Q1 2025 Core & Main Inc Earnings Call
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Alex: Hello, and welcome to the call and main Q1, 'twenty 'twenty earnings call. My name is Alex that'd be coordinating the call today.
If you'd like to ask a question at the end of the presentation. Please press star followed by one on the telephone keypad.
Speaker Change: I'll now hand, it up to kind of slowly alright towards Investor Relations. Please go ahead. Thank you and good morning, everyone. This is Glenn Floyd director of Investor Relations for corn, Maine. We are excited to have you join us. This morning for our fiscal 2025 first quarter earnings call.
Speaker Change: I am joined today by Mark with Koski, our Chief Executive Officer, and Robyn Bradbury, our Chief Financial Officer.
Mark Wachoski: Mark will begin today's call with a brief business update.
Speaker Change: Robin will then discuss our financial results in fiscal 2025 outlook, followed by a Q&A session. We will conclude the call with Mark his closing remarks.
Speaker Change: Our press release presentation and the statements made during this call may include forward looking statements.
Speaker Change: These statements are subject to risks and uncertainties that could cause actual results to differ materially from our expectations and projections.
Speaker Change: Such risks and uncertainties include the factors set forth in our earnings press release and in our filings with the Securities and Exchange Commission.
Speaker Change: We will also discuss certain non-GAAP financial measures, which we believe are useful in assessing the operating results of our business are.
Speaker Change: A reconciliation of these measures can be found in our earnings press release and in the appendix of our Investor presentation.
Speaker Change: Thank you for your interest in corn, Maine, I will now turn the call over to Chief Executive Officer, Mark Moskovsky.
Mark Moskovsky: Thanks, Glen Good morning, everyone. Thank you for joining us today.
Speaker Change: We are proud to deliver another quarter of strong performance at core in Maine, Hi.
Speaker Change: Highlighted by first quarter net sales of $1.9 billion and adjusted EBITDA of $224 million.
Speaker Change: Both all time highs for the first quarter.
Speaker Change: Achieving these results in a dynamic macroeconomic environment speaks to the resilience of our end markets the strength of our business model and most importantly, the commitment of our associates to advance reliable infrastructure with local service nationwide.
Speaker Change: Our strong local relationships product and service breadth and product expertise continues to differentiate us and enables long term value for our customers and stakeholders.
Speaker Change: We're seeing steady growth in municipal construction activity and funding from the infrastructure investment and jobs Act continues to generate new opportunities for growth in our end markets.
Speaker Change: The pipeline of shovel ready projects utilizing the funding.
Speaker Change: Particularly water and wastewater treatment plants transmission line replacements and storm water management initiatives is expanding.
Speaker Change: As confidence in our near and long term outlook for municipal construction.
Speaker Change: Residential lot development was resilient through the first quarter and we were pleased with the activity we saw to start the year.
Speaker Change: We are beginning to see signs of softening in response to general economic conditions and affordability pressures spa.
Speaker Change: Specifically, we are hearing from some of our customers that developers are reducing footprints in an effort to manage their capital investments.
Speaker Change: Despite the short term uncertainty surrounding residential development the secular fundamentals underpinning the U S housing market are strong and we continue to expect builders to keep building homes and a release of pent up demand as interest rates moderate and affordability improves.
Speaker Change: Our diversified mix within the nonresidential end market provided stability, despite shifting dynamics across project types.
Speaker Change: We continue to see strong sales volumes into data center construction and positive trends for institutional buildings multifamily housing and road and bridge projects.
Speaker Change: In contrast activity remains softer for commercial buildings manufacturing and warehousing.
Speaker Change: That said, we are encouraged by the level of bidding activity across our nonresidential portfolio and we believe our balanced exposure provides us an opportunity to outperform the broader market over time.
Speaker Change: Market volume growth in the first quarter was supplemented by robust share gains from the execution of our product customer and geographic expansion initiatives to deliver mid single digit organic sales growth.
Speaker Change: We drove 10% growth in meters and growth well into the double digits and our treatment plant and fusible high density polyethylene offerings.
Speaker Change: This level of execution illustrates our ability to make the right investments in talent the power of our scale and our role in accelerating the adoption of new products in the industry.
Speaker Change: We saw sequential improvement in gross margins in the first quarter, driven by disciplined pricing and solid execution in our private label and sourcing efforts the.
Speaker Change: The consistency of our gross margin reflects the value, we deliver to our customers and it reinforces the strength of our differentiated value proposition.
Speaker Change: While tariffs and trade restrictions between the U S and other countries are at the top of everyone's mind.
Speaker Change: The direct impact on corn remains supply chain to date has been minimal as the majority of our products are domestically made.
Speaker Change: We are actively working with our suppliers to mitigate any supply chain disruption and we have taken pricing actions to the extent necessary.
Speaker Change: The direct and indirect impacts of tariffs on the broader economy and on private construction, specifically remain uncertain and we are monitoring the environment closely.
Speaker Change: We continue to execute on our capital priorities deploying approximately $58 million during the first quarter between organic capital investments share repurchases and debt service.
Speaker Change: Investing in the growth of the business continues to be our highest priority for capital allocation.
Speaker Change: Our acquisition pipeline is healthy and we continue to evaluate several opportunities of various sizes.
