Q1 2024 Core & Main Inc Earnings Call

Participants

Robyn Bradbury; VP of Finance & IR; Core & Main, Inc.

Stephen O. LeClair; CEO & Chairman; Core & Main, Inc.

Mark R. Witkowski; CFO; Core & Main, Inc.

Matthew Bouley; Analyst; Barclays Bank PLC

Nigel Edward Coe; Analyst; Wolfe Research, LLC

Michael Dah; Analyst; RBC Capital

Kathryn Thompson; Analyst; Thompson Research Group, LLC

Joe Ritchie; Analyst; Goldman Sachs Group, Inc.

Presentation

Operator

Good morning, everyone, and welcome to the current need Q1 2020 14 earnings call. My name is Angela, and I'll be coordinating your call today.(Operator Instructions) I will now hand you over to your host, Robyn Brandbury, Senior Vice President of Finance and Investor Relations t o begin, please go ahead.

Robyn Bradbury

Thank you. Good morning, everyone. This is Robyn Bradbury, Senior Vice President of Finance and Investor Relations for Core&Main. We are excited to have you join us this morning for our fiscal 2024 first quarter earnings call. I am joined today by Steve LeClair our Chair and Chief Executive Officer, Mark Witkowski, our Chief Financial Officer. Steve will lead today's call with an overview of our first quarter execution highlights. Mark will then discuss our financial results and updated fiscal 2024 outlook, followed by a Q&A session.
We will conclude the call with his closing remarks. We issued our earnings press release this morning and posted a presentation to the Investor Relations section of our website. As a reminder, our press release presentation and the statements made during this call include forward-looking statements. These statements are subject to risks and uncertainties that could cause actual results to differ materially from our expectations and projections. Such risks and uncertainties include the factors set forth in our earnings press release and in our filings with the Securities and Exchange Commission.
We will also discuss certain non-GAAP financial measures, which we believe are useful in assessing the operating results of our business. A reconciliation of these measures can be found in our earnings press release and in the appendix of our investor presentation. Thank you for your interest in Core&Main. I will now turn the call over to Chair and Chief Executive Officer, Stephan LeClair.

