Hello and welcome to the Core & Main Q2 2025 earnings call. My name is Alex. I'll be coordinating today's call. If you'd like to ask a question at the end of the presentation, please press star followed by one on your telephone keypad. I'll now hand it over to Glenn Floyd, Director of Investor Relations. Please go ahead.

Good morning and thank you for joining us. I'm Glenn Floyd, Director of Investor Relations at Core & Main. We appreciate you taking the time to be with us today for our fiscal 2025 second quarter earnings call. Joining me this morning are Mark Witkowski, our Chief Executive Officer, and Robyn Bradbury, our Chief Financial Officer. On today's call, Mark will begin by sharing an overview of our business and recent performance. Robyn will follow with a review of our second quarter results and our outlook for the rest of fiscal 2025. We'll then open the line for Q&A, and Mark will wrap up with closing remarks. As a reminder, our press release, presentation materials, and the statements made during today's call may include forward-looking statements. These are subject to various risks and uncertainties that could cause actual results to differ materially from our expectations.

For more information, please refer to the cautionary statements included in our earnings press release and in our filings with the SEC. We will also reference certain non-GAAP financial measures during today's discussion. We believe these metrics provide useful insight into the underlying performance of our business. Reconciliations to the most comparable GAAP measure are available in both our earnings press release and the appendix of today's investor presentation. Thank you again for your interest in Core & Main. I'll now turn the call over to our Chief Executive Officer, Mark Witkowski.

Thanks, Glenn, and good morning, everyone. We appreciate you joining us today. If you're following along with our second quarter earnings presentation, I'll begin on page five with a business update. I'm proud of our associates' dedication to supporting customers and delivering critical infrastructure projects. Our teams drove nearly 7% net sales growth in the quarter, including roughly 5% organic growth. Municipal demand remained healthy, supported by traditional repair and replacement activity, advanced metering infrastructure conversion projects, and the construction of new water and wastewater treatment facilities. Our non-residential end market was stable in the quarter. Highway and street projects remain strong, institutional construction has been steady, and we're seeing continued momentum from data centers. While data centers represent a small portion of our sales mix today, customer sentiment points to continued growth in this space, and we expect it to become a larger portion of our sales mix over time.

On the residential side, lot development for single-family housing, which accounts for roughly 20% of our sales, slowed during the quarter, especially in previously fast-growing Sunbelt markets. We believe higher interest rates, affordability concerns, and lower consumer confidence are weighing on demand for new homes. Until these macro headwinds ease, we expect activity in this end market will continue to soften through the second half. As a result, we are factoring in a lower residential outlook into our full-year expectations, which Robyn will speak to in more detail. Against this market backdrop, we drove significant sales growth and market share gains across key initiatives, including treatment plant and fusible HDPE projects, where our technical expertise and consistent execution continue to differentiate Core & Main in the industry. We are also deepening relationships with large regional and national contractors, especially those pursuing critical infrastructure projects across the country.

These customers increasingly value our ability to support them with consistent service, scale, and product availability wherever their projects take them. Sales of meter products declined year over year, primarily due to project delays in the current year and a difficult comparison to last year's 48% growth rate. However, we have a growing backlog of metering projects we expect to release in the second half of the year, supporting our expectation for strong full-year metering sales growth. Additionally, a healthy pipeline of bids and continued project awards gives us confidence in both the near and long-term outlook for metering upgrade projects. Gross margins performed well in the quarter at 26.8%, up 10 basis points sequentially from Q1, and up 40 basis points year over year. Our gross margins reflect strong execution of our private label and sourcing initiatives, while our local teams continue to capture market share.

At the end of the day, our performance is largely driven by how well we support our customers, making sure they have the right products at the right time with the service they need to keep projects on schedule and on budget. At the same time, our operating costs were elevated this quarter. We've experienced unusually high employee benefit costs and inflation in other categories like facilities, fleet, and other distribution-related expenses. We have also carried higher costs from recent acquisitions, which have contributed to sales growth but have not yet reached their full synergy potential. Although we anticipated some of these pressures, certain costs were more pronounced than expected. To address these factors, we have implemented targeted cost-out actions to improve productivity and operating margins. We expect a portion of the savings to be realized in the second half of this year, with a larger annualized benefit in 2026.

We expect to achieve additional synergies tied to recent acquisitions. Our integration approach is phased and growth-oriented, starting with people, sales, and operations to position each business for success. Once that foundation is in place, we evaluate opportunities in terms of costs and resources and develop plans to drive SG&A synergies. Our approach to cost management will be measured and focused on realigning the business with the demand environment without jeopardizing future performance, growth opportunities, or the ability to serve our customers. We remain confident in the long-term growth and profitability prospects of Core & Main, including our ability to drive SG&A improvements and generate substantial value for shareholders. We continue to be balanced in how we allocate capital.