Speaker Change: We're also committed to returning capital to shareholders and in the first quarter, we bought back nearly 837000 shares of our stock at an attractive valuation.
Speaker Change: Turning to page six of the presentation I'll wrap up my prepared remarks with a discussion on the levers we have to drive growth and scale our capabilities over the long term.
Speaker Change: Each of our 370 branches strive to sell more products to more customers and generate more profit everyday.
Speaker Change: We equip the field with data on their markets their share of wallet and their profitability and they bring us new opportunities for organic growth.
Speaker Change: Our operating model generates organic share gains by focusing on local service combined with our pay for performance culture that aligns with our business strategy.
Speaker Change: We have an ongoing process to collect and evaluate these ideas, culminating in our annual strategic plan.
Speaker Change: The strategic plan gives us clarity on which of the many great opportunities to pursue whether they are organic inorganic or often a combination of both.
Speaker Change: We work to bring these opportunities to life as initiatives, where we resource them for scale and we measure them with a focus on profitability.
Speaker Change: Our product initiatives, including meters Fusible, HD p/e treatment plant storm drainage and Geo synthetics have allowed us to grow faster than the market historically and we expect they will continue to help drive market share gains in the future.
Speaker Change: The 10 year growth of these initiatives has been impressive averaging 13% annually and they are delivering almost $2 $5 billion in combined annual net sales today.
Speaker Change: To compete effectively having a strong physical presence and strong local relationships in every market. We serve is critical.
Speaker Change: No one is better equipped to identify service gaps and local growth opportunities than our local teams.
Speaker Change: With our local expertise and our market intelligence, we have significantly expanded our footprint since becoming an independent company in 2017 through a series of Greenfields and bolt on acquisitions.
Speaker Change: Greenfields are a powerful way to expand geographically and we are well positioned to do so given our talent pool, our scale and the lessons learned from our past successes.
Speaker Change: They require minimal capex to open and operate in each of the 20 Greenfields. We've opened since 2017 has generated positive operating income within the first two years.
Speaker Change: Together they are now delivering nearly $300 million of annual net sales.
Speaker Change: And of course, none of this is possible without our people, which is why we continue to invest heavily in their growth and development.
Speaker Change: Our award winning training program commercialize as our go to market strategy deepens industry expertise and ensures our 600 plus field sales reps, who averaged 14 years of experience are equipped to drive profitable growth.
Speaker Change: Our associates learn from the best of the best on the job International Training Center through in house subject matter experts and with virtual and online learning academies are.
Speaker Change: Our learning team offers a wide range of sales operations product expertise leadership and safety training programs and courses.
Speaker Change: We also provide customized training in early career rotational programs for college graduates to develop as future leaders.
Speaker Change: We partner with our suppliers to enhance our knowledge base as new products and best practices are continually introduced in our industry.
Speaker Change: Our comprehensive approach and dedication to developing industry leaders earn cormen. The number 23 spot on training magazines Global Apex Awards list for excellence in employee training and development.
Speaker Change: Because strong local relationships are key to success in new markets bolt on acquisitions is often the fastest approach and you can see that in our results. Since 2017, we've completed over 40 acquisitions, adding approximately 140 branches and $1 $8 billion of annual net sales.
Speaker Change: <unk>.
Speaker Change: And we arent done with only 19% share of a highly fragmented 39 billion dollar addressable market, our long term opportunities to grow and gain market share is significant.
Speaker Change: We've proven we can add substantial sales and profitability to our business through these initiatives.
Speaker Change: Then we add sustainable margin expansion to the mix through private label sourcing optimization pricing analytics, and Digitization and that is an exciting formula for profitable growth.
Speaker Change: Thank you all for your ongoing support and trust in our long term vision I look forward to what corn main will accomplish in the years ahead.
Speaker Change: I'll now turn it over to Robyn to provide our financial update.
Robyn: Thank you Mark I wanted to start by thanking our teams for their hard work in delivering another record quarter I'll begin on page eight with some highlights from our first quarter results.
Speaker Change: We grew net sales, 10% to a first quarter record of $1 $9 billion.
Speaker Change: <unk> sales were up mid single digits and acquisitions contributed the balance of growth in the quarter.
Speaker Change: Pricing improved sequentially from the prior quarter, resulting in a neutral impact to sales growth compared to the prior year.
Speaker Change: Our end markets were slightly positive in total and we believe we achieved considerable share gains from the execution of our product customer and geographic expansion initiatives.
Speaker Change: As mentioned on our last call, we estimate that approximately 85% of our sales are products that are domestically manufactured and distributed.
Speaker Change: The balance of products that are imported by our suppliers or have imported components. There is usually a domestic alternatives, while tariffs did not significantly impact our first quarter results. We are starting to see some tariff related cost increases from our suppliers and we expect to pass through these costs as we have done historically.
Speaker Change: Gross margins in the first quarter finished at 26, 7% compared to 26, 6% last quarter and 26, 9% in the prior year.
Speaker Change: The sequential improvement in gross margin was driven by pricing discipline and continued execution of our private label and sourcing initiatives.
Speaker Change: Achieving share gains.