Stephen O. LeClair

Thanks, Rob, and good morning, everyone. Thank you for joining us today. Following along with our investor presentation. I'll begin on page 5 with an overview of our market position. Core&Main as a leading specialty distributor of water, wastewater,stone drainage and fire protection products serving municipalities, private water companies in professional contractors across municipal, nonresidential and residential end markets nationwide.
Our specialty products and services are used in the maintenance repair, replacement and construction of water and fire protection infrastructure. Customers, partner with Core&Main for our breadth of products and services, extensive industry knowledge familiarity with local municipal specifications, convenient branch locations and project management capabilities. We serve both smaller local customers and larger regional or national customers with relevant expertise. In our sales associates take a consultative approach to provide customer-specific solutions for projects of all sizes.
We are often involved in our customers planning processes all the way from project design to project completion. Our footprint consists of more than 350 branches across 49 states, which serves as a critical link between approximately 5,000 suppliers and a diverse base of over 60,000 customers. We are an industry leader yet w e estimate we have only 17% share of a fragmented $39 billion addressable market.
Accordingly, our long-term growth opportunity is significant. Turning to page 6. We are pleased with our record of $1.74 billion. This performance was indicative of support of end market volumes in an earlier start to the selling season and some northern geographies. Residential lot development improved sequentially from the fourth quarter. This was the first quarter and more than a year that residential volumes improved on a year-over-year basis.
We are encouraged by our backlog and bidding activity across this market. We're seeing solid activity across the nonresidential construction landscape. Well, s ome verticals in this market remains soft like office space in retail, others continue to be strong, such as highway and street projects, data centers, battery plants in other large industrial manufacturing projects. We are seeing good momentum in municipal projects being bid and coming online during an important part of the construction season. So still relatively small in scope. We are also seeing projects funded by the infrastructure investment and Jobs Act make their way into our backlog and bidding activity in certain parts of the country.
These projects are primarily related to new water treatment plant facilities and service line replacements. While we're pleased to see projects utilizing the federal funding. We've seen limited progress on major municipal repair and upgrade activity, and it does not appear we are seeing any incremental benefit so far this year. Market volume growth in the quarter was supplemented by the execution of our product customer and geographic expansion initiatives to deliver above market growth.
We achieved 31% growth in metering products this quarter, highlighting our ability to drive the adoption of new products and technologies throughout the industry. While this growth reflects some improvement in the supply chain for meters, we are pleased with the magnitude of new projects being bid and awarded. Beyond our product initiatives, o ur recent greenfields are also performing well. Every time we add a new branch, we had sales resources and reduce the average time it takes for us to reach our customers. This enhances our value proposition, giving us the opportunity to earn market share.
Each of our greenfields continues to mature and offer additional growth opportunities. We are actively evaluating a pipeline of new locations to expand into. Acquisitions are an important part of our long-term growth strategy, and our team continues to execute on an active pipeline of opportunities. During and after the quarter, we added five complementary businesses to the core and maintain, one of which was our largest acquisition to date. These acquisitions offer expansion to new geographies, access to new product lines. The addition of key talent.
Gross margin came in at 26.9% versus 27.9% in the prior year. Well, underlying product margins were impacted as expected. Gross margins continued to be strong, supported by the robust performance of our private label and sourcing initiatives and benefits from M&A. Mark will walk you through the various components impacting margins.
Turning to our cashflow and capital allocation prioroties w e were pleased with the $78 million of operating cash flow achieved in the first quarter. For our business we typically generate cash in the second half of the year. Our cash generation this quarter reflects a lower than normal seasonal inventory build resulting from our continued inventory optimization efforts. We continue to balance capital allocation between organic and inorganic growth opportunities as well as returning capital to shareholders.
During and after the first quarter, we deployed over $600 million to acquire five complementary businesses. We are also prioritizing organic investments in greenfields, in addition to upgrading our fleet facilities and technology tools that will benefit us in 2024 and beyond. Our ability to invest in organic growth and value. c reating acquisitions is underpinned by our strong operating cash flow, balance sheet capacity and liquidity.
On page 7, we highlight the exceptional businesses recently added to the Core & Main family. Eastern supply, the distributor and fabricator of a wide variety of storm drainage products offering at publications in Virginia and Pennsylvania. For close to 30 years. The team at Eastern supplies provided drainage products and related services to contractors, engineers and municipalities across the Northeast.
Dana, Kepner is a multi-region distributor of water, wastewater and storm drainage products operating at a 21 locations across Arizona, Colorado, Nevada, Texas, Wyoming in New England. They are a highly credible partner and the Waterworks industry in their core value is aligned with our own at Core & Main. Dana Kepner, offers opportunities to generate synergies to our combined purchasing capabilities, facility optimization and fixed cost leverage as we drive new revenue generating opportunities by providing our customers with broader access to products and services.
ACF West Distributor of geo synthetics and erosion control products was six locations across Oregon, Washington, Idaho and Utah. For over three decades. The team at ACF West has offered their municipal and contractor customer solutions for geo synthetics erosion control, stormwater management and Terrain stabilization. ACF West as a trusted distributor with a long-standing and loyal customer base for product and service offerings are an excellent complement to our business.
EGW Utilities, the distributor of products and services to underground utility contractors and municipalities in Texas. The team at EGW utilities has been providing underground infrastructure products and services since 2001. Their commitment to delivering value added solutions and maintaining strong customer relationships has enabled them to provide customers with the resources and support needed to complete projects successfully.
We are happy to have the EGW. team, a part of the Core & Main family, and we look forward to the additional private label capabilities and capacity t his acquisition brings us.
Our most recent acquisition Geothermal supply company is a distributor and fabricator of high density, polyethylene pipe and other related products. They primarily serve the geothermal water and sewer industries from a single location and Kentucky. Adding GSC to the Core & Main family will create exciting new opportunities for us and important, an expanding area of HDPE. Our expertise in the industry fits well with our existing views will product offering, and we are confident this will be a positive partnership for both new and existing customers.
The integration of these businesses is progressing according to plan, and our acquisition strategy continues to create tremendous value for Core & Main. We have a very active M&A pipeline and expect to continue adding value creating businesses to the Core & Main family throughout 2024 and beyond. To wrap up my prepared remarks, we are pleased with our performance in the first quarter. We have generated significant momentum for the business in recent months. We are well positioned to achieve our objectives by continuing to execute our growth strategies as we enter an important part of the construction season. Thank you to our associates for advancing the reliable infrastructure and the communities in which we live, work and play becoming more and more apparent that our communities need a partner to help repair and upgrade our nation's fragile water infrastructure.May. I'm proud that we are there and ready to answer the call.
With that, I will now turn it over to Mark to discuss our first quarter financial results in fiscal 2024 outlook. Go ahead. Mark.