During the quarter, we generated $34 million of operating cash flow and deployed approximately $24 million across organic growth initiatives, share repurchases, and debt service. Year to date, we have repurchased $47 million of shares, reducing our share count by nearly 1 million. Our growth strategy is driven by organic growth and complementary acquisitions. After the quarter, we announced the acquisition of Canada Waterworks, a three-branch distributor of pipe, valves, fittings, and storm drainage products in Ontario, Canada. We expect the transaction to close later this month, further enhancing our position in the multi-billion dollar Canadian addressable market. With this acquisition, we now have five locations in Ontario, all established through value-enhancing M&A. This has created a platform for meaningful growth in Canada. On the organic side, we're making prudent investments to enhance our capabilities and better serve customers.

We recently opened new locations in Kansas City and Wisconsin, strengthening our presence in priority markets. We are also evaluating additional high-growth markets for future expansion. These investments are designed to generate long-term growth, strengthen our market share, and support our goal of delivering above-market growth over the coming years. We have plans to open several more locations this year, and I look forward to sharing updates on these initiatives. Before turning the call over to Robyn, I want to reiterate my confidence in Core & Main's growth and margin expansion opportunity. We are well-positioned to benefit from future investments in aging U.S. water infrastructure. We have the right team in place to execute on the opportunities ahead, and we look forward to delivering even greater value to our customers, suppliers, communities, and shareholders. Thank you for your continued support and trust in our vision. With that, I'll turn the call over to Robyn to walk through our financial results and outlook for the remainder of the year. Go ahead, Robyn.

Thanks, Mark. I'll start on page seven of the presentation with some highlights from our second quarter results. As Mark mentioned, we grew net sales nearly 7% in the quarter to $2.1 billion. Organic sales were up roughly 5%, with the balance of growth coming from acquisitions. Prices continued to be flat overall, and our teams worked diligently to sustain pricing in an evolving tariff and end-market environment. In total, we estimate that our end markets grew in the low single-digits range. We outperformed the market with significant sales growth and market share gains in our treatment plant and fusible HDPE initiatives. Gross margin came in at 26.8%, up 10 basis points from the first quarter, and up 40 basis points year over year. The sequential and year-over-year improvement were both largely driven by continued execution of our private label and sourcing initiatives and contribution from accretive acquisitions.

SG&A expenses increased 13% this quarter to $302 million. Roughly half of the $34 million increase was related to incremental costs from acquisitions and timing of one-time and other non-recurring costs. The remainder was made up of volume-related growth, inflation and distribution-related costs, and investments to drive future growth and market share gains. We implemented certain productivity and cost-out measures earlier this year, but with higher costs and inflation continuing to pressure our operating margins and our expectation of softer residential demand, we will be taking additional targeted cost reduction actions in areas that won't impact our ability to serve customers. Importantly, we will continue to make strategic investments to strengthen the business. We're seeing strong results from our sales initiatives, and we have opportunities to accelerate that with additional investment. We intend to keep expanding through greenfield locations to better serve customers and capture share, while also investing in technology solutions that improve efficiency and support long-term margin expansion.

Interest expense was $31 million in the second quarter, down from $36 million in the prior year. The decrease was primarily driven by lower fixed and variable interest rates on our senior term loan credit facilities and lower average borrowings under our ABL credit facility. Our provision for income tax was $41 million compared to $42 million in the prior year. Our effective tax rate was 22.5% for the quarter versus 25% a year ago. The decrease in effective tax rate was primarily due to tax benefits associated with equity-based compensation. Adjusted diluted earnings per share increased approximately 13% to $0.87 compared to $0.77 in the prior year.

The increase reflects higher adjusted net income, as well as the benefit of a lower share count following our share repurchase activity across fiscal years 2024 and 2025. We exclude intangible amortization because a significant portion of it relates to the formation of Core & Main following our leveraged buyout in 2017. We believe adjusted diluted EPS better reflects the results of our operating strategy and the value creation we're delivering for shareholders. Adjusted EBITDA increased 4% to $266 million in the quarter, while adjusted EBITDA margin declined 40 basis points to 12.7%. The decline in adjusted EBITDA margin was driven by higher SG&A as a percentage of net sales, which we are taking actions to optimize.

Turning to the balance sheet and cash flow, we ended the quarter with net debt of $2.3 billion and net debt leverage of 2.4 times within our stated goals. Total liquidity was $1.1 billion, consisting primarily of availability under our ABL credit facility. Net cash provided by operating activities was $34 million in the quarter, down from $48 million in the prior year. The decline was primarily due to higher investment in working capital, partially offset by higher net income, lower tax payments, and timing of interest payments. During the second quarter, we returned $8 million to shareholders through share repurchases, bringing our total for the first half of fiscal 2025 to $47 million and reducing our share count by nearly 1 million shares. As of today, we have $277 million remaining under our share repurchase program.

