Core & Main's Data Center Growth Claims and Residential Outlook Shifts Clash in 2026 Earnings Call

Date of Call: Mar 24, 2026

Financials Results

• Revenue: $7.65B for FY 2025, up 3% YOY; Q4 $1.58B, down 7% YOY (one fewer selling week)
• EPS: $2.97 adjusted diluted EPS for FY 2025, up 7% YOY
• Gross Margin: 26.9% for FY 2025, up 30 basis points YOY; Q4 27.1%, up 50 basis points YOY
• Operating Margin: Adjusted EBITDA margin 12.2% for FY 2025, down 30 basis points YOY; Q4 10.6%, up 10 basis points YOY

Guidance:

• Net sales for FY 2026 expected to be $7.8B-$7.9B.
• Adjusted EBITDA for FY 2026 expected to be $950M-$980M.
• Operating cash flow conversion expected to be 60%-70% of Adjusted EBITDA.
• Expect end markets to be roughly flat for the year, with above-market volume growth driven by sales initiatives and geographic expansion.
• Expect Adjusted EBITDA margin to grow as cost actions are realized and gross margin initiatives continue.
• Residential market expected to be down mid-single digits for FY 2026.
• Non-residential market expected to be flattish.
• Municipal market expected to grow low single digits.

Business Commentary:

Sales and Market Share Growth:

• Core & Main reported net sales of $7.65 billion for fiscal 2025, marking the sixteenth consecutive year of sales growth.
• The company delivered 3 points of organic above-market growth, driven by sales initiatives in fusible HDPE, treatment plant solutions, and geosynthetics, and the opening of 10 new branches.
• This growth was achieved despite end markets being roughly flat overall, with municipal volumes up low- to mid-single digits, non-residential volumes relatively muted, and residential lot development declining low double digits.

Municipal and Non-Residential Market Dynamics:

• Municipal projects represented 44% of sales, with volumes up low- to mid-single digits, supported by steady repair and replacement activity and a healthy funding environment.
• Non-residential volumes were relatively muted, with growth from data centers, street and highway projects, and multifamily developments offset by softness in traditional commercial lot development.
• The stability in municipal demand and the diverse project mix in non-residential provided resilience in varying demand environments.

Residential Market Challenges:

• Residential lot development declined low double digits due to housing affordability issues and higher mortgage rates.
• Despite near-term challenges, the long-term outlook for residential is attractive, supported by population growth and a structural undersupply of housing.
• The company expects residential demand to eventually return to growth, driven by pent-up demand and population shifts.

Gross Margin and Cost Management:

• Gross margin expanded by 30 basis points year-over-year to 26.9%, driven by higher private label penetration and disciplined purchasing and pricing execution.
• The company implemented approximately $30 million in annualized cost actions, with $6 million recognized in fiscal 2025 and the remainder expected to flow through in fiscal 2026.
• Flat end market volumes and higher operating costs limited SG&A leverage, but the company remains focused on regaining leverage through productivity gains.

Strategic Investments and M&A:

• Core & Main completed two acquisitions in fiscal 2025, adding 5 branches to its footprint and contributing 2% to sales growth.
• The acquisitions, Canada Waterworks and Pioneer Supply, expanded the company's presence in Ontario and Texas, aligning with its strategy to grow through strategic M&A.
• The company's pipeline remains deep, with a focus on expanding in underrepresented markets and adding key industry talent.

Sentiment Analysis:

Overall Tone: Neutral

• Management expresses confidence in long-term market position and growth drivers like municipal stability and private label expansion. However, guidance reflects caution on private construction markets due to geopolitical volatility, interest rate uncertainty, and expects residential weakness to persist, stating 'we remain cautious' and 'the timing of that [residential recovery] is uncertain.'

Q&A:

• Question from David Manthey (Baird): Concerns about the growth disconnect versus the largest competitor and differences in vertical end market influence, geographic, and product mix.
  Response: Company feels good about share gains in smart meter and treatment plant, is catching up in data centers via geographic expansion, and views competition positively overall.

• Question from David Manthey (Baird): Clarification on the phasing and remaining benefit of the $30M cost-out program through 2026.
  Response: The $30M cost actions were completed in FY 2025, with $6M recognized this year and the remainder expected to flow through in FY 2026, providing continued positive benefit.

• Question from Matthew Bouley (Barclays): Impact of Middle East conflict on energy/commodity inflation, diesel surcharges, and pricing guidance.
  Response: Company is monitoring fuel and resin price increases, which could impact product costs but views potential price stability as positive; overall impact is seen as neutral to positive, with pricing guide remaining flat for FY 2026.

• Question from Matthew Bouley (Barclays): Quantification of growth investments in data centers and treatment plants, and specifics on sales force needs.
  Response: Company plans to invest in ~30 additional resources for the treatment plant and complex project initiative to support national accounts and win larger projects.

• Question from Joe Ritchie (Goldman Sachs): Factors driving the range in EBITDA guidance ($950M-$980M) and components like SG&A, gross margins, and investments.
  Response: Guidance range is influenced by pricing (could lift high end), residential weakness (low end risk), M&A, and macro uncertainty; confidence in gross margin from private label initiatives.

