Core & Main, Inc. — Form 10-K Summary
Period clarification: The request identifies “2019 Q4,” but the supplied filing is the annual report for the fiscal year ended January 29, 2023 (fiscal 2022). It compares fiscal 2022 with the year ended January 30, 2022 (fiscal 2021). The supplied text does not provide clear standalone fourth-quarter results for either period.
Business context and reporting period
Core & Main is a nationwide distributor of water, wastewater, storm drainage and fire protection products and related services. It operated approximately 320 branches in 48 states and served municipal, non-residential and residential markets. Fiscal 2022 sales mix was approximately 39% municipal, 39% non-residential and 22% residential. The company reports as one operating segment.
Key financial metrics
| Metric | Fiscal 2022 | Fiscal 2021 |
|---|---|---|
| Net sales | $6,651 million | $5,004 million |
| Gross profit / gross margin | $1,795 million / 27.0% | $1,280 million / 25.6% |
| Operating income / operating margin | $775 million / 11.7% | $425 million / 8.5% |
| Net income | $581 million | $225 million |
| Net income attributable to Core & Main, Inc. | $366 million | $166 million |
| Class A diluted EPS | $2.13 | $0.55 |
| Adjusted EBITDA (non-GAAP) | $935 million | $604 million |
| Cash from operating activities | $401 million | $(31) million |
At January 29, 2023, cash and cash equivalents were $177 million; total debt was $1.478 billion, with no ABL borrowings outstanding and approximately $1.238 billion of ABL availability, subject to borrowing-base limits. Current maturities of debt were $15 million. Total assets were $4.909 billion and current liabilities were $726 million. Future operating lease payments totaled $198 million; the recorded lease liability was $175 million. The company reported a $185 million Tax Receivable Agreement liability in its liquidity discussion.
Material changes versus the prior comparable period
- Sales rose 32.9%, driven primarily by higher selling prices, which management said accounted for approximately three-fourths of the increase, alongside volume growth and acquisitions.
- Gross margin expanded 1.4 percentage points. Management attributed the improvement to favorable pricing, strategic inventory purchases ahead of price increases, margin initiatives and acquisitions.
- SG&A rose 22.7% to $880 million, mainly from higher personnel costs, variable compensation, headcount, distribution and facility costs. SG&A declined as a share of sales, from 14.3% to 13.2%.
- Operating income increased 82.4% and Adjusted EBITDA increased 54.8%. Interest expense fell to $66 million from $98 million, while fiscal 2021 included a $51 million debt-modification and extinguishment loss.
- Operating cash flow improved by $432 million, from a $31 million use to $401 million provided. The filing cites stronger operating income, a smaller working-capital investment and lower cash interest payments.
- Fiscal 2022 investing cash outflow was $152 million, including $128 million for acquisitions and $25 million of capital expenditures. Acquisitions included Trumbull, Earthsavers and other businesses.
Outlook, management commentary, risks and unusual items
- Management expected fiscal 2023 year-over-year growth rates to moderate as the business compares against fiscal 2022 inflation-driven growth. It warned that greater product availability could increase deflation risk or reduce sales growth.
- Management estimated that approximately 100–150 basis points of fiscal 2022 gross-margin improvement might be temporary as supply and pricing conditions normalize.
- The company expects federal infrastructure funding, including the Infrastructure Investment and Jobs Act’s $55 billion for water infrastructure, to support demand over time; timing and allocation of funds remain uncertain.
- Management said existing cash, operating cash flow and available ABL capacity should be sufficient for working capital, capital expenditures and other commitments for at least 12 months. This assessment depends on assumptions that may not hold.
- Management said it expected to return capital in fiscal 2023 through dividends and/or share repurchases, subject to board discretion, liquidity, covenants and other restrictions. No dividend plan was approved as of the report.
- Debt bears variable interest rates. The company disclosed that a one-percentage-point rate change could affect annual interest expense by approximately $27 million assuming the ABL were fully drawn, before hedging. A swap covered $1.0 billion of term debt at year-end, with scheduled reductions in notional amount. Subsequent to year-end, the company amended its term loan and swap to use Term SOFR in place of LIBOR.
- Key risks include construction-market cyclicality and higher rates; municipal funding delays; product-cost volatility, inventory exposure and supply-chain disruption; customer credit and collections; supplier and freight availability; acquisition integration; cybersecurity; and debt service and refinancing. Approximately 98% of fiscal 2022 sales volume was made on credit.
- Other items to note: the IPO-related refinancing produced the $51 million fiscal 2021 charge; fiscal 2022 included $128 million of income-tax expense and $147 million of cash taxes. The company reported no material legal proceedings, no off-balance-sheet arrangements, and effective internal controls; the auditor issued an unqualified opinion on the financial statements and controls.
Important facts for investors to verify
- Confirm the intended reporting period: this filing covers fiscal 2022, not 2019 Q4, and the supplied text does not show standalone Q4 financial results.
- Assess how much fiscal 2022 sales and margin growth came from price inflation versus sustainable volume, share gains and mix; monitor the potential reversal of temporary margin benefits.
- Review debt terms, variable-rate exposure, swap coverage, covenant headroom, ABL borrowing-base availability and scheduled maturities.
- Track working capital, inventory levels, receivable collections and customer credit quality as supply conditions and construction markets change.
- Evaluate acquisition returns and integration, and the cash demands of the $185 million Tax Receivable Agreement liability and future exchanges.
- Distinguish GAAP earnings and operating cash flow from Adjusted EBITDA, which is a non-GAAP measure and excludes items including interest, taxes and specified expenses.
- Consider CD&R’s voting control, potential share issuance from exchangeable partnership interests, and the discretionary nature of prospective dividends or repurchases.