Next, I'll cover our revised outlook for fiscal 2025 on page nine. We are very pleased with our sales growth, gross margin expansion, and capital allocation efforts through the first half of the year. However, higher operating costs and softer residential demand have resulted in operating margins coming in below our expectations. As a result, we are lowering our guidance to reflect current market conditions and higher operating expenses. We now expect net sales of $7.6 to $7.7 billion, adjusted EBITDA of $920 to $940 million, and operating cash flow of $550 to $610 million. We expect end market volumes to be slightly down for the full year. Municipal end market volumes are expected to grow in the low single digits, non-residential volumes are expected to be roughly flat, and residential lot development is expected to decline in the low double digits.

Residential volumes were soft in the quarter and have weakened further through August, consistent with our updated guidance. We still expect pricing to have a neutral impact on full-year sales, and we remain on track to deliver 2% to 4% of above-market growth. We expect adjusted EBITDA margins in the second half of the year to be slightly lower than the first half, reflecting continued gross margin performance offset by a softer residential market and a higher SG&A rate. In summary, we continue to execute our growth initiatives, expand gross margins, and make the strategic investments needed to position the business for long-term success. We have favorable long-term demand characteristics across each of our end markets, many levers to drive organic above-market performance, a healthy M&A pipeline, and numerous opportunities to improve operating margins. We are taking targeted actions to align the business with current demand trends and deploying capital to accelerate growth and enhance shareholder returns.

We are confident in our ability to execute on the opportunities ahead, and we look forward to delivering even greater value to our customers, suppliers, communities, and shareholders. With that, we'll open it up for questions.

Thank you. As a reminder, if you'd like to ask a question, please press star followed by one on your telephone keypad. If you'd like to remove your question, that's star followed by two. Our first question for today comes from Brian Biros of Thomson Research Group. Your line's now open. Please go ahead.

Hey, good morning. Thank you for taking my questions today. On the guidance changes, I guess the adjustment to the RESI outlook from flat to down low double digits looks to account for maybe a little bit more than the adjustment to total sales overall. It seems like maybe there's something at least positive partially offsetting that RESI impact. Maybe that's slightly better in the municipal market. Maybe it's just recent M&A being added in. Can you just touch a little bit more on the puts and takes to the revenue guidance there? It seems like there's more than just the RESI impact in the top line.

Yeah, thanks, Brian, for the question. You're right. Residential lot development is kind of the main driver for the reduction in the sales guide. We were expecting that to be flat kind of earlier in the year. It has declined kind of during the quarter, continued to soften after the quarter, and we're expecting that to be in the low double digits range now. That's the majority of the decline there. We do have some other areas of bright spots on the top line that are offsetting some of that. Some of our sales initiatives continue to perform really well, like things like treatment plants. Some of our fusible HDPE product lines are performing well. The municipal market remains strong with ample funding, and we're seeing a lot of demand there too. Those are kind of the puts and takes on the top line with the revised guide.

Understood. Second question for me, I guess just the water category overall is kind of getting a lot of attention now. It used to kind of be a green initiative angle. Now it's seemingly a crucial part of the AI infrastructure build-out and kind of just the general reindustrialization trend. You highlighted in some of your prepared remarks and I think in the press release things about your technical expertise, your consistent execution, leading to share gains, focusing on the larger contractors. I guess just bigger picture here going forward, where do you see, I guess, the biggest opportunities for growth with the way the water market is evolving? Thank you.

Yeah, thanks, Brian. Great question. I would tell you, we're obviously very favorable on the overall water market. We've really seen more and more demands for water. You've seen these data centers going up in certain areas that need energy and water to satisfy those types of projects. We're seeing the demands with projects like that. I think the value of water has improved. You're seeing rates passed at the local level more and more so that the municipalities are very healthy right now. That's giving them more opportunities to get projects designed and ultimately improve the aging infrastructure, which is really the key piece that's really behind the multi-year tailwinds that we have in that municipal market. When you throw on top of that some of the demands now for water, which are even more with some of these projects that are going on, it obviously sets us up really well. That's a big part of why we continue to invest in this business, invest in resources, invest in facilities.

Those tailwinds are there. We're capturing a lot of those, as you're seeing in the municipal results. We're obviously facing some temporary headwinds here with the residential market being softer. We're on the front end of a lot of this with lot development. Our results obviously go into the July period. I think we're facing some of this a little earlier than some are seeing it on the residential side. That municipal strength and that strength that we're seeing with some of these projects in the non-residential space, like data centers, is definitely helping offset some of that weakness.