Speaker Change: The year over year decline was expected and is due to a higher average cost of inventory this year compared to last year, partially offset by accretive acquisitions and the success of our initiatives.
Speaker Change: Selling general and administrative expenses increased 14% in the first quarter to $293 million.
Speaker Change: The increase in SG&A is primarily due to the impact of acquisitions and inflation.
Speaker Change: Excluding the effect of acquisitions and equity based compensation SG&A expenses were up approximately 4%, reflecting underlying gains in productivity.
Speaker Change: Interest expense was $30 million compared with $34 million in the prior year. The decrease was primarily due to lower average borrowings under our ABL credit facility and a decrease in rates on our variable rate debt.
Speaker Change: Provision for income taxes in the first quarter was $36 million compared with $33 million in the prior year and our effective tax rates were $25, five and 24, 6% respectively.
Speaker Change: Our effective tax rate this year reflects a more normalized ongoing rate and the increase over the prior year was due to exchanges of partnership interest that increased the allocation of net income to core and main Inc.
Speaker Change: Diluted earnings per share increased approximately 6% to 52.
Speaker Change: The increase in diluted EPS was due to an increase in net income and lower share count following the share repurchase transactions, we completed throughout fiscal year 2024 and 2025.
Speaker Change: First quarter, adjusted EBITDA increased 3% to $224 million.
Speaker Change: Adjusted EBITDA margins declined 80 basis points to 11, 7%, which was in line with our expectations.
Speaker Change: Moving to our balance sheet and cash flow, we ended the quarter with net debt of nearly $2 3 billion and net leverage of two four times.
Speaker Change: Total liquidity was $1 $1 billion, consisting primarily of availability under our ABL credit facility.
Speaker Change: We generated $77 million of operating cash flow and we are pleased with this result, and what has historically been a lower cash generation quarter for us.
Speaker Change: We continue to allocate our cash flow to priorities that we believe will result in growth or return for shareholders.
Speaker Change: Deployed $39 million in the first quarter to repurchase 837000 shares at an average price of $46 64 per share, finishing the quarter with $285 million remaining under our authorization.
Speaker Change: Investing in growth remains our top capital allocation priority in our M&A pipeline is active.
Speaker Change: We are actively engaging with dozens of potential targets and we are being prudent in our evaluation to ensure they are the right cultural and strategic fit.
Speaker Change: Turning to our outlook, we are reaffirming our full year guidance for net sales of seven 6% to seven 8 billion and adjusted EBITDA of 952 $1 billion.
Speaker Change: This reflects our continued expectation for adjusted EBITDA margins in the range of 12, 5% to 12, 8%.
Speaker Change: We have good visibility into the demand through the next quarter and expect to finish the first half strong supported by healthy project activity and backlogs.
Speaker Change: That said uncertainty associated with tariffs and inflation and interest rates could impact customer sentiment and demand in the back half of the year.
Speaker Change: At a high level, we continue to expect our end markets to be roughly flat for the full year.
Speaker Change: Stable in the near term, but with less clarity as we move into the second half.
Speaker Change: We offer a strong value proposition to the industry and we are on track to achieve the two to four points of above market volume growth, we communicated last quarter by expanding our presence in underpenetrated geographies driving product line expansion and acquiring and developing new sales talent.
Speaker Change: Pricing improved sequentially and we believe that the impact of sales growth for the full year will be neutral or better.
Speaker Change: We expect to improve gross margins for the full year through the execution of our private label sourcing optimization and pricing initiatives and our first quarter results support this trend.
Speaker Change: Well SG&A growth has been outpacing sales growth in recent quarters due to the impact of acquisitions. We have been pleased to see organic productivity gains and have commenced cost out activities and expect them to drive improvements through the end of the year.
Speaker Change: These productivity improvements combined with our expectation for gross margin expansion reinforce our confidence in achieving adjusted EBITDA margins in the 12, 5% to 12, 8% range for the year.
Speaker Change: In closing I want to reiterate that our sector has strong fundamentals and we have a proven strategy to continue strengthening <unk> leadership position.
Speaker Change: The long term trends underlying our end markets are favorable and our products and services play a critical role in advancing reliable infrastructure.
Speaker Change: We expect to outperform the market, even as the broader economic environment evolves.
Speaker Change: Our business is well positioned to capitalize on opportunities for growth and we remain committed to building on our track record of delivering value to shareholders.
Speaker Change: With that let's open it up for questions.
Speaker Change: Thank you.
Speaker Change: As a reminder, if you would like to ask a question. Please press star followed by one on your telephone keypad.
Speaker Change: When we feel question you May press star two.
Speaker Change: Please limit yourself to one question and one follow up thank you.
Speaker Change: Our first question for today comes from Matthew Bouley of Barclays. Your line is now open. Please go ahead.
Speaker Change: Hey, good morning, Mark and Robyn. Thank you guys for taking the questions.
Speaker Change: Actually I wanted to start on the SG&A side.
Speaker Change: You know Robyn some helpful color there around how you're thinking about productivity there for the year I think you said it was up 4% ex acquisitions and equity comp. So I just wanted to kind of drill in a little bit Q.
Speaker Change: Q2 second half is the implication that you would start to see leverage on the SG&A rate.