Mark R. Witkowski

Thanks, Steve, and good morning, everyone. I'll begin on page 9 with highlights of our first quarter results. We achieved nearly 11% net sales growth in the first quarter with organic sales growth of roughly 3% and approximately 8% added through acquisitions. Organic sales volume grew mid-single digits as our teams continue to drive market share gains to supplement modest end market growth. Pricing was a minor headwind for the quarter as we continue to experienced deflation on certain products and our end markets have remained competitive.
Our gross margin in the first quarter came in at 26.9% compared to a record 27.9% in the prior year. As expected, underlying product margins were impacted by a higher average cost of inventory in 2024 compared to 2023. Unfavorable impact was partially offset by strong private label performance. Our sourcing optimization efforts and benefits from M&A. Selling, general and administrative expenses increased approximately 15% in the first quarter to $257 million. Excluding acquisitions, SG&A increased mid-single digits, with most of that increase attributable to inflation and investments in personnel to support current volumes and future growth.
Interest expense in the first quarter was $34 million compared with $17 million in the prior year period. The increase was primarily due to the addition of the incremental $750 million term loan that's due in 2031, higher borrowings under our senior ABL credit facility and an increase in interest rates on our variable rate debt. The provision for income taxes in the first quarter was $33 million compared with $31 million in the prior year period.
Our effective tax rates in the first quarter this year and last year were 24.6% and 18.9%, respectively. The increase in the effective tax rate was primarily due to the exchanges of partnership interests in conjunction with the secondary offerings and repurchase transactions we completed last year. We recorded $101 million in net income for the first quarter compared with $133 million in the prior year period. The decrease in net income was primarily due to lower operating income and an increase in interest expense.
Diluted earnings per share in the first quarter decreased 2% to $0.49 compared with $0.50 in the prior year period. Diluted earnings per share decreased primarily due to a decline in net income, partially offset by lower share count following our repurchase of 45 million shares during fiscal 2023.
Adjusted EBITDA in the first quarter decreased approximately 1% to $217 million, and adjusted EBITDA margin decreased to 150 basis points to 12.5%. Decrease in adjusted EBITDA margin was primarily due to lower gross profit as a percentage of net sales inflationa dn investment to drive growht. Now I'd like to provide an update on our cash flow and balance sheet on page 10.
Net cash provided by operating activities in the first quarter was $78 million. We were pleased with this level of cash flow and what has historically been a lower cash generation quarter. We experienced an inventory build this year less than typical as we continue to optimize inventory levels. We supplemented our operating cash flow with additional borrowings to make significant investments in the growth of the business with over $600 million of cash on M&A during and after the quarter.
We remain committed to the capital allocation priorities we previously laid out. And in the near term, we expect to generate additional cash flow from operations to fund our organic initiatives and M&A while working to enhance our liquidity and reduce our net debt leverage. As we progress throughout the year, we expect to provide additional details on our plans for returning capital to shareholders, which may include additional share repurchases and the potential for a future dividend program.
As a reminder, we deployed $1.3 billion on share repurchases during fiscal 2023. We entered into a new $750 million term loan during the quarter to expand our capital structure. The new term loan matures in February 2031 and carries interest that term so far, plus a margin of 225 basis points.
Concurrent with the issuance of the term loan extended the maturity of our existing ABL facility to 2029, and we also entered into an interest rate swap with an all-in fixed rate of approximately 6.2%. The interest rate swap has a starting notional amount of $750 million. That increases to $1.5 billion on July 27, 2026 through the instruments maturity in 2028.