Yeah, thank you. I'll pass it along.

Thank you. Our next question comes from Matthew Adrien Bouley of Barclays. Your line is now open. Please go ahead.

Hey, good morning, guys. Thank you for taking the questions. Just a question on the, I guess, the makeup of the guide. At the midpoint, I guess revenue cut by $50 million and EBITDA cut by $45 million. I hear you on the higher operating expenses, but then you're also taking these targeted cost actions as well. Is it more just, you know, it just simply takes a lot of time to get these cost actions into place? You mentioned more of a 2026 impact, I believe. Is the kind of, you know, maybe changed mix of business with residential a lot weaker impacting the margin as well? I guess just what else would explain that kind of larger decremental EBITDA margin? Thank you.

Yeah, thanks, Matt. Yeah, we are taking costs out. We have already taken some costs out. We started taking some out in the first quarter, and we continue to do so in the second quarter. There is some kind of stubborn inflation and other higher cost areas that are continuing to offset some of that. We will continue to do additional cost-out actions. We will see some of that in the second half, but the larger majority of that will be seen into FY2026. Some of the cost-out actions that we made earlier in the year were in our fire protection product line that was experiencing some softness given some of the market pressures on non-residential at that time and also the steel pricing pressures that we were seeing in the fire protection. That has since rebounded. We took some costs out earlier in the year. It was very targeted to certain areas that we knew wouldn't disrupt the business. Now we're seeing that recovery and we're well positioned for that.

We will continue to do additional cost-out targeted actions that won't impact our ability to service our customers or service growth. We will continue to make investments in growth. Mark and I have been around the business for a long time, so we kind of know where those cost actions can come out and where we need to make investments.

Okay, got it. Thank you for that, Robyn. Secondly, just on residential specifically, obviously a fairly substantial change to the outlook over the past, you know, relative to 90 days ago. I guess where I'm trying to get at is sort of, A, your visibility into that end market, and B, maybe how did residential look during both Q1 and Q2? You're talking about kind of low double digits. I'm wondering if the expectation is that it would weaken a lot further in the second half. Any color on that kind of cadence of residential and then just more specifically what you're hearing from customers in that group. Thank you.

Yeah, thanks, Matt. You know, on the residential side, as we kind of worked our way into 2025, it really felt like that market was going to be flat overall as we got into the first quarter. We actually saw some pretty, I'd say, decent residential performance in Q1. Obviously, it wasn't great, but we at least saw some projects going earlier in the year and obviously had a really good first quarter. Some of that was just, I'd say, better performance there than we expected. If you go back to Q1, we were well over our consensus and expectations on the top line. Really what we saw as we got into Q2, we saw residential weaken really throughout the quarter. We definitely started to hear some of those signs at the end of the first quarter, but it was more like scaling back some projects and frankly just continued to weaken as we got throughout Q2 and definitely into August, as Robyn had mentioned.

That residential really kind of whipsawed from Q1 into Q2. We do think low double digit is the right way to look at it from here through the end of 2025. Obviously, we're expecting some kind of rate cut here in September. I think that's starting to be reflected a little bit on the mortgage rate side, but we're definitely not seeing the investments in the infrastructure from the builders. That's kind of been a mixed bag. Some are investing in land, some aren't. Definitely, we're not seeing the level of lot development going into those at this point. The results that we're seeing, I think, are kind of reflective of what obviously we're hearing from the customers and the scaling down is definitely what we felt in Q2. We'll work through that. Obviously, we think there's continued significant pent-up demand that that's just creating. At some point, that's going to release, and we want to be well positioned to capture that when it does.

Got it. Okay, thanks, Mark. Good luck, guys.

Yep.

Thank you. Our next question comes from David John Manthey of Baird. Your line's now open. Please go ahead.

Thank you. You might have just answered this in relation to one of Matt's questions there, but what was the residential market in the first half in terms of growth rate? Your down low double digit outlook, what does that imply for the back half?

Yeah, thanks, Dave. I'd say for the first half of the year, it was kind of down low or down mid-single digit to high single digit. In the second half, I think that's overall going to be low double digit, slightly worse just to get to the low double digit over the full year.

Got it. Okay, thank you for that. Maybe back on the SG&A side, I think last quarter you said that your organic revenues were up mid-single digits and organic same-store SG&A was up 4% year over year. Could you provide those organic figures for this quarter as well so we can compare that?

Yeah, Dave, when you think about how M&A impacted us in the quarter, it contributed about 2% of growth to the top line. If you think about our growth in SG&A for total company, it contributed about 3% of that overall growth.