Speaker Change: As soon as Q2 here and also curious if there was anything additional unusual that you might call out in that SG&A expense this quarter. Thank you.
Speaker Change: Yeah, Hey, good morning, Matt. Thanks for the question Youre right. When we look at the quarter from an organic standpoint, excluding some onetime.
Speaker Change: Items are add backs, we were productive for the quarter. So.
Speaker Change: We gained some productivity there during the quarter. Our overall rate was improved sequentially from the first fourth quarter. So in total we're making some progress there on some of our SG&A initiatives.
Speaker Change: As we get into the second quarter expecting to see them want more organic improvement in rate from year over year basis, and as we get into the total company will anniversary some of those acquisitions, we have been working on some of those M&A.
Speaker Change: <unk> those are on track, we're really pleased with the execution, but as we've noted before it can take about 12 to 18 months to get some of those SG&A synergies on the M&A side. So as we go throughout the year, we're looking to see improved SG&A rate as we kind of go through each quarter on a year over year basis.
Speaker Change: You made some investments and growth we have seen some inflation, we're working on and offsetting some of those but feel good with where we're at and feel like we're making some good progress here and happy to see the gains and leverage on the organic side.
Speaker Change: Okay got it thank you for that Robin and then.
Speaker Change: Just secondly, thinking about the top line guide for the year.
Speaker Change: Obviously as you pointed out in Q1 it seemed like you had some fairly substantial share gains I think I heard you say that your inflation outlook is maybe turning to a little bit more positive than it was so just kind of given the starting point given where we are here in the middle of Q2.
Speaker Change: Just kind of wanted to get a sense on the level of conservatism you're building into the back half, especially given the comments you made around some uncertainty out there. So just kind of help us.
Speaker Change: Sort of put together the first half and second half from our end market and volume perspective. Thank you.
Speaker Change: Sure.
Speaker Change: Yeah happy to so if we look at the market for the full year, we're expecting the market to be roughly flat stronger than the first half of the year and then down a little bit in the back half of the year from where we are today.
Speaker Change: And that just reflects a level of uncertainty given.
Speaker Change: Terrace.
Speaker Change: The higher interest rates and affordability concerns and things like that feel good really good about our bidding in back log activity and what we're seeing we feel like it's going to be.
Speaker Change: Good second quarter, and then we'll see what happens in the back half with with the macroeconomic environment from a pricing standpoint.
Speaker Change: Pricing has has improved sequentially from the fourth quarter, we were down slightly in the fourth quarter and the first quarter, we were roughly flat for pricing and we're expecting pricing to be flat for the year at a minimum so seeing.
Speaker Change: Seeing in the quarter, we saw some ins and outs on pricing in some product categories, but we're starting to anniversary some of the declines in the prior year.
Speaker Change: And expect pricing to be roughly flat.
Speaker Change: At worst for FY 'twenty five overall.
Speaker Change: Yes.
Speaker Change: Alright, well, thank you Rob and good luck guys.
Rob: Thanks, Matt.
David Manthey: Thank you. Our next question comes from David Manthey of Bad the lunch now open.
Speaker Change: Please go ahead.
David Manthey: Yeah. Thank you and good morning, everyone.
Speaker Change: Just to follow on that pricing question could you just discuss the situation with commodities versus finished goods and I don't know if you said what it was.
Speaker Change: In the quarter was pricing net zero, a little negative and you expect that to improve through the remainder of the year and this has there been any change in your thinking over the past 90 days as it relates to pricing.
Speaker Change: Yeah, Yeah. So we have seen pricing kind of improved sequentially from year over year basis.
Speaker Change: Like I said in the fourth quarter, we were slightly down in the first quarter here, we were basically flattish from a year over year perspective.
David Manthey: From from different product levels.
David Manthey: Quarter.
David Manthey: Steel has been improving we did see that kind of anniversarying head of flat as we got to the end of the quarter. So that was encouraging and then PVC has been pretty stable over the last few months here. So have a good level of confidence for pricing to be flat as we go throughout the year based on some of those scenarios that were were.
David Manthey: Seeing.
David Manthey: Like I said, we've seen some down year over year for the quarter, but some of those are starting to normalize and we also have seen some inflation on other product categories.
David Manthey: And I expect that to continue throughout the year, so flat to slightly up for the year is kind of the latest thinking there Dave.
Dave: Got it. Thank you and then as it relates to your comments on the first half versus second half.
Speaker Change: I think the the extra week was in the fourth quarter last year any of it Mike Am I correct in saying that you had one less week year to year in the fourth quarter. This year.
Speaker Change: But even week suggested looking at sort of organic growth. It looks like the comps are maybe just a little bit tougher in the back half, so, but youre talking about the market.
Speaker Change: Being uncertain and Thats, what youre signaling right or should we read a little bit into the fact that maybe there is somewhat unusual.
Speaker Change: Movement in your own fit.
Speaker Change: <unk> financials relative to those year to year comps.
Speaker Change: Yeah, Yeah, Great question, So you're right. We've got the 50 <unk> week in the fourth quarter of this year or the lack thereof I guess.
Speaker Change: That that'll be about a two point headwind for the year, given we'll have one last week much.
Speaker Change: A much higher impact on that quarter. So if you think about seasonality for this year.
