Core & Main sales growth improves as cost controls lift profit; outlook reaffirmed

Core & Main reported fiscal second-quarter sales growth of 2.5% and net income growth of 6.4% on September 9, as lower overhead costs helped the infrastructure distributor turn modest revenue gains into faster profit growth. The company maintained its fiscal 2026 outlook issued in March and spent $169 million on quarterly share repurchases.

Fire protection leads an uneven sales recovery

Revenue reached $2.145 billion for the 13 weeks ended August 2, compared with $2.093 billion a year earlier. Volume, selling prices and acquisitions all contributed, according to the company. That was an improvement from the first quarter, when sales were essentially flat as acquisitions offset lower volume.

The product results show where growth was concentrated:

Acquisitions drove the increase in pipes, valves and fittings. Fire protection benefited from both higher volumes and prices, while smart utility growth came primarily from pricing. Storm drainage remained essentially flat. The acquisition contribution reflected previously purchased businesses: the quarterly filing says no acquisitions closed during the first six months of fiscal 2026.

Chief Executive Mark Witkowski described municipal demand as a source of strength and said fire protection and large capital projects, including treatment plants and data centers, delivered strong growth. Municipal infrastructure represented an estimated 44% of fiscal 2025 sales by end market, giving water infrastructure spending considerable weight in the company's demand mix.

First-half sales increased 1.3% to $4.055 billion, primarily because of acquisitions. The company reported seven greenfield locations opened year-to-date, including two during and after the second quarter, and said it remained on track for eight to ten openings this fiscal year.

Lower overhead offsets a thinner gross margin

Gross profit increased 2.3% to $573 million, but gross margin slipped to 26.7% from 26.8%. The stronger profit performance came further down the income statement: selling, general and administrative expenses fell $1 million to $301 million, reducing their share of revenue to 14.0% from 14.4%.

Management attributed that improvement to recent cost actions and lower variable compensation, partly offset by higher distribution costs and spending on expansion and sales initiatives. With sales rising and overhead slightly lower, operating income increased 6.6% to $227 million. Net income reached $150 million, versus $141 million; profit attributable to Core & Main after non-controlling interests was $144 million, versus $134 million.

Adjusted EBITDA rose 3.0% to $274 million, and its margin increased to 12.8% from 12.7%. This company-defined non-GAAP measure excludes interest, income taxes, depreciation and amortization, along with specified additional adjustments. It measures a different aspect of performance from either GAAP profit or cash generated by operations. First-half adjusted EBITDA rose 2.0% to $500 million.

Repurchases also helped per-share results. GAAP diluted EPS increased 10% to $0.77 from $0.70, while the weighted-average diluted share count fell about 2.5%, to 193.4 million from 198.3 million. The earnings numerator used in the diluted calculation rose to $148 million from $139 million. Higher earnings spread across fewer shares therefore explain the per-share gain; it was not solely an improvement in operating performance.

Adjusted diluted EPS increased 8% to $0.94 from $0.87. The non-GAAP calculation removes intangible-asset amortization, equity compensation and specified other expenses, with a tax adjustment. Intangible amortization was the largest individual adjustment, at 18 cents per share this quarter.

Working capital absorbs cash despite better earnings

Quarterly operating cash flow was $62 million, up from an implied $34 million a year earlier, calculated by subtracting first-quarter cash flow from the reported first-half totals. It was below the $82 million generated in this year's first quarter. The presentation's cash bridge identifies a $197 million working-capital outflow as the largest deduction from quarterly adjusted EBITDA, alongside interest and tax payments.

For the first half, operating cash flow increased $33 million to $144 million. Management attributed the improvement to higher net income, lower tax payments and working-capital changes, partly offset by higher interest payments. Receivables absorbed $397 million, versus $300 million a year earlier, and inventory absorbed $155 million, versus $152 million. An increase in accounts payable supplied $301 million, versus $196 million, helping offset cash tied up in customer balances and stock.