Okay. Also, last quarter, thinking about operating expenses, I believe you sort of implied you were expecting to see improving SG&A as a % of sales each quarter as we move through the year, which on the old forecast, I think sort of implied lower dollars each quarter. Assuming no major M&A from here, do you think that the second quarter would be the high watermark for SG&A dollars this year as you implement these cost-out actions and normal seasonality impacts those numbers?

Yeah, Dave, we do. We've got, you know, as we talked about M&A and the record year we had in M&A that we did in the prior year, we've got a lot of opportunities there on the synergies. Those are things that we're working through. We expect to continue to work through those and get some of those synergies recognized in the back half of the year and into FY2026. There were some one-time items in the second quarter that we don't expect to continue. That's contributing to a little bit higher SG&A kind of rate and dollars in the quarter. With those things combined, we do expect to start seeing some progress on SG&A. We do have some seasonality in there, but when you look at the SG&A rate year over year each quarter, we do expect that to kind of improve sequentially as we go throughout the rest of this year.

Yeah, okay. If I could sneak one more in here as we're talking about all this seasonality and 2025 being an unusual year in terms of lack of acquisitions versus all the deals you've done historically, when you think about normal seasonality ex-acquisition, sort of the organic progression, how do you think about that? Do you think about it in terms of % of total full-year sales per quarter? Do you think of, you know, quarter-to-quarter growth rate? How do you think about the seasonality? If you could just give us an idea of what we should expect this year because of the fact that you're very few or no acquisitions other than this Canada Waterworks deal you just announced.

Yeah, Dave, I'll give you some color around that. I would think about the second and the third quarter are typically similar size-wise, and we typically see about a 15% to 20% decline in the top line from the third quarter to the fourth quarter. You know, we can see a little bit of uplift in the first quarter from the fourth quarter, but those are typically pretty well in line. It is a pretty kind of standard bell curve of the second and third quarter being the highest with it being a 15% to 20% decline from there ex any, you know, M&A activity.

Got it. Thank you very much.

Thank you. Our next question comes from Sam Reid of Wells Fargo. Your line's now open. Please go ahead.

Awesome. Thanks so much. I wanted to touch on your updated guide, perhaps from a slightly different perspective, just on the second half EBITDA margins. It sounds like you're still expecting favorable year-over-year gross margin, if I heard correctly, Robyn. Can you talk about what that looks like sequentially on the gross margin line relative to Q2? Just basically the guide path for gross margin as we look into Q3 and Q4.

Yeah, we're expecting it to be stable, which would imply, you know, up in the 20 basis points range for the second quarter for gross margins. Our gross margin initiatives are performing very well. Private label's been performing well. Sourcing's been performing very well. We expect to continue to make improvements on gross margins. I would say as we think about the back half of the year, we're thinking about it as stable to the second quarter. We've made a lot of progress in gross margins kind of already in the first half of the year. I expect to see those trends continue and be stable in the second quarter or second half.

That helps. As a follow-up, could you just give us a rough sense as to the size of private label today, perhaps how much you were able to grow that in the second quarter relative to the first quarter? To follow up on the SG&A optimization initiative, could you just offer up some perspective on sizing those just so we have a rough sense as to where you're going to exit the year into 2026? Thanks.

Yeah, on the private label piece, as Robyn mentioned, we made some really good progress there. Continue to drive that through the business. Right now, it's about 4% of our revenue, but I'd say steadily growing and expect that to be even more as we exit 2025. Very pleased with the new products we've introduced. The pull-through to the branch network has been strong. If we get a little help from the volume in the second half, we'll make even more progress on pulling some more private label through. I'll let Robyn cover the SG&A question.

I think, Sam, your question was on the sourcing side, right? We've made a lot of progress there too.

It was on the sizing of the SG&A initiative.

Okay. Sorry about that. Let me give you a little bit of color on that, on the cost-out actions. Acquisition synergies is a big part of that and a big area that we have begun taking costs out there. We've got a lot of opportunity. We've talked about that. Taking quite a bit of time to get through as we integrate these businesses. We've got a lot of controllable spend reductions that we've been working on with things like travel and overtime. One thing that we've done a really good job on as a business is managing headcount and any of those controllable expenses. The sizing of it is really inflation-related. Some of our incentive comp increases are a little bit larger given the improvement on gross margin. Those are some of the big areas that we're looking at. As you look at the back half of the year, the SG&A rate is a little bit higher than the first half, just given some of these inflationary trends that we're seeing there.

That helps. Thanks so much. I'll pass it on.

Thank you. Our next question comes from Michael Glaser Dahl of RBC. Your line's now open. Please go ahead.