• Question from Joe Ritchie (Goldman Sachs): Outlook for M&A cadence to return to 2-4% growth and expectations for 2026.
  Response: Pipeline is deep; expect M&A to contribute 2-4% growth, with potential for more, while also opening record greenfields.

• Question from Matthew Bouley (Barclays): Expected growth for the meters business in 2026 and contribution from large contracts.
  Response: Meters business is back on stride after a tough comp year; large projects can represent a third or more of volume annually, with a strong pipeline expected.

• Question from Matthew Bouley (Barclays): Residential end market expectations for 2026, including magnitude and timing of decline.
  Response: Residential expected to be down low double digits to mid-teens in first half, improving to flattish by year-end, overall down mid-single digits for FY 2026.

• Question from Mike Dahl (RBC): Detailed residential and end market breakdown for FY 2026 and quarter-to-date trends.
  Response: Residential: down low double digits/mid-teens in Q1, high single digits in Q2, flattish in H2, total down mid-single digits. Non-residential: flattish. Municipal: up low single digits.

• Question from Mike Dahl (RBC): Inventory management strategy given potential price increases in certain categories.
  Response: Company actively manages inventory investments to buy ahead of price increases when volatility is expected, which is a standard part of execution.

• Question from Nigel Coe (Wolfe Research): First quarter performance and pricing outlook given inflationary pressures.
  Response: Q1 sales and EBITDA expected down slightly YOY but improving each quarter; pricing flat except PVC, which is a headwind; other categories may see increases.

• Question from Nigel Coe (Wolfe Research): Intent to increase share buybacks given current stock price.
  Response: Company has ample cash and authorization; expects continued buybacks as part of capital allocation, with over $600M remaining on authorization.

Contradiction Point 1

Data Center Business Growth and Revenue Exposure

Inconsistent portrayal of the size and growth rate of the data center business.

David Manthey (Baird) - David Manthey (Baird)

2026Q4: Core & Main is rapidly expanding into data center markets (e.g., Texas, Northern Virginia) where the competitor was previously stronger. The growing data center footprint nationwide is a positive for Core & Main. - Mark Witkowski(CEO)

What explains the growth gap between Core & Main and its largest competitors? - Brian Nowak (Thompson Research Group)

20251209-2026 Q3: These projects represent a low single-digit portion of sales but are growing rapidly. - Mark Witkowski(CEO)

Contradiction Point 2

Residential Market Outlook

Contradiction on the expected performance of the residential market in FY2026.

Matthew Bouley (Barclays) - Follow-up - Matthew Bouley (Barclays) - Follow-up

2026Q4: The residential market is expected to be down mid-single digits for FY2026... The market is expected to improve sequentially throughout the year, potentially reaching flattish levels by year-end as comps ease. - Brad Cowles(CEO)

What growth is expected for the meters business in FY2026, including contributions from recently announced large contracts, and what are the specific expectations for the residential market? - Matthew Bouley (Barclays)

20251209-2026 Q3: Residential likely faces a headwind at the start of 2026 but pent-up demand is expected to release eventually. - Mark Witkowski(CEO)

Contradiction Point 3

Pricing Outlook

Contradiction on whether PVC price recovery is expected in the near term.

Nigel Coe (Wolfe Research) - Nigel Coe (Wolfe Research)

2026Q4: For FY2026, PVC is expected to be a headwind for at least H1-H2 (even if it stabilizes). The company is not counting on a full recovery of PVC prices. - Robyn Bradbury(CFO)

Can you comment on Q1 performance to date, the expectation of flat pricing despite inflation and PVC headwinds, and the intention regarding share repurchases at current prices? - Michael Dahl (RBC)

2026Q2: Pricing was neutral for the quarter as expected... Expect stable pricing for the remainder of the year. - Mark Witkowski(CEO)

Contradiction Point 4

M&A Cadence and Greenfield Strategy

Contradiction in the characterization of the M&A environment and the strategic importance of greenfields.

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2026Q4: The industry is fragmented and trading is choppy... For FY2026, the company expects to be within the 2-4% range, with a deep pipeline of opportunities. - Brad Cowles(CFO)

What are the main variables driving the EBITDA guidance ($950M-$980M) and the company's strategy for returning to a normalized M&A cadence (2-4% growth) in fiscal 2026 and 2027? - Anthony James Pettinari (Citigroup Inc.)

2025Q1: The M&A competitive environment is consistent with historical patterns and is not significantly different. - Mark R. Witkowski(CEO)

Contradiction Point 5

Inventory Management Strategy

Contradiction on the stated purpose and timing of inventory builds in response to cost increases.

Mike Dahl (RBC) - Mike Dahl (RBC)

2026Q4: The company has a strong track record of managing inventory in response to price volatility. Teams effectively invest in inventory ahead of price increases, which is a key driver of gross margin expansion. - Mark Witkowski(CEO)

Can you provide a granular bridge for FY2026 end markets (residential, non-residential, municipal) including early-quarter performance and discuss inventory management strategies in light of potential price increases? - Nigel Edward Coe (Wolfe Research)

2025Q1: The inventory build was for two reasons: 1) It reflected confidence in volume demand for the first half of the year into Q2, and 2) It was a strategic move to mitigate potential tariff-related cost increases by securing extra inventory... - Mark R. Witkowski(CEO)