Excluding the pro forma effects of acquisitions, net debt leverage at the end of the quarter was 2.7 times and our current available liquidity is more than $1 billion. The year-over-year increase in net debt leverage was primarily due to higher borrowings to fund investments in organic growth, acquisitions and share repurchases.
On May 21, we closed on the refinancing of our senior term loan due 2028 and reduced our applicable margin rate from 260 basis points to 200 basis points, resulting in interest expense savings of approximately $9 million annually. There were no other changes to terms or maturities. Before we hand over to Q&A, I'll wrap up our updated outlook for fiscal 2024 on page 11.
With one quarter of the year behind us, our outlook for low single digit end market volume growth remains unchanged, and we expect to continue gaining market share through the execution of our product customer and geographic expansion initiatives. We continue to expect new residential construction to grow modestly in 2024 our residential bidding activity in the orders continued to show strength despite higher interest rates and the expectation that favorable remain higher for the foreseeable future.
We are pleased to hear optimism from the public homebuilders and continue to believe there is a shortage of available homes, which supports multiyear tailwinds for our products. Nonresidential construction has been solid thus far in our bidding activity and order pace in this market continues to be positive. We expect to see continued strength in highway and street projects, data centers, battery plants and other large manufacturing projects with some continued softness and office space in retail construction.
Overall, we expect the nonresidential market to be flat to slightly up for the year. Municipal repair and replacement activity, which represents over 40% of our net sales as resilient due to healthy municipal budgets and the critical need to upgrade age, water infrastructure. We continue to believe this end market will grow low single digits in 2024.
Based on our visibility in the long term length of projects funded by the infrastructure investment and Jobs Act, we are continuing to evaluate when we may see incremental value from these investments. We expect sales volume of more than offset a slight head went from pricing in fiscal 2024, yielding a low single-digit average daily sales growth e xcluding acquisitions.
W e expect the M&A we completed through today will contribute 7% to 8% of total sales growth in fiscal 2024. We maintain a strong pipeline of opportunities, and we expect to continue adding more high-quality businesses to the Core&Main family as we move through the year.
Gross margins performed well in the first quarter with a negative effect of normalizing inventory costs, mostly behind us o n a sequential basis, we've seen fairly stable market costs in recent quarters, which can increase the level of competitiveness on the projects we bid. We expect that these competitive pressures could impact gross margins for the balance of the year as we look to maintain and grow our market share, but not by more than what we guided to previously of 30 to 50 basis points.
We'll continue to work to offset any potential compression through the execution of our gross margin initiatives. Taken altogether, we are narrowing and raising our annual outlook based on results to date and recent acquisitions. We now expect net sales to be in the range of $7.5 billion to $7.6 billion, reflecting year-over-year growth of 12% to 13%.
We are also narrowing and raising our outlook for adjusted EBITDA to range from $935 million to $975 million, reflecting year-over-year growth of 3% to 7%. We're confident in our ability to continue delivering strong performance in 2024 our unique business model, commitment to driving shareholder value and ability to successfully navigate changes in the macro environment position us extremely well for the long term.
At this time, I'd like to open it up for questions.

Question and Answer Session

Operator

(Operator Instructions)
Matthew Bouley with Barclays.

Matthew Bouley

Hey, good morning, everyone. Thanks for taking the questions. Wanted to pick up on that gross margin commentary, it sounds like you said that for the effect of normalizing inventory costs is now behind y ou. But now you're speaking to some kind of potential competitive pressures on. I just kind of wanted to clarify all of that at the 30 to 50 basis points. Is that kind of the guide for the full year? I guess that's number one.
And number two, just can you kind of put a little additional color on what you're seeing with these kind of competitive pressures and how that should affect your gross margin cadence through the year? Thank you