Morning. Thanks for taking my questions. Sorry to keep harping on the SG&A, but in terms of the actual variance versus your expectations, you've noted some things were even more pronounced. Can you just be more specific on what came in worse than expected? Back to the question of kind of segmenting out actions, when you think about all those different actions, do you have a good way of giving us kind of roughly how much is headcount-related versus kind of fleet and infrastructure-related in terms of the cost deaths?

Yeah, thanks, Mike. Let me break down a little bit for you the kind of the contribution in the quarter. If you think about the 13% increase in SG&A over the year, what we talked about was about half of that was M&A-related, kind of one-time non-recurring items. If you think about that 13% growth, about three points of that was M&A, and that's an area, like I said, we've got synergy opportunities there. About one point of that growth was related to some one-time items, some changes that we're making to improve performance over time. Those are things like retention and severance and relocations. We had about two points of, I would call it a surge in the quarter related to just some higher medical claims, insurance costs, things like that that are a little bit unusual and had some timing impacts in the quarter.

That's kind of the first half. The second half of the SG&A increase year over year was a lot of items related to increased volume, inflation, and investments that we're making into the business. I mentioned incentive compensation. That's up more than our sales, just given our gross margin enhancement and the nature of those compensation plans. That's worth about a point. We've seen a lot of inflation on our facilities and fleet. That's worth about a point. On the medical side and some of those insurance claims, we've seen a lot of inflation in that area. We've seen some higher cost claims. That's worth about two points. We've got a little bit of a difference in the way that the equity-based compensation is showing up. We've just got a new run rate there with three years of vesting. That's worth about a point.

Like Mark and I said, we're going to continue to make investments in growth. We feel good about the long-term dynamics of this business. We're continuing to make investments in greenfields, investments in growth initiatives, investments in technology, and that's worth about a couple of points as well. That kind of gives you the breakdown for that 13% growth that we saw in the quarter versus what we consider M&A and one-time versus kind of more structural related to volume and inflation. Some of those inflation items were a lot higher than we were expecting, and that's what we need to work to offset. We've got several million dollars of cost-out actions that have been executed in the first half of the year. I would say we've got a meaningful amount of actions that are in process that we're working through. To date, we've already managed headcount very well.

It's not up much on a year-over-year basis. It's kind of more in that flatter range, and we'll take a look at that. We're looking at areas where we can maybe not backfill, where we can have some selective hiring, where we have underperforming areas where we can take some cost out there. We've got a lot of levers to pull here on the SG&A side. We're going to get it under control and offset some of this inflation, but we're also going to continue to make some of those investments for growth because of the long-term market dynamics.

Okay. Got it. Thank you for that. My second question, just on pricing, I think you said it was neutral. Can you just give us a better sense of kind of how the commodity side trended through the quarter into 3Q? As you think about kind of neutral and better for the year, just elaborate a little more on what you're seeing on finished goods versus commodity right now?

Yeah, Mike, I'll take that one. On the pricing side, it kind of played out exactly the way we thought it would, neutral for the quarter. We did see some increases come through related to some of the, I'd call them the non-pipe related products, some of which are imported by our suppliers. There's a little bit of tariff probably increased there into some of those prices that some of the suppliers passed along to start the year, which ultimately offsets some of the moderating of the, you know, water, larger diameter water PVC pipe that we have. We saw some moderation of that pricing through the first half of the year. That'll be likely a little bit of a headwind into the second half, but these other product categories that have seen increases have effectively offset that and expect that to continue to be stable, like we've talked about for a while.

Okay. Excellent. Yep.

Thank you. Our next question comes from Collin Andrew Verron of Deutsche Bank. Your line's now open. Please go ahead.

Morning. Thank you for taking my questions. My first, I just wanted to touch on the meter sales. It was a bit surprising just given the magnitude. You called out some project delays. I guess, how much of the decline do you think was due to project delays, and what are your expectations for meter sales through the rest of the year and sort of how you're thinking about long-term growth in that category still?

Yeah, sure. Thanks for the question. I would tell you on the meter side, the primary driver of the, you know, somewhat small decline in the quarter was the substantial growth we saw last year. We were up 48% in a quarter on meter sales. That just gives you the magnitude of the initiative that we're driving there, and that performance last year was really, really strong. We did have some meter delays in the quarter, but really, I think the way to think about that is it really just created a nice backlog for us that we expect to ship out in the back half of the year.

Quick caller. You guys also talked about some greenfield opportunities here. I guess, how should we think about the decision between greenfield and M&A and the expenses associated with opening branches and how quickly they ramp to the company average metrics?