Speaker Change: It is possible that the fourth quarter could be down on a year over year basis from total sales.
Speaker Change: Just given that we have one less week in the quarter.
Speaker Change: The second quarter's shaping up good for US we did have that wet weather in the prior year.
Speaker Change: We're expecting to see some good performance in the second quarter, and then we had a little bit of recoup of that wet weather in the third quarter. So that'll be just a little bit tougher comp, if you're thinking about seasonality and how to model that out.
Speaker Change: Yeah.
Speaker Change: Thanks very much.
Speaker Change: Thanks, Dave.
Speaker Change: Thank you. Our next question comes from Nigel Coe of Wolfe Research. Your line is now open. Please go ahead.
Nigel Coe: Thanks, Good morning, guys.
Speaker Change: Just wanted to maybe.
Speaker Change: And maybe just go back to your comments Robert about the SG&A the equity comp portion.
Speaker Change: Just maybe just touch on whether that was related to the CEO CFO transition.
Speaker Change: Is there anything else driving that and then just.
Speaker Change: Kind of a follow on to that question is.
Speaker Change: Flat to 30 bps of EBITDA margin expansion or are we still expecting that to be primarily gross margin driven with SG&A flat for the year.
Speaker Change: Yeah.
Nigel Coe: Yes, Nigel I'll touch on the stock equity comp first.
Speaker Change: Not really a big impact there from anything executive comp related we did start to accrue that a little bit but that really wasn't the impact more of the impact on that was that we've now got three years of kind of post IPO equity vested there. So so what youre seeing now is a little bit more on more new.
Speaker Change: <unk> run rate going forward on the stock comp piece.
Speaker Change: Okay.
Nigel Coe: And then the full year framework Nigel yes.
Speaker Change: Yes, sorry, yes.
Mark Wachoski: Alright, Hey, Nigel good morning, Yeah, I would tell you on the EBITDA expansion on our expectations to continue to grow that obviously, we've had a lot of really good execution from a gross margin expansion standpoint, both with private label.
Speaker Change: A lot of the sourcing optimization, we've been doing in the.
Speaker Change: The pricing optimization work, so continue to believe thats going to be a good lever and multiple levers there for expansion.
Speaker Change: Expect going into this year that SG&A, but some of the carryover from the acquisitions that we did that have.
Speaker Change: Much higher gross margin percentages, just given some of the product mixes. There also carried some higher SG&A with them that we've continued to optimize so I do expect.
Speaker Change: Robin mentioned earlier, we will get some of that and I would say starting very soon here.
Speaker Change: In the second quarter and into the rest of the year, which will be another good lever for us for EBITDA expansion.
Speaker Change: I would still wait more of it for the full year.
Speaker Change: On the gross margin side.
Speaker Change: That's great and then just on the obviously really good working capital working capital performance.
Speaker Change: And what's normally a very weak <unk>.
Speaker Change: Inventory did bills I think mid teens year over year, you can see the Q is quite a quite a step up so I'm wondering was that intentional too.
Speaker Change: Get ahead of some of these supplier price increases any thoughts there.
Speaker Change: Yeah.
Speaker Change: Yeah, Nigel the inventory build is really twofold I think one it represented the confidence in the volume that we saw here in the first half of the year.
Speaker Change: Going into the second quarter, and then yes, just given some of the uncertainty around tariffs.
Speaker Change: Definitely took an opportunity to bring in some extra inventory to make sure number one that we had all of that inventory available for our customers and then obviously to mitigate against some potential increases they were saying just come into the into the market. So really two fold I think from an inventory build standpoint.
Marc: That's great. Thanks, Marc.
Speaker Change: Yes.
Speaker Change: Thank you.
Speaker Change: Our next question comes from Colin that's everyone of Deutsche Bank.
Speaker Change: Please go ahead.
Colin: Good morning. Thank you for taking my question I just wanted to talk about the residential construction market a little bit more you called out the resiliency in the most recent quarter, but things are slowing down it looks like can you put a little more color around that what you think the slowdown it looks like from a magnitude perspective as we move through the rest of the year and when that starts to hit your sales.
Colin: Yeah sure. Thanks, Thanks for the question from a residential.
Colin: Perspective recognize we do a lot of lot development work, there and I'd say going into 2025, we werent really expecting it to be a robust environment in 2025, but we definitely were pleased with the activity that we saw in the quarter I would say it kind of came in more.
Colin: <unk> to start the year.
Colin: Definitely some some positivity in certain parts of the country.
Colin: We're seeing some really good activity.
Colin: We kind of exited the first quarter and into the second quarter, we started to get a little bit more feedback from the field and certainly our customers that are doing a lot of that lot development work that we're starting to see some of the bidding some of the jobs that are being awarded just scaled down in size.
Colin: Led us to believe we could start seeing a little bit of a headwind with residential and that was part of our rationale as we've thought about the guide for the rest of the year.
Colin: Just taking that from kind of a neutral to potentially down slightly as we worked through 2025, just given all of the.
Colin: Information, we're seeing in the field plus some of the other uncertainty in the macro environment I think that's been well publicized in the media. So those are some of the factors there I don't view it as really a significant draw.
