Water and fire protection solutions company Core & Main (NYSE: CNM) fell short of the market’s revenue expectations in Q2 CY2025, but sales rose 6.6% year on year to $2.09 billion. The company’s full-year revenue guidance of $7.65 billion at the midpoint came in 1.7% below analysts’ estimates. Its non-GAAP profit of $0.87 per share was 10.2% above analysts’ consensus estimates.

Is now the time to buy CNM? Find out in our full research report (it’s free).

StockStory’s Take

Core & Main’s second quarter results were met with a significant negative reaction from the market, reflecting concerns around both top-line performance and forward-looking expectations. Management attributed the quarter’s growth to healthy municipal demand and execution in treatment plant and fusible HDPE projects, but noted that residential lot development slowed, particularly in Sunbelt regions. CEO Mark Witkowski highlighted, “We believe higher interest rates, affordability concerns, and lower consumer confidence are weighing on demand for new homes.” Operating costs were also higher than anticipated, with inflation in facilities and fleet contributing to margin pressures.

Looking ahead, Core & Main’s updated guidance is shaped by softer residential demand, ongoing cost inflation, and a measured approach to cost reduction. Management expects muted activity in the residential segment to persist, while maintaining a focus on margin expansion through gross margin initiatives and acquisition synergies. CFO Robyn Bradbury noted that, “We are lowering our guidance to reflect current market conditions and higher operating expenses,” while emphasizing continued investment in greenfield locations and technology. Leadership remains confident in long-term demand drivers, including aging water infrastructure and municipal project funding, but cautioned that cost-out actions will take time to yield full benefits.

Key Insights from Management’s Remarks

Core & Main’s management pointed to mixed end-market trends, strong execution in select segments, and persistent cost pressures as the main factors behind the quarter’s performance and revised outlook.

• Municipal and infrastructure demand: Management credited steady municipal repair, replacement, and treatment plant projects for stable growth, supported by ongoing funding and a healthy bid pipeline. These projects offset some of the softness in other end markets.
• Residential slowdown: Lot development for single-family homes, particularly in previously high-growth Sunbelt areas, declined due to higher interest rates and reduced consumer confidence. The company expects this segment to remain weak through the second half.
• Acquisition and expansion activity: Core & Main continued its M&A strategy by announcing the acquisition of Canada Waterworks, expanding its Canadian presence and creating a platform for future growth. New branch openings in Kansas City and Wisconsin further strengthened market reach.
• Margin management efforts: Gross margin improved year over year, driven by private label and sourcing initiatives, but operating margins were pressured by elevated SG&A from acquisitions, inflation, and higher employee benefit costs. Management is implementing targeted cost-out actions to address these issues.
• Metering sales and project delays: Sales of meter products declined due to project delays and a tough comparison to last year’s elevated growth, but a growing backlog is expected to support stronger results in the second half.

Drivers of Future Performance

Management expects future results to be shaped by persistent residential softness, ongoing cost control efforts, and opportunities tied to municipal infrastructure trends.

• Residential headwinds: Soft demand for single-family lot development is expected to weigh on sales for the remainder of the year. Management cited ongoing affordability challenges and higher mortgage rates as primary drivers, and does not anticipate a near-term recovery in this segment.
• Margin improvement initiatives: The company is focused on cost savings through SG&A reductions, integration of recent acquisitions, and continued gross margin enhancements via private label and sourcing programs. These efforts are expected to gradually benefit margins, with more meaningful impact projected in 2026.
• Municipal and non-residential opportunities: Municipal infrastructure spending and certain non-residential projects like data centers are expected to remain supportive. Management sees secular tailwinds in water infrastructure investment and is targeting above-market growth through both organic expansion and selective M&A.

Catalysts in Upcoming Quarters

Our analysts will be watching (1) signs of stabilization or improvement in residential lot development, particularly in Sunbelt markets; (2) realization of SG&A cost-out actions and their impact on operating margins; and (3) continued progress in municipal and non-residential project pipelines, including the impact of the Canada Waterworks acquisition. Expansion of private label offerings and greenfield locations will also be important markers for Core & Main’s execution.

Core & Main currently trades at $49.85, down from $66.54 just before the earnings. In the wake of this quarter, is it a buy or sell? See for yourself in our full research report (it’s free).

Our Favorite Stocks Right Now

Donald Trump’s April 2025 "Liberation Day" tariffs sent markets into a tailspin, but stocks have since rebounded strongly, proving that knee-jerk reactions often create the best buying opportunities.

The smart money is already positioning for the next leg up. Don’t miss out on the recovery - check out our Top 5 Growth Stocks for this month. This is a curated list of our High Quality stocks that have generated a market-beating return of 183% over the last five years (as of March 31st 2025).

Stocks that made our list in 2020 include now familiar names such as Nvidia (+1,545% between March 2020 and March 2025) as well as under-the-radar businesses like the once-micro-cap company Tecnoglass (+1,754% five-year return). Find your next big winner with StockStory today.

StockStory is growing and hiring equity analyst and marketing roles. Are you a 0 to 1 builder passionate about the markets and AI? See the open roles here.