Core & Main (CNM)

Water and fire protection solutions company Core & Main (NYSE:CNM) reported Q1 CY2025 results beating Wall Street’s revenue expectations, with sales up 9.8% year on year to $1.91 billion. On the other hand, the company’s full-year revenue guidance of $7.7 billion at the midpoint came in 0.6% below analysts’ estimates. Its GAAP profit of $0.52 per share was in line with analysts’ consensus estimates.

Company Overview

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

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.

Competitors in the water and fire protection industry include Ferguson (NYSE:FERG), Mueller Water Products (NYSE:MWA), and Essential Utilities (NYSE:WTRG).

Reviewing a company’s long-term sales performance reveals insights into its quality. Any business can put up a good quarter or two, but the best consistently grow over the long haul. Over the last five years, Core & Main grew its sales at an incredible 17.1% compounded annual growth rate. Its growth beat the average industrials company and shows its offerings resonate with customers, a helpful starting point for our analysis.

Long-term growth is the most important, but within industrials, a half-decade historical view may miss new industry trends or demand cycles. Core & Main’s recent performance shows its demand has slowed significantly as its annualized revenue growth of 7.2% over the last two years was well below its five-year trend.

This quarter, Core & Main reported year-on-year revenue growth of 9.8%, and its $1.91 billion of revenue exceeded Wall Street’s estimates by 3.5%.

Looking ahead, sell-side analysts expect revenue to grow 2.8% over the next 12 months, a deceleration versus the last two years. This projection is underwhelming and suggests its products and services will face some demand challenges. At least the company is tracking well in other measures of financial health.

Cost of sales for an industrials business is usually comprised of the direct labor, raw materials, and supplies needed to offer a product or service. These costs can be impacted by inflation and supply chain dynamics.

Core & Main has bad unit economics for an industrials company, giving it less room to reinvest and develop new offerings. As you can see below, it averaged a 26.4% gross margin over the last five years. Said differently, Core & Main had to pay a chunky $73.58 to its suppliers for every $100 in revenue.

Core & Main produced a 26.7% gross profit margin in Q1, in line with the same quarter last year. On a wider time horizon, the company’s full-year margin has remained steady over the past four quarters, suggesting its input costs (such as raw materials and manufacturing expenses) have been stable and it isn’t under pressure to lower prices.

Core & Main has done a decent job managing its cost base over the last five years. The company has produced an average operating margin of 9.8%, higher than the broader industrials sector.

Analyzing the trend in its profitability, Core & Main’s operating margin rose by 3.8 percentage points over the last five years, as its sales growth gave it operating leverage.

In Q1, Core & Main generated an operating margin profit margin of 8.9%, in line with the same quarter last year. This indicates the company’s cost structure has recently been stable.

Revenue trends explain a company’s historical growth, but the long-term change in earnings per share (EPS) points to the profitability of that growth – for example, a company could inflate its sales through excessive spending on advertising and promotions.

Core & Main’s EPS grew at an astounding 72.9% compounded annual growth rate over the last five years, higher than its 17.1% annualized revenue growth. This tells us the company became more profitable on a per-share basis as it expanded.

Diving into the nuances of Core & Main’s earnings can give us a better understanding of its performance. As we mentioned earlier, Core & Main’s operating margin was flat this quarter but expanded by 3.8 percentage points over the last five years. This was the most relevant factor (aside from the revenue impact) behind its higher earnings; taxes and interest expenses can also affect EPS but don’t tell us as much about a company’s fundamentals.

Like with revenue, we analyze EPS over a more recent period because it can provide insight into an emerging theme or development for the business.

For Core & Main, its two-year annual EPS growth of 18.4% was lower than its five-year trend. We still think its growth was good and hope it can accelerate in the future.

In Q1, Core & Main reported EPS at $0.52, up from $0.47 in the same quarter last year. This print beat analysts’ estimates by 1.3%. Over the next 12 months, Wall Street expects Core & Main’s full-year EPS of $2.09 to grow 18.2%.

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 or return capital to investors. The company’s free cash flow margin averaged 7.2% 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 3.4 percentage points during that time. This is encouraging because it gives the company more optionality.

Core & Main’s free cash flow clocked in at $64 million in Q1, equivalent to a 3.3% margin. This cash profitability was in line with the comparable period last year but below its five-year average. We wouldn’t read too much into it because investment needs can be seasonal, causing short-term swings. Long-term trends carry greater meaning.

EPS and free cash flow tell us whether a company was profitable while growing its revenue. But was it capital-efficient? A company’s ROIC explains this by showing how much operating profit it makes compared to the money it has raised (debt and equity).

Core & Main’s five-year average ROIC was 15.7%, beating other industrials companies by a wide margin. This illustrates its management team’s ability to invest in attractive growth opportunities and produce tangible results for shareholders.

We like to invest in businesses with high returns, but the trend in a company’s ROIC is what often surprises the market and moves the stock price. Uneventfully, Core & Main’s ROIC has stayed the same over the last few years. Rising returns would be ideal, but this is still a noteworthy feat since they're already high.

Core & Main reported $8 million of cash and $2.53 billion of debt on its balance sheet in the most recent quarter. As investors in high-quality companies, we primarily focus on two things: 1) that a company’s debt level isn’t too high and 2) that its interest payments are not excessively burdening the business.

With $937 million of EBITDA over the last 12 months, we view Core & Main’s 2.7× net-debt-to-EBITDA ratio as safe. We also see its $78 million of annual interest expenses as appropriate. The company’s profits give it plenty of breathing room, allowing it to continue investing in growth initiatives.

We were impressed by how significantly Core & Main blew past analysts’ revenue expectations this quarter. On the other hand, its full-year revenue and EBITDA guidance slightly missed Wall Street’s estimates. Zooming out, we think this was a mixed quarter. The stock remained flat at $59 immediately after reporting.

Updated: June 23, 2025 at 10:03 PM EDT

A common mistake we notice when investors are deciding whether to buy a stock or not is that they simply look at the latest earnings results. Business quality and valuation matter more, so we urge you to understand these dynamics as well.

In our opinion, Core & Main is a solid company. First off, its revenue growth was exceptional over the last five years. And while its flat organic revenue disappointed, its expanding operating margin shows the business has become more efficient. On top of that, its projected EPS for the next year implies the company’s fundamentals will improve.

Core & Main’s P/E ratio based on the next 12 months is 23.5x. When scanning the industrials space, Core & Main trades at a fair valuation. If you trust the business and its direction, this is an ideal time to buy.

Wall Street analysts have a consensus one-year price target of $62.12 on the company (compared to the current share price of $58.34), implying they see 6.5% upside in buying Core & Main in the short term.