Water and fire protection solutions company Core & Main (NYSE: CNM) reported Q4 CY2024 results beating Wall Street’s revenue expectations, with sales up 17.9% year on year to $1.70 billion. On the other hand, the company’s full-year revenue guidance of $7.7 billion at the midpoint came in 1% below analysts’ estimates. Its GAAP profit of $0.33 per share was 12.2% below analysts’ consensus estimates.
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Core & Main (CNM) Q4 CY2024 Highlights:
- Revenue: $1.70 billion vs analyst estimates of $1.67 billion (17.9% year-on-year growth, 1.7% beat)
- EPS (GAAP): $0.33 vs analyst expectations of $0.38 (12.2% miss)
- Adjusted EBITDA: $179 million vs analyst estimates of $26.73 million (10.5% margin, significant beat)
- Management’s revenue guidance for the upcoming financial year 2025 is $7.7 billion at the midpoint, missing analyst estimates by 1% and implying 3.5% growth (vs 11.4% in FY2024)
- EBITDA guidance for the upcoming financial year 2025 is $975 million at the midpoint, below analyst estimates of $989.2 million
- Operating Margin: 7.3%, in line with the same quarter last year
- Free Cash Flow Margin: 13.2%, down from 27% in the same quarter last year
- Market Capitalization: $9.44 billion
"Our teams across the country executed at a high level in the fourth quarter, delivering our fifteenth consecutive year of positive sales growth," said Steve LeClair, chair and CEO of Core & Main.
Company Overview
Formerly a division of industrial distributor HD Supply, Core & Main (NYSE: CNM) is a provider of water, wastewater, and fire protection products and services.
Infrastructure Distributors
Focusing on narrow product categories that can lead to economies of scale, infrastructure distributors sell essential goods that often enjoy more predictable revenue streams. For example, the ongoing inspection, maintenance, and replacement of pipes and water pumps are critical to a functioning society, rendering them non-discretionary. Lately, innovation to address trends like water conservation has driven incremental sales. But like the broader industrials sector, infrastructure distributors are also at the whim of economic cycles as external factors like interest rates can greatly impact commercial and residential construction projects that drive demand for infrastructure products.
Sales Growth
Reviewing a company’s long-term sales performance reveals insights into its quality. Any business can put up a good quarter or two, but many enduring ones grow for years. Thankfully, Core & Main’s 17% annualized revenue growth over the last five years was incredible. Its growth surpassed the average industrials company and shows its offerings resonate with customers, a great starting point for our analysis.
We at StockStory place the most emphasis on long-term growth, but within industrials, a half-decade historical view may miss cycles, industry trends, or a company capitalizing on catalysts such as a new contract win or a successful product line. Core & Main’s recent performance shows its demand has slowed significantly as its annualized revenue growth of 5.8% over the last two years was well below its five-year trend. 
This quarter, Core & Main reported year-on-year revenue growth of 17.9%, and its $1.70 billion of revenue exceeded Wall Street’s estimates by 1.7%.
Looking ahead, sell-side analysts expect revenue to grow 4.5% over the next 12 months, similar to its two-year rate. This projection doesn't excite us and indicates its products and services will see some demand headwinds. At least the company is tracking well in other measures of financial health.
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Operating Margin
Core & Main has done a decent job managing its cost base over the last five years. The company has produced an average operating margin of 9.6%, higher than the broader industrials sector.
Analyzing the trend in its profitability, Core & Main’s operating margin rose by 4.7 percentage points over the last five years, as its sales growth gave it operating leverage.
In Q4, Core & Main generated an operating profit margin of 7.3%, in line with the same quarter last year. This indicates the company’s cost structure has recently been stable.
Earnings Per Share
Revenue trends explain a company’s historical growth, but the long-term change in earnings per share (EPS) points to the profitability of that growth – for example, a company could inflate its sales through excessive spending on advertising and promotions.
Core & Main’s EPS grew at an astounding 65.7% compounded annual growth rate over the last five years, higher than its 17% annualized revenue growth. This tells us the company became more profitable on a per-share basis as it expanded.
We can take a deeper look into Core & Main’s earnings to better understand the drivers of its performance. As we mentioned earlier, Core & Main’s operating margin was flat this quarter but expanded by 4.7 percentage points over the last five years. On top of that, its share count shrank by 3.2%. These are positive signs for shareholders because improving profitability and share buybacks turbocharge EPS growth relative to revenue growth. 
Like with revenue, we analyze EPS over a more recent period because it can provide insight into an emerging theme or development for the business.
For Core & Main, its two-year annual EPS growth of 17.4% was lower than its five-year trend. We still think its growth was good and hope it can accelerate in the future.
In Q4, Core & Main reported EPS at $0.33, up from $0.29 in the same quarter last year. Despite growing year on year, this print missed analysts’ estimates, but we care more about long-term EPS growth than short-term movements. Over the next 12 months, Wall Street expects Core & Main’s full-year EPS of $2.05 to grow 24.6%.
Key Takeaways from Core & Main’s Q4 Results
We were impressed by how significantly Core & Main blew past analysts’ EBITDA expectations this quarter. We were also happy its revenue outperformed Wall Street’s estimates. On the other hand, its EPS missed significantly and its full-year EBITDA guidance fell slightly short of Wall Street’s estimates. Overall, this was a softer quarter. The stock traded down 3.9% to $47.69 immediately following the results.
Is Core & Main an attractive investment opportunity at the current price? When making that decision, it’s important to consider its valuation, business qualities, as well as what has happened in the latest quarter. We cover that in our actionable full research report which you can read here, it’s free.
