question: Kathryn Thompson - Thompson Research Group - Analyst : Okay. And want to follow up just on the guidance raise, just clarification if I missed this in prepared commentary, apologies on my end. But in terms of the raise, how much was driven by acquisitions by the beat in the quarter or just a little bit better expectations. Just any color you can give just in terms of the breakout between those three buckets. Thank you.

Question: Kathryn Thompson - Thompson Research Group - Analyst : All right. Thank you so much.

Question: Dave Manthey - Robert W. Baird & Co - Analyst : Yeah. Thank you. Good morning, everyone. First question it just feels like as we look into fiscal '25 it is feeling more like a normal year relative to your growth algorithm on slide 12. Could you just as you think about that, are there any unusual year-to-year factors on either growth or margin enhancement that we should consider as we look to model the next 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. DECEMBER 03, 2024 / 1:30PM, CNM.N - Q3 2024 Core & Main Inc Earnings Call

Question: Dave Manthey - Robert W. Baird & Co - Analyst : Okay. And then second, a little bit more broad here. Obviously, we've been getting a lot of questions on Presidential policy and that sort of thing. Could you talk about both labour conditions and tariffs? I would assume labour just given the technical nature of your customers workforce, you probably don't have much in the way of immigration policy change risk there. But you could you take immigration policy change risk there. But could you talk about that? And then tariffs just if you could address the percentage of COGS that comes from Canada, Mexico, or other outside US?

Question: Nigel Coe - Wolfe Research - Analyst : Thanks. Good morning and Mark, I think you've just given 2025 guidance. So thanks for that. But yeah, so just taking a step back to 3Q, sales come in quite a bit better than what you expected. So I'm just curious, what drove the upside to your expectations and any thoughts on how much of the 2Q projects that were impacted by the weather came in and benefited 3Q?

Question: Nigel Coe - Wolfe Research - Analyst : Great, thanks, Mark. And then on pricing, you comment sequentially stable into the fourth quarter. I'm curious, any perspectives on '25? Are we getting beyond now the fire protection price deflation reservation? And if you could maybe comment on the PVC pipes pricing environment, that's obviously a hot topic right now.

Question: Mike Dahl - RBC Capital Markets - Analyst : Hi, thanks for taking my questions. I want to stick with the pricing environment for my first one. Obviously as Nigel said, it's a hot topic right now. Some of your -- some users of pipe, some suppliers of pipe, they do well, while pricing seems like it may not have gone significantly on the Muni side yet. I think there are still some comments out in the industry about expectations for a continued decline. So I think your comments probably stand out as a little bit different there Mark. So maybe you guys can give a little more color, specifically on the Muni side on what you're seeing, what you're hearing, what gives you the confidence that might be more stable through next year.

Question: Mike Dahl - RBC Capital Markets - Analyst : Okay. Yeah, that's really helpful. And I think that's the nuance we were looking for and that it's important for people to understand in terms of multi product jobs, service orientation and put it at a job level with stability. I guess the second question, you spent some time talking about the water treatment initiatives and obviously, that's part of a broader portfolio of growth initiatives that are building into your year above market growth expectations. Can you just give us there have been a couple different adjacency expansions help us kind of frame up like the opportunity and kind of a near and medium term as you think about some of the big ones like treatment plans like what's that specifically contributing to eager expectations around the '25 [gross]

Question: Sam Reid - Wells Fargo - Analyst : I wanted to ask if you could rank order and perhaps greater detail, the building blocks behind the sequential improvement in gross margin. And I know you've already touched on some of these, but maybe just put a finer point on any benefits from acquisition accretion versus some of your self-help initiatives like strategic sourcing and private label. And then apologies if I missed. But do you have an update on where private label this as a percent of COGS? Is it still at 2% or was there an increase in Q3 versus Q2? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. DECEMBER 03, 2024 / 1:30PM, CNM.N - Q3 2024 Core & Main Inc Earnings Call

Question: Sam Reid - Wells Fargo - Analyst : Now that helps and then to follow up on the election question, another broad horn here. Any signs of, interest in onshoring given some of the policies of the incoming administration, some of the things they're looking to incentivize. And if we were to see, those large on type projects emerge, any sense as to when those projects would start to benefit your P&L specifically.

Question: Patrick Baumann - JPMorgan Chase & Co. - Analyst : Hi, good morning. Thanks for taking my questions. Appreciate the 25m market and marketing pricing cost. I just (technical difficulty) you talk about what's been allocated out of that? I think it was $55 billion of funding for water. From IJ like what's still to come? Why it's been so slow to develop and kind of what's the upside to that low single digit growth rate when this comes ? And then on non res. If you could comment on if you have exposure to data center development, what that might be and could that be a meaningful tell when for that non res market for you or not really just curious what you do from a data center perspective?