Colin: Driver for us given that only about 20% of the business, but something that we're really watching right now.
Colin: Okay.
Speaker Change: Okay. That's really helpful color and then just on the meter side you guys called out 10% growth can you just talk about the level of growth you're expecting for that product category going forward and how are you thinking about the volume versus mix equation, there with the smart meter adoption by the industry.
Colin: Yes, those are smart meter performance continues to be really strong I would I would tell you the 10% growth.
Colin: The quarter also on top of a prior year quarter, where we grew at 30% so.
Colin: Two year stack there has been really impressive we continue to win large significant meter contracts with.
Colin: Suppliers that were partnered with from a meter standpoint, I would say that is mostly volume gains as you think about the nature of meter contracts are generally a little longer term in nature. So really good just solid volume growth there I do expect there'll probably be some.
Colin: Price increases into the market based on what we're seeing.
Colin: With some of the tariff impacts, but overall, we just continue to see a lot of great opportunity there.
Colin: <unk> invested a lot of technical resources, there to continue to drive the adoption and some of the larger metropolitan areas that are I would say a little further behind.
Colin: There are general adoption of smart meter technology, so very confident with how we're positioned there and expect to continue to take more share as we move forward.
Colin: Okay.
Speaker Change: Great. Thank you for the color.
Speaker Change: Yes.
Speaker Change: Thank you. Our next question comes from Brian <unk> of Thompson Research Group your.
Speaker Change: Your line is now open. Please go ahead.
Speaker Change: Hey, good morning. Thank you for taking my questions today on the product breakout I guess this quarter has I think the best growth in storm drainage. It was 17% compared to the total company at about 10% and Thats kind of played out over the past few quarters here, where storm vantage outperform comp.
Speaker Change: Company total I guess can you just talk about what's driving that outperformance there for storm drainage specifically if that acquisition. That's growing is that company initiatives is that certain project types that are seeing better growth in the market any color there would be helpful.
Speaker Change: Yes, Thanks, Brian for storm drainage Youre right, we've seen really good growth there.
Speaker Change: A portion of that has been M&A of a really good driver, though of organic storm drainage growth for us has been specifically in the the road Enbridge area, we sell a lot of storm drainage product into that some of that has been kind of lifted by the infrastructure Bill funding there there's a good amount out there.
Speaker Change: Spreading around related to that road and bridge and straight work. So that's been a catalyst we've been well positioned from the storm drainage standpoint.
Speaker Change: One other catalysts would be just the kind of shifts and.
Speaker Change: Product type.
Speaker Change: There are some areas that are now opening up and allowing more of the storm drainage product that we saw and so there's more going through distribution on the storm drainage side versus historically some of that has been some other product like concrete that hasn't typically gone as much their distributions. So lot of good dynamics, there and expect that to continue.
Speaker Change: We need to be a good growth driver for us as we move forward.
Speaker Change: And then maybe taking a much longer pictured here, but can we maybe just talk about the 2028 targets that were set out in the prior Investor day, and I guess I'm thinking mainly the margin target of 15% EBITDA margins.
Speaker Change: Now it.
Speaker Change: It looks like you maybe need like 70 basis points of margin expansion per year to hit that number versus I think it was kind of 40 to 50 per year at the time in the Investor day, and kind of the long term annual value creation targets. So just trying to think are there new levers are stronger levers to pull today to continue to progress to that 15% margin. Thank you.
Speaker Change: Yes sure. Thanks, Thanks for the question.
Speaker Change: You think about the opportunity for us to expand EBITDA margin that the levers that we laid out during investor day, I'd say continue and I'd say, we continue to execute on those obviously a lot of progress made from a gross margin standpoint and given.
Speaker Change: Some of the M&A that we've completed really has provided I'd say, even more opportunities for us to drive drive some synergies and scale.
Speaker Change: I would say when we issued those targets during Investor Day, We also did expect.
Speaker Change: And I think we're very clear that there were there was some margin normalization that we expected to have happened early in the cycle. There. So it's not a surprise at all for us to know that we've got.
Speaker Change: We've got annual goals that are that are higher than that 30% to 50 that we've laid out there and I'm very confident given the levers that we've laid out and we've continued to execute against that we can achieve those goals.
Speaker Change: Great. Thank you.
Speaker Change: Yes.
Speaker Change: Thank you. Our next question comes from Mike Dahl of RBC capital markets. Your line is now open. Please go ahead.
Mike Dahl: Good morning, and thanks for taking my questions.
Speaker Change: A follow up on price and gross margin I guess, if we're sitting here today and it sounds like commodities are basically back to roughly neutral and you talked about some of the non commodity price increases.
Speaker Change: Anecdotally can you just help ballpark kind of rough magnitude.
Speaker Change: The price increases that youre seeing there vendors put into the market.
Speaker Change: And kind of timing of those because it seems like if commodities are flat and youre seeing some.
Speaker Change: Cost increases.
Speaker Change: Really we should be in more solidly inflationary territory for yourselves as we go.
Speaker Change: Through the year. So that's the first part and then maybe just type sequential cadence in gross margins as you have the inventory position, but then theres moving pieces around some of these dynamics in terms of implementation and timing of price.
