ST. LOUIS — Core & Main Inc. on Wednesday announced financial results for the quarter ended July 30.
Fiscal 2023 Second Quarter Highlights
Compared with Fiscal 2022 Second Quarter:
- Net sales were flat at $1,861 million, but up 43% from the second quarter of fiscal 2021
- Gross profit margin sustained at 26.9%
- Net income decreased 9.9% to $164 million
- Adjusted EBITDA (Non-GAAP) decreased 2.5% to $270 million
- Adjusted EBITDA margin (Non-GAAP) decreased 40 basis points to 14.5%
- Net cash provided by operating activities was robust at $282 million compared with net cash used in operating activities of $23 million in the prior year
- Executed a $141 million share repurchase, reducing diluted shares outstanding by 5 million
- Closed two acquisitions during the quarter: Foster Supply and Dangelo Co.
- Net Debt Leverage (Non-GAAP) was 1.7x despite our investments in growth and share repurchases throughout the fiscal year
- Narrowing expectation for fiscal 2023 Adjusted EBITDA to be in the range of $850 to $880 million
"Core & Main delivered another quarter of solid results as we maintain our focus on driving operational excellence across the business," said Steve LeClair, chief executive officer of Core & Main.
"Sales of $1.9 billion for the quarter were equal to last years' record high and up 43% from the second quarter of fiscal 2021. We delivered strong Adjusted EBITDA margins of 14.5% through our disciplined pricing and gross margin execution. Prices have sustained through the first half of the year, in part due to the non-discretionary nature of demand in our industry, coupled with the fact that most of our products are either highly specified or made specific for our sector. Gross margins exceeded our expectations yet again as we execute on our gross margin initiatives and continue to benefit from our prior inventory investments. Our timing of inventory investments and subsequent optimization has positioned us well in very dynamic markets."
"We expanded our network and operating capabilities during the quarter after adding ten new locations from the Foster Supply and Dangelo Co. acquisitions. Both of these businesses offer expansion into new geographies, access to new product lines and the addition of key talent, while aligning with our strategy of advancing reliable infrastructure. We have generated robust operating cash flow through the first half of the year, providing ample capacity to reinvest in the business and return capital to shareholders. To that end, we executed a $141 million share repurchase from our majority shareholder during the second quarter, reducing diluted share count by 5 million shares. This marks our second share repurchase transaction this year, having deployed over $470 million of capital and retiring 20 million shares. Overall, I am very proud of our teams, who continue to work collaboratively on our strategic initiatives, displaying resilience and strong execution to provide our customers local knowledge, local experience and local service nationwide."
Three Months Ended July 30
Net sales for the three months ended July 30, 2023 and the three months ended July 31, 2022 was $1,861 million in each period. Net sales grew due to acquisitions and higher selling prices offset by a reduction in volume from comparably lower residential lot development. Net sales declines for pipes, valves & fittings were due to lower end-market volume partially offset by higher selling prices and acquisitions. Net sales growth for storm drainage benefited from higher selling prices and acquisitions. Net sales for fire protection products declined due to lower selling prices and volume on steel pipe. Net sales of meter products benefited from higher selling prices, higher volumes due to an increasing adoption of smart meter technology by municipalities and acquisitions.
Gross profit for the three months ended July 30, 2023 and the three months ended July 31, 2022 was $501 million in each period. Gross profit as a percentage of net sales for the three months ended July 30, 2023 and for the three months ended July 31, 2022 was 26.9%. The overall gross profit as a percentage of net sales experienced favorable impacts from the execution of our gross margin initiatives offset by larger prior year benefits from strategic inventory investments during an inflationary environment.
Selling, general and administrative (“SG&A”) expenses for the three months ended July 30, 2023 increased $8 million, or 3.5%, to $238 million compared with $230 million during the three months ended July 31, 2022. The increase was primarily attributable to an increase in facility and other distribution costs related to inflation and acquisitions. SG&A expenses as a percentage of net sales was 12.8% for the three months ended July 30, 2023 compared with 12.4% for the three months ended July 31, 2022. The increase was attributable to inflationary cost impacts.
Net income for the three months ended July 30, 2023 decreased $18 million, or 9.9%, to $164 million compared with $182 million for the three months ended July 31, 2022. The decrease in net income was primarily attributable to higher SG&A, interest expense and income taxes.
The Class A common stock basic earnings per share for the three months ended July 30, 2023 decreased 4.3% to $0.66 compared with $0.69 for the three months ended July 31, 2022. The Class A common stock diluted earnings per share for the three months ended July 30, 2023 decreased 1.5% to $0.66 compared with $0.67 for the three months ended July 31, 2022. The decrease in basic and diluted earnings per share was attributable to a decline in net income partially offset by lower share counts following the share repurchase transaction made during the period.
Adjusted EBITDA for the three months ended July 30, 2023 decreased $7 million, or 2.5%, to $270 million compared with $277 million for the three months ended July 31, 2022. The decrease in Adjusted EBITDA was primarily attributable to higher SG&A expenses. Adjusted EBITDA margin decreased 40 basis points to 14.5% from 14.9% in the prior year period.
Fiscal 2023 Outlook
"We are narrowing our annual outlook based on results to date and now expect net sales to be in the range of $6.6 to $6.8 billion," LeClair said. "Pricing and margins are sustaining against improving supply chains, but we are beginning to see pockets of softness for new non-residential project starts in select markets.
"We are narrowing our expectation for Adjusted EBITDA to be in the range of $850 to $880 million due to our strong gross margin performance in the second quarter. We are also raising our expectation for operating cash flow conversion to be in the range of 90% to 110% of Adjusted EBITDA as a result of our accelerated inventory optimization efforts. As always, our focus will continue to be on the areas within our control, including customer service, technical expertise and operating efficiency. We will continue to deploy capital on initiatives we expect will result in accelerated growth, including executing on our M&A pipeline and delivering on our organic growth initiatives."