Core and Main Posts 13% EPS Jump in Q2

Core & Main (CNM 1.17%), a leading distributor of water, wastewater, storm drainage, and fire protection products, released its fiscal 2025 second-quarter earnings on September 9, 2025. The company reported year-over-year growth in net sales, gross profit, and earnings per share. However, higher selling, general and administrative expenses (SG&A) and weaker residential demand led management to lower its full-year financial outlook. Overall, the quarter reflected continued sales momentum, especially in municipal and non-residential end markets, but increasing cost pressures and a challenging residential environment weighed on the near-term outlook.

Company Overview and Recent Focus

Core & Main is one of the largest specialty distributors of water, wastewater, storm drainage, and fire protection products in the United States. Its primary customers include municipalities, private water companies, contractors, and utilities who rely on these products for the construction and maintenance of water infrastructure.

The company's growth strategy centers on expanding its national footprint, investing in technical expertise, pursuing acquisitions, and capitalizing on government infrastructure spending, such as the Infrastructure Investment and Jobs Act (IIJA). Success depends on strong supplier relationships, a diverse customer base, and profit-boosting initiatives like private label product expansion and pricing optimization.

Quarterly Highlights: Sales, Margins, and Expense Trends

During Q2 FY2025, Core & Main recorded growth across several key metrics, with net sales up 6.6% compared to the prior year period. This growth resulted from higher product volumes in pipes, valves, fittings, storm drainage, and fire protection, with acquisitions also contributing. The municipal segment remained strong, supported by ongoing government spending, and non-residential demand stayed stable. However, residential segment sales were softer, with the company specifically pointing to “softness in residential lot development.”

Gross profit rose at a faster pace than sales, improving 8.1%. Gross profit margin increased by 0.4 percentage points year-over-year to 26.8%. This expansion was driven by initiatives such as growing private label products and optimizing supplier sourcing. These efforts resulted in higher profitability on each dollar of sales.

SG&A expenses rose 12.7%, a much faster rate than sales growth. Key factors behind this increase included higher personnel costs tied to variable compensation, benefits, inflation, and increased sales volume. As a result, SG&A as a portion of sales rose to 14.4%, compared to 13.6% in Q2 FY2024. Operating leverage, or the ability to grow earnings faster than sales by controlling costs, decreased, counter to management’s earlier expectations following recent acquisitions.

In terms of product families, pipes, valves, and fittings saw higher sales, as did storm drainage and fire protection products, all of which are core infrastructure components for water management and fire safety. Meter products, which include equipment to measure water usage for utilities and industrial clients, declined. This was attributed to “project delays… following substantial growth in the prior year period.” Fire protection products also experienced declines in the first half of FY2025 due to lower selling prices, partially offset by acquisitions.

Operating cash flow, a measure of the cash generated from business operations, dropped to $34 million from $78 million in Q2 FY2024. Operating cash flow was $111 million for the six months ended August 3, 2025, compared with $126 million for the same period a year prior. This $15 million decrease resulted from higher investment in working capital, meaning the company had to use more cash for inventory and receivables during the first six months of FY2025. Despite this, net debt was reduced to $2,253 million from $2,439 million one year earlier, and liquidity remained robust, with only $100 million drawn on a $1,250 million revolving credit facility as of the end of Q2 FY2025.

After quarter-end, Core & Main announced the acquisition of Canada Waterworks to strengthen its platform in Canada and continued to open new locations, reflecting its commitment to expanding both organically and through mergers and acquisitions. CNM does not currently pay a dividend.

Looking Ahead: Guidance and Key Watch Points

Management lowered its full-year 2025 guidance. It now expects net sales between $7,600 million and $7,700 million for FY2025, down from the previous upper end of $7,800 million. Adjusted EBITDA (non-GAAP) guidance for FY2025 is now between $920 million and $940 million, below the earlier range of $950 million to $1,000 million. The company trimmed its expected adjusted EBITDA margin outlook to 12.1%–12.2% for FY2025, compared to the 12.5%–12.8% range provided in Q1 FY2025. Operating cash flow is now expected to be in the $550 million to $610 million range for FY2025. Management cited continued “higher operating expenses and softer residential demand” as key reasons for these changes.

No further explicit financial guidance was offered for individual segments or product families. Investors should closely follow any continued increases in SG&A expenses relative to sales, the pace and results of new acquisitions, and the flow of IIJA infrastructure funding, which could lift municipal sales. Weakness in residential end markets and declining sales for meter products should also be monitored for potential impacts on growth or margin trends in future quarters.

Revenue and net income presented using U.S. generally accepted accounting principles (GAAP) unless otherwise noted.