Core & Main, Inc. — Form 10-K Summary
Period clarification: The request identifies “2020 Q4,” but the supplied filing is the annual report for the 52-week fiscal year ended January 28, 2024 (fiscal 2023), compared primarily with the year ended January 29, 2023. This summary reflects the filing provided.
Business context and reporting period
Core & Main distributes water, wastewater, storm drainage and fire-protection products and related services to municipalities, utilities and contractors. It reported approximately 335 branches in 48 states, serving more than 60,000 customers. Fiscal 2023 sales were approximately 42% municipal, 38% non-residential and 20% residential. The company operates as one reportable segment.
Key financial metrics
| Metric | Fiscal 2023 | Fiscal 2022 |
|---|---|---|
| Net sales | $6.702 billion | $6.651 billion |
| Gross profit / gross margin | $1.818 billion / 27.1% | $1.795 billion / 27.0% |
| Operating income | $740 million | $775 million |
| Net income | $531 million | $581 million |
| Net income attributable to Core & Main, Inc. | $371 million | $366 million |
| Basic / diluted EPS | $2.15 / $2.15 | $2.16 / $2.13 |
| Adjusted EBITDA (non-GAAP) | $910 million | $935 million |
| Cash from operating activities | $1.069 billion | $401 million |
SG&A rose 5.8% to $931 million; as a share of sales it increased to 13.9% from 13.2%. Interest expense rose to $81 million from $66 million, primarily due to higher rates and greater ABL borrowings. Operating margin was approximately 11.0%, versus 11.7% in fiscal 2022.
Operating cash flow benefited mainly from a $328 million inventory reduction, following inventory investment in the prior year as product lead times improved. Investing cash outflow was $270 million, including $231 million for acquisitions and $39 million of capital expenditures. Financing cash outflow was $975 million, including $1.344 billion of repurchases and redemptions.
At year-end, cash was $1 million; current assets were $1.773 billion and current liabilities $774 million. Debt totaled $1.893 billion, including $430 million drawn on the ABL facility; reported availability under that facility was approximately $804 million, subject to borrowing-base limits. Lease commitments were approximately $218 million in undiscounted payments. Tax Receivable Agreement liabilities were $717 million.
Material changes versus the prior comparable period
- Sales increased 0.8%, as higher selling prices and acquisitions were partly offset by lower end-market volumes.
- Product trends varied: meter sales rose 15.9% and storm-drainage sales rose 3.8%; pipes, valves and fittings declined 1.0%, and fire-protection sales declined 1.9%.
- Gross margin edged up 0.1 percentage point, supported by margin initiatives, partly offset by normalization of prior-year benefits from strategic inventory purchases.
- Operating income fell 4.5%, net income fell 8.6%, and Adjusted EBITDA fell 2.7%, reflecting higher SG&A and interest expense.
- Operating cash flow increased substantially with inventory reduction. Fiscal 2023 acquisitions had aggregate transaction value of $244 million, compared with $124 million in fiscal 2022.
- Repurchase transactions totaled $1.344 billion. Secondary offerings by selling stockholders generated no proceeds for the company; CD&R investors no longer held company shares as of January 25, 2024.
Outlook, management commentary, risks and unusual items
Management cited the Infrastructure Investment and Jobs Act, including $55 billion for U.S. water infrastructure, and expanding municipal budgets as potential long-term demand supports. It also noted that higher interest rates slowed home buying and new-lot development, contributing to weaker residential demand. The filing provides no numeric fiscal 2024 revenue or earnings guidance. Fiscal 2024 is expected to include 53 weeks.
After year-end, the company entered into a $750 million incremental term loan due in 2031 and extended the ABL facility maturity to February 2029. It also entered into a new interest-rate swap. Subsequent to year-end, it acquired Dana Kepner and Eastern Supply for aggregate transaction value of $548 million, subject to working-capital adjustments. The company expects to use loan proceeds for purposes including repayment of ABL borrowings, growth, acquisitions and other capital-allocation initiatives.
Key risks include construction-market cyclicality; municipal funding and federal-fund timing; product-cost and inventory volatility; supplier concentration and rebates; customer credit and collections; acquisition integration; and variable-rate debt. The filing states that a one-percentage-point rate change, assuming the ABL is fully drawn and excluding hedging effects, could change annual interest expense on the ABL and 2028 term loan by approximately $27 million. Substantially all operating assets secure the credit facilities. Tax Receivable Agreement payments generally transfer 85% of realized or deemed tax benefits to counterparties; the recorded liability was $717 million. No material legal proceedings were reported, though asbestos-related claims remain among ordinary-course litigation exposures. Management and the auditor reported effective internal control over financial reporting; no cybersecurity incident during the period was reported as materially affecting the company.
Most important facts for investors to verify
- Whether sales and margins can hold up as construction volumes, product pricing and supply conditions change.
- How much of the strong operating cash flow reflects sustainable operations versus the fiscal 2023 inventory release.
- Post-year-end debt, swap and acquisition impacts on leverage, interest expense, liquidity and integration costs.
- The timing and cash burden of the $717 million Tax Receivable Agreement liability and future payments.
- Whether federal infrastructure funding is appropriated and reaches the company’s markets, and whether fiscal 2024 outlook or guidance has subsequently been provided.