Core & Main's Resilience in a Weak Tape: Smart Utility and Data Centers Carry the Load
Despite a 33% drawdown from its 2025 peak, the waterworks distributor reaffirms guidance as it leans into high-growth niches—and the market remains skeptical.
CNM · Earnings Call · 2026-06-10
A Quiet Quarter with a Loud Signal
Core & Main (CNM) reported fiscal Q1 2026 on June 10, delivering net sales of $1.9 billion, flat year-over-year, while adjusted EBITDA rose 1% to $226 million and adjusted EPS increased 6% to $0.72. In a soft end-market tape, management pointed to resilience: “We were pleased with the 6% growth in a soft market, reflecting our continued focus on execution.” — Robyn Bradbury, Chief Financial Officer · 2026-06-10 The composition of that growth, however, is anything but status quo. The company's most dynamic verticals are no longer tied to housing starts—they are increasingly tied to digital infrastructure and municipal modernization.
Smart utility solutions and treatment plant initiatives continue to deliver double-digit growth, underpinned by multiyear contracts with some of the nation's largest utilities. CEO Mark Witkowski emphasized the durability of municipal demand: “These projects are particularly attractive for our business given the significant water infrastructure required to support cooling systems as well as the broader downstream demand they create within surrounding communities.” — Mark Witkowski, Chief Executive Officer · 2026-06-10 That comment—centered on data centers—marks a strategic pivot. While data centers are still a low-single-digit share of sales, they are becoming a meaningful incremental driver, especially for fire protection products, which grew 17% year-over-year.
These projects are particularly attractive for our business given the significant water infrastructure required to support cooling systems as well as the broader downstream demand they create within surrounding communities.
Margins Hold While the Market Doubts
The company's gross margin expanded 50 basis points year-over-year to 27.2%, driven by private label growth, sourcing optimization, and disciplined pricing. This is a structural improvement, not a one-off: gross margin has risen 3 percentage points over the past five years. But the market hasn't rewarded this. CNM's stock has fallen 33% from its September 2025 peak of $66.98, and the 90-day trend shows a 13% decline. The recent 90-day price action—down 12.8% with a drawdown of 16.8%—suggests investors are focused on the macro headwinds, not the micro execution.
Robyn Bradbury, CFO, acknowledged the cautious outlook while reaffirming the full-year guidance: “We continued to expect overall end market volumes to be roughly flat for the year with strength in municipal markets supported by durable funding sources and the nondiscretionary nature of demand, offset by a continued cautious outlook in private construction.” — Robyn Bradbury, Chief Financial Officer · 2026-06-10 The company is also returning capital aggressively—$125 million of share repurchases year-to-date, roughly 80% of all of fiscal 2025—signaling confidence in intrinsic value even as the share price languishes.
A Divergence Between Story and Stock
This is not the first time Core & Main has flagged data centers as a compelling opportunity. On the March 2026 call, Mark Witkowski noted: “And I think our exposure there is going to continue to be helpful as we pick up that business.” — Mark Witkowski, Chief Executive Officer · 2026-03-24 And on the September 2025 call, he described the smart meter momentum: “We've been, I would say, very successful in many parts of the country selling [to] some of the largest municipalities now.” — Mark Witkowski, Chief Executive Officer · 2025-12-09 The current quarter simply extends that trajectory. What's new is the scale: the company now cites the largest smart utility contract in U.S. history and a treatment plant business that has grown 25% compounded annually over five years.
Yet the tape is telling a different story. CNM's full trend shows a peak-drawdown pattern that has persisted for nearly a year, and the recent 90-day segment is the worst performer in the company's recent history. The market is pricing in a prolonged residential slump and the risk that nonresidential (especially light commercial) continues to soften. Management, meanwhile, is pointing to a record 8–10 greenfield openings, a robust M&A pipeline, and a multiyear backlog of data center–related waterwork.
The Bottom Line
Core & Main is not a typical industrial distributor anymore. It is becoming a bond between municipal essential spending and the AI infrastructure build-out. The company's ability to grow EBITDA in a flat-sales quarter, expand gross margins, and buy back shares while the stock is down 33% argues that the market has yet to price in the shift. With a free cash flow yield of 6.4% and net leverage at 2.2x, the balance sheet provides ample room to either wait out the cycle or strike on M&A. The question is whether investors will eventually recognize that the company's growth engine is no longer tied to the housing market—and that the resilience on display in Q1 is not a pause, but a pivot.