Mark R. Witkowski

Yes. Thanks, Matt. It's Mark. I appreciate the question that you have. First, just on the cadence of gross margins, I would say that 30 to 50 basis points that we talked about last quarter, I would think about that nice sequential. It kind of coming off of Q1. So we might see that coming up Q2 Q3, maybe a little bit in Q4. So as you think about where we are, we've been, I'd say, pretty consistent in indicating that we have some gross margin normalization and it's come in kind of largely as expected. You know, last year was really quarter gross margin perspective. Submarino had indicated that we'd see some pressure this quarter. We did. We got most of that behind us. I'd say the new piece of them that we're looking at is the fact that market costs really in the industry have been pretty stable, which is it really good thing for us.
What does happen and what tends to happen is on projects when costs are stable, but the distributor level, they can get kind of competitive. We've seen a little bit of that. That's not something that's new to us. Feel like that will be more than overcome with volume as we go after those projects. But that that competitive and I can squeeze margins a bit when market costs are stable, we tend to be able to expand margins pretty good when prices are kind of move and a little bit, they've been stable, which has been very good for us, but could see a little bit of that gross margin pressure in the next couple of quarters.

Matthew Bouley

Got it. Okay. That's helpful. And then secondly, I mean, I guess following up on the deflation commentary, I mean, you just said in a lot of areas, it sounds like market pricing is stable on. But I think in the guide, you spoke the sort of slight price deflation for the year and maybe that's a slight change from the last quarter. So I guess some way, where are you seeing some deflationary headwinds? It looked like in the quarter there was a little bit and fire protection, but not to put words into your mouth on where are you seeing a little bit a deflationary pressure? And if there's any offsets on the inflationary side, would be curious to hear that as well. Thank you

Mark R. Witkowski

Yes. Thanks, Matt. And as we've talked about, and it's really those more commodity-based products and steel piping is certainly one of those have been under pressure. And you can see that in the in the fire protection results, not really a surprise there. We knew that was coming, municipal PVCs offer type safety record highs we saw in 2022. But overall, it's been pretty stable here the last several months. So again, nothing really new there. And but that slight tweak that we made to the language just really coming off more of the basket of goods that we sell to win projects and to those customers that are a little bit more price sensitive. It's a subset of the customers. But given that stability of pricing, so a little bit more about just it just something you got to do to make sure your hold to share. And we definitely are going to maintain and grow share and not put any those types of projects at risk.
So slight tweak to the language. I wouldn't view it as any kind of significant items that I hope that something that we wanted to point out that does impact the top line just very slightly and could put a little slight pressure on the gross margins now. I think we've been pretty effective at offsetting all of those things, one on the volume side with driving our strategic growth initiatives that we have an eye on the gross margin side, I think you've seen us do a pretty decent job of offsetting those impacts of the gross margin normalization that we expected by driving some really good private label growth in our sourcing optimization has come in really strong for the quarter. So we're going to continue to fight to hold onto those margins. But just want to indicate where we are seeing some of that pressure.

Matthew Bouley

Got it. Thanks, Mark. Thanks, Steve. Good luck, guys.

Stephen O. LeClair

Thanks, Matt. For taking.

Operator

Nigel Coe, Wolfe Research.

Nigel Edward Coe

Great. Thank you very much for the question. J ust wanted to maybe pick up off that last question on the presentation. It seems if you could you sort of plug in the numbers on it looks like price down maybe 1% or so this quarter. I'm just wondering what kind of visibility you have as we get into the kind of the more meaningful quarters? And what how would you gauge the risk of broader price to face me impressions and perhaps that modification becoming a bit more kind of severe?

Mark R. Witkowski

Yes. Thanks, Nigel. You know, as we've got pretty good visibility, obviously, a lot of discussions that take place with our field teams with the supplier base and feel really good about kind of where the market costs have stabilized in the market. So really anything beyond that. Some minor tweaks just to remain competitive again on a small subset of customers that are a little bit more price sensitive. So I don't view there as being any significant trend from that perspective. And if anything, what we've seen is when you get a little bit of a squeeze there, is it really forces the field teams to really drive some of these margin initiatives even harder. And we've seen some really good pull through in the quarter, in particular, with private label to really find some benefit on the cost side.