Yeah, sure. You know, when we think about greenfield locations, we think about those in conjunction with M&A. As we look across the U.S. and Canada for priority markets, we're evaluating both of those opportunities. Is there an M&A opportunity? Is there a greenfield opportunity? Both are very attractive to us. We've been able to generate really strong returns, whether we do a greenfield or an acquisition. Obviously, doing an acquisition, you're going to pick up that revenue and profitability much quicker. Greenfield locations will take a little longer, but typically, we're breaking even within the first couple of years and expect to be at kind of the company average in three to five. There is a little bit of ramp-up in cost when you do greenfield locations. We're definitely accelerating our greenfield strategy with, I'd say, a renewed focus on driving our organic core growth in the business. I expect that you'll continue to see greenfield locations open up throughout the country in these priority markets as we review them and continue to have a nice, healthy pipeline of M&A as well that we're evaluating. We like having both of those levers as we look at those priority markets.

Great. Thank you for taking my questions.

Thanks.

Thank you. Our next question comes from Patrick Bauman of JP Morgan. Your line's now open. Please go ahead.

Oh, hi. Good morning. Lots been covered already. Just wanted to go back to the RESI side quickly. The move from flat to down low double just seems like a bigger revision than what we've seen from the starts data. From that perspective, just trying to understand, was there like an overbuild of lots that are now being reduced to, you know, at a greater magnitude than what we're seeing in starts? Maybe just address where residential lot development stands today to provide some context versus history and for the revision.

Yeah, sure. If you go back to the early part of the year, we felt it was going to be flat. That did kind of worsen throughout the first half of the year. I would say we probably saw some build-up in developed lots in the earlier part of the year. Obviously, single-family starts has not really met that early expectation, even though it was only kind of guided to it at flat. I think that's part of it. Obviously, we've seen a phasing down of a lot of these projects. We did see in parts of the country where we perform really well, frankly, in parts of Florida and the Southeast, which were pretty hot markets for a while, which was helping keep RESI kind of in at least that flat territory, really fall off as we got into late into Q2 and here to start Q3.

We've definitely seen the activity weaken on the lot side. We'll see ultimately when those developers decide to reinvest and get that going. I wouldn't say there's a significant amount of developed lots, but there's definitely been an increase there just given the slowdown that we've seen in single-family. Again, believe that is temporary. We'll work through this period of time. We're going to be really well positioned to capture that growth as it comes back. As these rates ease, you're seeing lumber prices drop. Some of these things may ultimately lend themselves to better affordability. We'll see that pent-up demand release.

Okay. Thanks for the perspective. On the acquisition you did, just to clean up here, I assume that's not in the guidance since it hasn't closed. Any perspective on, you know, size of that deal and any update on how the pipeline for M&A looks these days?

Yeah, sure, Pat. You know, the acquisition we did in Canada was a three-branch acquisition with two locations around Toronto and another one in Ottawa. Those, I would say, those branches are typical kind of branch size for us in kind of the $15 million range. Really excited about that one. It really builds a great platform for us to grow from in Canada. That's now the second acquisition we've completed there. I think it gives us a really good opportunity to not only, you know, build on the synergies there that we think we can bring, but start to put in some, you know, greenfield locations in Canada as well. Expect some continued growth there. One that we're really excited about.

We got a great management team with that one, and it's really going to allow us to capture a lot of that addressable market in Canada that just hasn't been available for us before. The pipeline continues to be healthy. We've got a series of deals that we're looking at right now, I'd say, in various stages and varying sizes. We've got a lot of different opportunities that we're evaluating right now and really excited about it. Obviously, we absorbed a lot of M&A from the 2024 year. You saw us get this one announced in Canada and excited to continue to drive that part of our growth strategy as we go forward.

Okay, thanks for the time.

Yeah, thanks, Pat.

Thank you. Our next question comes from Anthony James Pettinari of Citi. Your line's now open. Please go ahead.

Hi. This is Asher Sonin on for Anthony. Thanks for taking the question. I just wanted to ask about the current kind of competitive environment, if that's changed at all from the prior quarter. Maybe there's industry response to kind of residential demand slowing. Just any thoughts on the competitive environment?

Yeah, thanks for the question. I would tell you there's been no real meaningful change in the competitive environment. It's been pretty typical for several quarters. I expect it to continue along those lines. We've had, I'd say, in some very limited markets across the U.S., we've had some regional competitors kind of going after each other pretty good, which, frankly, plays right into our hands. I think our customers like the stability that Core & Main brings, both in service and value. Overall, it's been a, I'd say, pretty typical kind of competitive environment for several quarters now.

Great. Thanks. Can you just remind us which of your product groups are most exposed to the residential end markets? If that's not, is residential making any kind of, or that you anticipate in the second half as well, driving any shift in the mix or strategy around inventory positioning?

