Core & Main (CNM)

Water and fire protection solutions company Core & Main (NYSE:CNM) missed Wall Street’s revenue expectations in Q2 CY2025, but sales rose 6.6% year on year to $2.09 billion. The company’s full-year revenue guidance of $7.65 billion at the midpoint came in 1.7% below analysts’ estimates. Its non-GAAP profit of $0.87 per share was 10.2% above 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).

A company’s long-term performance is an indicator of its overall quality. Even a bad business can shine for one or two quarters, but a top-tier one grows for years. Luckily, Core & Main’s sales grew at an incredible 17.3% compounded annual growth rate over the last five years. 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 annualized revenue growth of 8.1% over the last two years is below its five-year trend, but we still think the results were respectable.

This quarter, Core & Main’s revenue grew by 6.6% year on year to $2.09 billion, missing Wall Street’s estimates.

Looking ahead, sell-side analysts expect revenue to grow 3.2% over the next 12 months, a deceleration versus the last two years. This projection is underwhelming and suggests its products and services will see some demand headwinds. At least the company is tracking well in other measures of financial health.

For industrials businesses, cost of sales 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 in the short term and a company’s purchasing power and scale over the long term.

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 26.5% gross margin over the last five years. Said differently, Core & Main had to pay a chunky $73.48 to its suppliers for every $100 in revenue.

Core & Main’s gross profit margin came in at 26.8% this quarter, 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.

Operating margin is an important measure of profitability as it shows the portion of revenue left after accounting for all core expenses – everything from the cost of goods sold to advertising and wages. It’s also useful for comparing profitability across companies with different levels of debt and tax rates because it excludes interest and taxes.

Core & Main has managed its cost base well over the last five years. It demonstrated solid profitability for an industrials business, producing an average operating margin of 9.9%. This result was particularly impressive because of its low gross margin, which is mostly a factor of what it sells and takes huge shifts to move meaningfully. Companies have more control over their operating margins, and it’s a show of well-managed operations if they’re high when gross margins are low.

Looking at the trend in its profitability, Core & Main’s operating margin rose by 3.2 percentage points over the last five years, as its sales growth gave it operating leverage.

This quarter, Core & Main generated an operating margin profit margin of 10.2%, in line with the same quarter last year. This indicates the company’s cost structure has recently been stable.

We track the change in earnings per share (EPS) for the same reason as long-term revenue growth. Compared to revenue, however, EPS highlights whether a company’s growth is profitable.

Core & Main’s EPS grew at an astounding 24.9% compounded annual growth rate over the last two years, higher than its 8.1% annualized revenue growth. However, this alone doesn’t tell us much about its business quality because its operating margin didn’t expand during this time.

Diving into Core & Main’s quality of earnings can give us a better understanding of its performance. A two-year view shows that Core & Main has repurchased its stock, shrinking its share count by 13.4%. This tells us its EPS outperformed its revenue not because of increased operational efficiency but financial engineering, as buybacks boost per share earnings.

In Q2, Core & Main reported adjusted EPS of $0.87, up from $0.61 in the same quarter last year. This print easily cleared analysts’ estimates, and shareholders should be content with the results. Over the next 12 months, Wall Street expects Core & Main’s full-year EPS of $2.43 to grow 7%.

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 6.8% 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 7.1 percentage points during that time. This is encouraging, and we can see it became a less capital-intensive business because its free cash flow profitability rose more than its operating profitability.

Core & Main’s free cash flow clocked in at $24 million in Q2, equivalent to a 1.1% 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 15.4%, 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 $25 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 $946 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 $71 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.

It was good to see Core & Main beat analysts’ EPS expectations this quarter. On the other hand, its full-year EBITDA guidance missed and its EBITDA fell short of Wall Street’s estimates. Overall, this quarter could have been better. The stock traded down 16.3% to $55.69 immediately following the results.

Updated: December 4, 2025 at 10:11 PM EST

Before investing in or passing on Core & Main, we urge you to understand the company’s business quality (or lack thereof), valuation, and the latest quarterly results - in that order.

There’s plenty to admire about Core & Main. To kick things off, its revenue growth was exceptional over the last five years. And while its organic revenue growth has disappointed, its rising cash profitability gives it more optionality. On top of that, its expanding operating margin shows the business has become more efficient.

Core & Main’s P/E ratio based on the next 12 months is 21.2x. 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 $59.63 on the company (compared to the current share price of $50.91), implying they see 17.1% upside in buying Core & Main in the short term.