Core & Main (NYSE:CNM) Exceeds Q1 Expectations, Provides Encouraging Full-Year Guidance

Max Juang /
2024/06/04 7:40 am EDT

Water and fire protection solutions company Core & Main (NYSE:CNM) reported Q1 CY2024 results topping analysts' expectations, with revenue up 10.6% year on year to $1.74 billion. The company's full-year revenue guidance of $7.55 billion at the midpoint also came in 1.1% above analysts' estimates. It made a GAAP profit of $0.49 per share, improving from its profit of $0.35 per share in the same quarter last year.

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Core & Main (CNM) Q1 CY2024 Highlights:

  • Revenue: $1.74 billion vs analyst estimates of $1.72 billion (1.1% beat)
  • EPS: $0.49 vs analyst expectations of $0.53 (7.8% miss)
  • The company reconfirmed its revenue guidance for the full year of $7.55 billion at the midpoint
  • EBITDA Guidance for the full year is $955 million at the midpoint, in line with analysts' expectations
  • Gross Margin (GAAP): 26.9%, down from 27.9% in the same quarter last year
  • Free Cash Flow of $71 million, down 81.8% from the previous quarter
  • Market Capitalization: $10.78 billion

"Our first quarter results demonstrate the effectiveness of our strategy and resilient business model," said Steve LeClair, chair and CEO of Core & Main.

Formerly a division of industrial distributor HD Supply, Core & Main (NYSE:CNM) is a provider of water, wastewater, and fire protection products and services.

Infrastructure Distributors

Focusing on narrow product categories that can lead to economies of scale, infrastructure distributors sell essential goods that often enjoy more predictable revenue streams. For example, the ongoing inspection, maintenance, and replacement of pipes and water pumps are critical to a functioning society, rendering them non-discretionary. Lately, innovation to address trends like water conservation has driven incremental sales. But like the broader industrials sector, infrastructure distributors are also at the whim of economic cycles as external factors like interest rates can greatly impact commercial and residential construction projects that drive demand for infrastructure products.

Sales Growth

A company’s long-term performance can indicate its business health. Any business can put up a good quarter or two, but many enduring ones tend to grow for years. Over the last five years, Core & Main grew its sales at an incredible 15.2% compounded annual growth rate. This is a great starting point for our analysis because it shows Core & Main's offerings resonate with customers, hinting that it could be a high-quality business. Core & Main Total Revenue

We at StockStory place the most emphasis on long-term growth, but within industrials, a stretched historical view may miss cycles, industry trends, or a company capitalizing on new catalysts such as a contract win or a successful product line. Core & Main's annualized revenue growth of 11.3% over the last two years is below its five-year trend, but we still think the results were good and suggest demand was strong.

This quarter, Core & Main reported robust year-on-year revenue growth of 10.6%, and its $1.74 billion of revenue exceeded Wall Street's estimates by 1.1%. Looking ahead, Wall Street expects sales to grow 10.4% over the next 12 months.

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Cash Is King

If you've followed StockStory for a while, you know we emphasize free cash flow. Why, you ask? We believe that in the end, cash is king, and you can't use accounting profits to pay the bills.

Core & Main has shown decent cash profitability, giving it some flexibility to reinvest. The company's free cash flow margin averaged 7% over the last five years, slightly better than the broader industrials sector.

Taking a step back, we can see that Core & Main's margin expanded by 11.9 percentage points during that time. This is encouraging because it gives the company more ways to win.

Core & Main Free Cash Flow Margin

Core & Main's free cash flow clocked in at $71 million in Q1, equivalent to a 4.1% margin. The company's margin regressed as it was 2.9 percentage points lower than in the same quarter last year, but we wouldn't put too much weight on it because businesses' working capital needs can be seasonal, causing quarter-to-quarter swings.

Key Takeaways from Core & Main's Q1 Results

It was good to see Core & Main's full-year revenue forecast beat analysts' expectations. We were also glad this quarter's revenue outperformed, aided by the five acquisitions it's closed year to date. On the other hand, its EPS and operating margin fell short of Wall Street's estimates. Overall, this was a bad quarter for Core & Main, but the optimistic sales guidance provided enough juice to support its shares. The stock is up 1.9% after reporting and currently trades at $57.25 per share.

So should you invest in Core & Main right now? When making that decision, it's important to consider its valuation, business qualities, as well as what has happened in the latest quarter. We cover that in our actionable full research report which you can read here, it's free.