No, I wouldn't say there's a major difference on the RESI side outside of, you know, if you think about our fire protection product category that we have, it is much more focused on, you know, kind of non-RESI for us, which includes that multifamily piece. Most of that is kind of steel pipe on that piece of it. The rest of the end markets for RESI, non-RESI, and municipal really have a kind of a standard mix for the most part of all of our product categories. It's obviously very local. It depends on what those local specifications are. Really, for us, it's really an assessment of where we're aligning some of those resources.

If RESI gets softer in an area, we may move some of that headcount and resources into other areas that are driving growth. When we think about resource allocation, that's really more of how we think about the moves that we've got to make. As part of the targeted actions that Robyn was referring to, that we're making and putting in place, we can continue to invest in the business where we're growing. Where there's market headwinds or underperformance, we're shifting some of those resources and ultimately managing the costs that way to make sure we continue to capture the growth that's there.

Great. Thanks. I'll turn it over.

Thank you. Our next question comes from Keith Hughes of True Securities. Your line's now open. Please go ahead.

Hey, this is Julie. I know you already touched on it a little bit, but how should we think about the pricing in third quarter versus fourth quarter?

For pricing, we're expecting it to be flattish for the remainder of the year. I would think about that for both the third quarter and the fourth quarter. Pricing's been very stable over the last few quarters now, and we're expecting that to continue. I would say no notable changes expected there.

Got it. Thanks. That's all for me.

Thank you. Our next question comes from Nigel Edward Coe of Wolfe Research. Your line's now open. Please go ahead.

Oh, thanks. Good morning. Yeah, look, we've touched on a lot of the stuff here, but just want to circle back to SG&A, if I may. Just so I understand the guide, you know, if gross margins are going to be fairly flat to second quarter, it seems like SG&A dollars stepped down versus $302 million in Q2. Just want to make sure that's correct. I'm just wondering what the impact of the 53rd week has on SG&A specifically.

Yeah, thanks, Nigel. You're right. The SG&A dollars are going to step down quite a bit in the second half compared to the first half. That's related to cost-out actions and also just the lower volumes that we're expecting, which then creates a little bit of pressure on the rate in the second half because of the lower volumes. You're thinking about that the right way. The way that we're thinking about the 53rd week, that's an extra or one less week of sales. We categorize it in the fourth quarter in that January timeframe. Obviously, there's variable SG&A related to that that will come out. When you think about it from an EBITDA perspective, it should be in that kind of $8 to $10 million range.

Okay. That's helpful. Thanks. I think we understand the drivers of the residential weakness, and maybe the flat outlook was a tad optimistic in hindsight. Non-RESI, I think, is the big debate, though. It seems it could go in two directions here. We've got a weakening economy, but we've got a lot of these mega projects, data centers, et cetera. I'm just curious, Mark, Robyn, how you see, based on feedback from the fields, customers, what sort of direction do you think this breaks into as we go into 2026? Do you think non-RESI as a category gets stronger, or is there some risk there as we go into 2026?

Yeah, thanks, Nigel. I think that, you know, that's definitely how we're seeing the non-residential area right now. There's a lot of puts and takes in that market, both by project types and, you know, frankly, by geography as well. We're seeing a lot of variation there. I do think there's a lot of good things there to be excited about, in particular in this highway work, street work, that we get a lot of storm drainage product put in place on those types of projects. That's been really strong. The data center activity seems like that's got plenty of legs to it yet. We pick up, I'd say, more than our fair share of that work, which has really helped cushion some of the softer commercial and retail kind of development in that area, which I wouldn't expect that we're going to see any near-term return of that really until we see some of the pent-up residential start to release.

I'd expect probably more of the same out of non-residential kind of, you know, for us, just given our exposure there and how those work. It's going to kind of just the broad project types that we service, it's going to kind of flatten out, which is what we've experienced in 2025. I wouldn't see a lot of upside or downside as we think about that one, you know, going forward, at least in the very near term.

Okay, thank you.

Thank you. At this point, I'll now hand back to Mark Witkowski for any further remarks.

Thank you all again for joining us today. I wanted to close out by recognizing our associates for their dedication and commitment to delivering exceptional service to our customers. This quarter, we delivered solid sales growth driven by resilient end-market demand, stable pricing, and continued market share gains. We're seeing strong results from our growth initiatives, and we believe there's an opportunity to accelerate that momentum with additional investment. We recently expanded our presence with new locations in priority markets and announced an acquisition that broadens our footprint in Canada. These actions reflect our disciplined approach to investing in the business to drive long-term growth. We're well-positioned to capitalize on long-term secular drivers of water infrastructure investment, including aging systems, population growth, and increasing regulatory requirements.

With the right team in place, a growing platform, and a proven strategy, we are confident in our ability to execute on the opportunities ahead and deliver even greater value to our customers, suppliers, communities, and shareholders. Thank you for your continued interest in Core & Main. Operator, that concludes our call.