Speaker Change: Any dialing in you can you can help us with on sequential gross margin.
Speaker Change: Yes, sure Mike I would just say generally as we think about pricing and then the outlook.
Speaker Change: Obviously, there's still a lot of uncertainty.
Speaker Change: On the tariff side, while I don't expect that will be a major driver for us and it should be kind of a neutral to positive.
Speaker Change: Obviously been volatile and something we're going to watch as we go forward.
Speaker Change: I'd say, yes, we're pleased with the sequential stability of the commodities, we still do have a headwind with Peter with PVC.
Speaker Change: Year over year basis, but we have been pleased with how that stabilized as we go forward and.
Speaker Change: Do you expect just given some of the discussion with.
Speaker Change: Given given some of the information that we've received from suppliers related to potential.
Speaker Change: The increases that we've got an opportunity to get some inventory.
Speaker Change: And like we have to be able to mitigate some of those cost increases and then we've really worked really hard with our suppliers and our customers to make sure that everybody.
Speaker Change: Is very it's very transparent and clear where they're going to see potential price increases as we go forward. So we're I'd say watching that closely we believe neutral as kind of the right frame of mind and we've tried to indicate it could be positive if it keeps kind of trending in this direction as we go through the the full year end.
Speaker Change: I expect that we'll be able to get cost increases passed along such that gross margins are either held neutral or.
Speaker Change: Given some of the inventory investments so we could get a benefit of that as we move throughout the year.
Speaker Change: Okay got it thanks for that color Mark.
Speaker Change: Just as a follow on you spent some time talking about greenfields.
Speaker Change: In the opening remarks, and the idea isn't knew that that the lever, but it sounded like maybe that could be something that sort of increasing focus for you.
Speaker Change: You've taken on the role.
Speaker Change: 20, greenfields over the past seven or eight years, I think compared to some other distribution platforms across building products is still relatively modest maybe just help us help us understand what your vision is specifically on kind of a greenfield strategy and whether you can be leaning in on that.
Speaker Change: Yes, sure Mike what I would tell you on Greenfields is just our general growth strategy is to have both levers for us to.
Speaker Change: Look at M&A and also having the opportunity to do Greenfields in selected markets. If that's Ah Ah.
Speaker Change: Better opportunities for growth and if you go back through back to 2017, when we became a Standalone company, obviously we've had.
Speaker Change: Some really strong M&A growth, we've added a lot of locations, we've integrated a lot of locations.
Speaker Change: And we've been able to complete greenfields during that time.
Speaker Change: I would tell you that there is definitely an emphasis on continuing to expand our business through greenfield locations.
Speaker Change: While.
Speaker Change: The annual average that you referenced may not sound.
Speaker Change: It sounds like a lot I can tell you that over the next year I would expect us to be opening somewhere between five and 10, new Greenfield throughout 2025, just based on what we've got in the pipeline right now so I'm very confident that given our focus in that area and evaluating.
Speaker Change: Whether M&A is the right strategy or Greenfields that were going to continue to make really good progress there and really excited about what's in our pipeline there.
Speaker Change: That's great. Thank you.
Speaker Change: Yes.
Speaker Change: Thank you. Our next question comes from Anthony Pettinari of Citi.
Speaker Change: Please go ahead.
Anthony Pettinari: Hi, good morning.
Speaker Change: For your municipal government customers is it possible to kind of generalize as you talk with them, how they're feeling about kind of the upcoming fiscal year and spending on your projects.
Speaker Change: Theres been kind of an effort by the administration to maybe Peel back some funding for <unk> or maybe some other programs.
Anthony Pettinari: Maybe you could put some pressure on munis, but maybe there are parts of the current budget that could be more.
Anthony Pettinari: Stimulus I was just wondering if you could talk about kind of the current policy environment and how your muni customers are kind of thinking about coming here.
Anthony Pettinari: Hey, Thanks, Anthony for the question.
Anthony Pettinari: There is 50000 municipalities in the U S. That's very fragmented and we do spend some time with their their annual budgets going through that I would say funding for the municipalities is healthy they've got multiple avenues that they can get funding for their projects.
Anthony Pettinari: The Iga is starting to flow more theres more of that flowing down to the municipalities.
Anthony Pettinari: Today than there has been in the past.
Anthony Pettinari: They are state level funding that's happening there are some multibillion dollar.
Anthony Pettinari: Hum.
Anthony Pettinari: Funding going out there at the state level for municipalities to gain funding to do some of these projects and then at the local level. What we're seeing now is the majority of the spend that municipalities used for their water infrastructure is on their local revenue streams from the utility rates that they charge to their customers.
Anthony Pettinari: Across the board, we feel like there's ample funding there for their projects her.
Anthony Pettinari: Several years to come obviously, the the water infrastructure has aged and the need of repair, but I feel.
Anthony Pettinari: I feel like there's a lot of runway there for them to continue to work on projects. So as we look at the guide and we look at the uncertainty in the back half of the year municipality is not really in that bucket are municipals.
Anthony Pettinari: Market is pretty steady and stable and resilient from that standpoint.
Anthony Pettinari: Got it got it that's very helpful.
Anthony Pettinari: And then just following up on the question on Greenfields and kind of organic versus inorganic on the M&A side are you seeing increased competition.