Question: Patrick Baumann - JPMorgan Chase & Co. - Analyst : On the $55 billion of funding from [IJ] is it like is 10% of that been allocated 20%? Do you have any sense of numbers? Is it 50% like how much is any sense on how much has been allocated so far?

Question: Patrick Baumann - JPMorgan Chase & Co. - Analyst : Okay. And then on the acquisition side my second question. You've now done a couple of deals for these I guess, distributors of instruments that utility locating the damage prevention equipment, that sort of thing. Can you provide a bit more color on these like what's the opportunity here to scale this across the network? Is this higher margin product set? Any more color you provide? I think it was green equipment and then the e-comm, the income that you talked about today.

Question: Joe Ritchie - Goldman Sachs - Analyst : Thanks, good morning, everyone. So I just want to maybe start by squaring your comments on organic growth. It seems like volumes are up, call it 4% to 5% this quarter. I know you have an extra week in the fourth quarter and it seems like the volumes x the 53 week. REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. DECEMBER 03, 2024 / 1:30PM, CNM.N - Q3 2024 Core & Main Inc Earnings Call I think your guidance is implying slightly down. I just want to make sure I have that straight and if so anything you guys want to call out there.

Question: Joe Ritchie - Goldman Sachs - Analyst : Okay, great. That's helpful, Mark. And then Steve maybe going back to your comments from earlier around the delay. You typically see when there's their storm related activity and the uptick that you see in your business, I guess from all of the other related issues that we've seen, this year. I mean, would you start to expect to see maybe some improvement or some bump in your business in the early parts of 2025, does that start to come in? Maybe even this quarter? Just any thoughts around that would be helpful.

Question: Keith Hughes - Truist Securities. - Analyst : Two questions. First on the unit. So we talked about this in several calls, but it was a pretty notable turnaround from the negative numbers you had in the second quarter. Would there any region that you would call out that was particularly strong during the period or any specific end user market around that third quarter number?

Question: Keith Hughes - Truist Securities. - Analyst : Okay. And this has been referred to by several callers, but some of your suppliers have been receiving [subpoenas] around antitrust issues. Have you received or you party to any of this [subpoena] activity?

Question: Anthony Pettinari - Citi - Analyst : Hi, good morning. I was wondering if you could talk a little bit about how the M&A pipeline looks in general for '25. And are you seeing any kind of increased competition for targets or maybe new potential buyers or valuations that maybe are less reasonable than you've seen in the past? And then just generally with net leverage 2.7 times, healthy, but a bit above the two times that you talked about at the Investor Day. Just wondering if you talk about, what level of leverage you're willing to go to and just how we should think about that maybe next year.

Question: Anthony Pettinari - Citi - Analyst : Great. And then I just want to follow up. I mean, a lot of your M&A has been kind of about expanding the product offering, but I was just curious. Is there any kind of geographic white space or a region that you're looking to that you're looking to enter that are worth noting?

Question: Matthew Bouley - Matthew Bouley - Analyst : Good morning everyone. Thank you for taking the questions. Actually on that last point, Steve, you mentioned the greenfield. I think you opened a couple in the quarter and you mentioned that there's kind of a pipeline of priority markets going forward. So I guess what is the typical ramp time line of a Greenfield branch for you guys in terms of hitting kind of normal branch revenue and profitability? And I guess how many greenfield would you look to be opening in 2025. Thank you.

Question: Matthew Bouley - Matthew Bouley - Analyst : Okay. Thank you for that mark. And then secondly, I wanted to ask about sort of the near term margins and what that implies for 2025. I think you said gross margins should be kind of sequentially stable into the fourth quarter. I guess that implies that SG&A dollars might be flattish sequentially despite I guess lower sequential sales. I just wanted to check if that's the case and why that would be the case. But a as you get into the '25 and you talk about 30 to 50 basis points of annual EBITDA margin expansion given what's happening on SG&A right now, I mean, is the expectation for now that most of that margin expansion would be coming on the gross margin side. Thank you.

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

Question: David Ridley Lane - Bank of America Securities. - Analyst : Thank you. This is David Ridley Lane on for Andrew Obin. Just a quick sort of clarification question. What percentage of your revenue today is multi family? And I believe that's just to confirm that's included in your non-residential category. Correct ?

Question: David Ridley Lane - Bank of America Securities. - Analyst : Got it. And just to put a I know this has been asked before but just to put a finer point on it. So last quarter, you said you lost about $50 million of revenue from the weather. I did check this quarter, a lot drier. So did you catch up on the full $50 million in the third quarter or do you think that was less than that? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. DECEMBER 03, 2024 / 1:30PM, CNM.N - Q3 2024 Core & Main Inc Earnings Call

Question: David Ridley Lane - Bank of America Securities. - Analyst : Got it. Thank you very much.