Cash income taxes fell to $40 million from $69 million even though the accounting tax provision increased to $80 million from $77 million. Cash interest payments, excluding swap effects, rose to $59 million from $49 million. These payment figures explain why cash generation does not move in step with reported expenses.

Tax-related investments also crossed accounting and cash-flow categories. The company invested $17 million in renewable-energy limited partnerships, classified as an investing outflow. Its first-half tax provision included $39 million of credits and other tax benefits, partly offset by $35 million of associated amortization. Separately, payments under tax receivable agreements rose to $42 million from $18 million and were classified as financing outflows, outside operating cash flow. The company also recorded a $55 million current payable for the renewable-energy investments. Its tax receivable agreements carried $685 million of liabilities, including $41 million expected to be paid within 12 months. Those agreements generally pay beneficiaries 85% of specified realized or deemed-realized tax benefits; actual payment timing and amounts can vary. These obligations sit outside company-defined net debt and further qualify the cash available for capital returns.

After capital expenditures, free cash flow—defined by the company as operating cash flow less capital spending—was $44 million for the quarter. First-half free cash flow was a calculated $112 million, up from $88 million. Both periods' repurchases exceeded those amounts.

Buybacks draw on a broader balance sheet

Core & Main repurchased 3.7 million shares during the quarter and another 300,000 shares for $11 million afterward. Its nearly $270 million and 5.7 million-share year-to-date totals include that subsequent activity. Through August 2, the filing records $257 million of open-market repurchases, compared with $47 million a year earlier, and $412 million of remaining authorization.

Cash increased to $312 million from $220 million at fiscal year-end, supported by financing as well as operations. First-half cash proceeds from long-term debt issuance exceeded repayments by $312 million before issuance costs. July's refinancing replaced the remaining 2028 term loan with an $800 million term loan due in 2033 and $750 million of notes due in 2034, extending maturities while increasing gross debt.

At quarter-end, gross debt was $2.478 billion, up from $2.278 billion a year earlier and $2.166 billion at fiscal year-end. Company-defined net debt—gross debt before unamortized discounts and issuance costs, less cash—was $2.166 billion. That was below the year-earlier $2.253 billion because the increase in cash more than offset higher gross debt, but above the first quarter's $2.010 billion.

Dividing net debt by the presentation's $941 million of trailing 12-month adjusted EBITDA gives calculated leverage of about 2.3 times, within management's 1.5-to-3.0-times target. This is an analytical comparison, not the separately defined secured-leverage covenant ratio.

The asset-based revolving facility was undrawn, with approximately $1.226 billion available after letters of credit, subject to borrowing-base availability. That borrowing capacity supplements cash but would create additional debt if used. The filing reported compliance with all debt covenants.

An unchanged forecast depends on continued infrastructure demand

The September presentation retained the same ranges reaffirmed in June: fiscal 2026 sales of $7.8 billion to $7.9 billion, representing 2% to 3% growth; adjusted EBITDA of $950 million to $980 million; and adjusted EBITDA margin of 12.2% to 12.4%. Operating cash-flow conversion is forecast at 60% to 70%, defined as operating cash flow divided by adjusted EBITDA.

Management's confidence rests on municipal infrastructure demand, growth initiatives and large capital projects within a mixed demand environment. June's release had likewise highlighted healthy municipal repair-and-replacement activity, treatment plant solutions and smart utility demand.

Pricing remains consequential: the quarterly filing says results depend on passing supplier-cost changes through to customers promptly. Construction activity, municipal funding, tariffs and freight costs can affect demand or margins. The company also describes operating cash flow as typically stronger in the second half, when receivable collections and reduced inventory purchases release cash.

The adjusted earnings outlook remains a company forecast. Core & Main did not reconcile it to projected GAAP earnings, saying acquisition expenses and other excluded items could not be predicted without unreasonable effort.