Anthony Pettinari: For deals seems.
Anthony Pettinari: It seems to be a lot of interest in building products distribution consolidation I don't know if waterworks is niche enough that you're not seeing.
Anthony Pettinari: A different kind of competitive environment for deals versus a few years ago are just wondering if you kind of characterize the.
Anthony Pettinari: The M&A market right now.
Anthony Pettinari: Yeah sure. Thanks. Thanks for the question I would tell you no real changes from a competitive standpoint.
Anthony Pettinari: M&A side I would tell you generally it can just be a little lumpier given when sellers are ready to sell.
Anthony Pettinari: <unk> in our industry.
Anthony Pettinari: There is a little bit more of a niche industry.
Anthony Pettinari: Industry I would say, we've got a lot of really strong relationships crossed the waterworks space and continue.
Anthony Pettinari: Continue to be viewed as the acquirer of choice there just given given those long standing relationships and I think the.
Anthony Pettinari: The value that we've been able to demonstrate when we do these acquisitions and really making a good home for the associates and really.
Anthony Pettinari: We're really helping them find new opportunities for growth.
Anthony Pettinari: Helping us create value so that that continues to be a strong lever for us I would tell you our pipeline as Robin mentioned on the on the call is very healthy.
Anthony Pettinari: Various deals that we're looking at various stages in sizes right now and continue to expect that we will continue to deliver on our growth strategy from an M&A standpoint.
Speaker Change: Okay. That's very helpful I'll turn it over.
Speaker Change: Thank you. Our next question comes from Andrew <unk> of Bank of America line is now open. Please go ahead.
Speaker Change: Hi, This is David Ridley Lane for Andrew.
Speaker Change: Given some public commentary from your competitors how is your own employee retention trended over the last 12 months to.
Speaker Change: To put it bluntly.
Speaker Change: Bluntly do you seen an uptick in poaching of your field sales representatives.
David Manthey: Thanks, David for the question I would tell you our retention of our associates remains extremely high I would say it's.
Speaker Change: I would be confident in saying, it's the best in the industry.
Speaker Change: <unk> always been in a position to re.
Speaker Change: <unk>, our people and for.
Speaker Change: I would say.
Speaker Change: Poaching standpoint, you can see that from time to time in the industry.
Speaker Change: It can come up I would say, we generally view that as a positive for us because we are generally able to take advantage of those situations in markets, where there that's happening in the industry I wouldn't say, it's any heavier or lighter than what we've ever seen historically.
Speaker Change: I feel really good with the retention of our team and what we're delivering.
Speaker Change: Overall basis in <unk>.
Speaker Change: Continue to expect that to be the cases, where you go forward.
Speaker Change: Great and then on the new cost out initiatives that you.
Speaker Change: Announced on this earnings call.
Speaker Change: Any rough quantification that you could give us in terms of how much you would expect to be realizing.
Speaker Change: Realizing in the fiscal year.
Speaker Change: Just roughly.
Speaker Change: Hey, David I would tell you that we've got a kind of a lot of things going on there on the SG&A side, we are continuing to make investments in areas that have good opportunity for growth, making sure that those resources that we are.
Speaker Change: Adding are focused on the areas of growth is there areas that maybe are a little bit underperforming, we can make shifts and we've done some of those things to make sure. Those resources are aligned to the best areas of opportunity, but I would say.
Speaker Change: Not anything substantial at this point, we've been more focused on.
Speaker Change: Scaling some of the recent M&A that we've gotten and getting synergies that way on the SG&A front and then just making sure our resources are appropriately deploy to the areas that get us the most opportunity and those have been kind of the biggest areas of focus for us so far.
Speaker Change: Sorry did I Miss here that I mean, when you were talking about the guidance and the guidance commentary you said SG&A some cost out initiatives started great I'm just yes, we do have a little bit and and underperforming areas. We do have a little bit of cost out that we did but.
Speaker Change: That's that's part of my comments are aligning resources to the areas with the best opportunity.
Speaker Change: Okay. Okay. Thank you.
Speaker Change: Thanks.
Speaker Change: Yeah.
Speaker Change: Okay.
Speaker Change: Thank you at this time, we currently have no further questions. So how about a quick housekeeping for any further remarks.
Speaker Change: Thank you all again for joining us today. It was a pleasure to have you on the call.
Speaker Change: I'd like to close by thanking our associates for continuing to provide exceptional service to our customers. We delivered another quarter of record performance driven by resilient demand above market growth stable pricing and sequential gross margin expansion.
Speaker Change: Our local relationships diverse offerings and investments in talent and new capabilities continue to differentiate <unk> and drive market share gains.
Speaker Change: A uniquely positioned to capitalize on the long term secular drivers of water infrastructure investment.
Speaker Change: <unk> aging systems population growth and increasing regulatory demands.
Speaker Change: Our scale local expertise and proven growth strategy enable us to deliver critical solutions that support the modernization and resilience of water systems nationwide.
Speaker Change: Thank you for your interest in core main operator that concludes our call.
Speaker Change: Thank you all for joining today's call you may now disconnect your lines.
Speaker Change: [music].
Speaker Change: Yeah.
Speaker Change: Okay.