Stephen O. LeClair

Yes. Just to add into that, what we've seen it now as these supply chains have mostly stabilized and the prices have stabilized, that's typically as expected, start seeing more competitive nature on some of the larger projects that may involve a lot more of bomb, no standardized pipe, a standard sizes. And that's kind of what we're saying, not unexpected. And as Mark mentioned, our level of pull through that we've seen with private label has been accelerated. And we're really confident about what we're seeing with the ability to drive even more volume through there.And and I think to offset a good portion of that.

Nigel Edward Coe

That's great color. Thank you. And then on the on the margins, and so I'm just typically we see 2Q 3Q EBITDA margins picking up sequentially on the strong volume kind of leverage on SG&A. But given the sort of the inflationary pressures you're seeing on SG&A, mainly on investment spend, and just wondering how we should think about SG&A growth over the remainder of the year until we could expect to get good SG&A leverage in 2Q 3Q?

Mark R. Witkowski

Yes. Thanks, Nigel. Will get on the SG&A side. I'd keep in mind that really what you're seeing there and I highlighted this in the prepared remarks, is a good portion of the increase in rate in the quarter was related to some of the M&A could see about I'd say about two-thirds of the dollars that we have was really acquire our SG&A from from M&A. So there'll be some opportunities as we go forward, that it takes a little longer to get the synergies that SG&A, what the M&A that we do, we get some immediate benefits of that gross margin level, and you've seen those benefits come through in our gross margin line.
So I'd say from that from a go forward, probably 30 to 50 basis points of SG&A rate pressure over the next couple of quarters. As we work through some of that M&A and get some get some synergies, there has still making investments in the business, and we made some good investments into some key talent and some of the initiative areas that we've got to drive growth. We've been investing in technology, position the company well going forward for growth and productivity so that I wouldn't expect any significant leverage there until we get kind of later later this year.

Nigel Edward Coe

Okay. Thanks, Mark.

Operator

Mike Dahl with RBC Capital Markets.

Michael Dah

Morning. Thanks for taking my questions, s orry to harp on the gross margin here, but I guess I'm still not fully clear, Mark, back to Matt's question, the 30 to 50 basis points, is that a full year '24 versus full year '23? Or is that you'll see 30 to 50 basis points then hold stable from there? And that's the second part is, is that a net number? Because obviously, as you articulated, you've done a very good job of finding offset through your internal initiatives so far, so that the net headwind do you expect for margins? Or is that kind of gross headwind and the that may be somewhat less than that?

Stephen O. LeClair

Yes, thanks. Thanks, Mike. Good news to the gross margin questions. That will that. Just to clarify that the 30 to 50 basis points think of that as sequentially starting in Q2. But as it relates to the initiatives we're going to continue to drive those. We had a really good I'd say, initiative quarter and two ones have some of that can be a little choppy, but we think we're going to be able to build off of that and tried to offset as much of that 30 to 50 as we can. So I think about it is the lower end lower end of that range. If we continue to drive those gross margin initiatives and get that continued benefit. And if we have any other effects, you can get some choppiness on various projects and certain things you could be at the higher end of that. But I think about that a sequential coming off of Q1.

Michael Dah

Got it. And our [SQL] potentially stable or better from there on the Gothenburg --
(multiple speakers) And second question, just around kind of the M&A capital deployment leverage on your obviously front loaded a lot of the buyback last last year and $0.09 decent that on M&A on. So the first part on M&A, you know, it seems like just back-of-the-envelope, I know the Dana Kempner deal was was private equity competitive makes sense, though the higher margin, but it seems like the combined you might be speaking to a multiple on these recent deals. That's more like an 11 to 12 range, which would be kind of higher than what you've been doing on from the smaller tuck-ins and maybe just speak to that and what you're seeing in the market for multiples on what you can drive on kind of a post-synergy basis as well.
And that with your leverage now in the high twos, it sounds like you're pivoting in the near term to kind of deemphasize the buyback and focus your capital mainly on M&A and ultimately the deleveraging that maybe just speak a little more towards how you're thinking about priorities for this year?

Stephen O. LeClair

Yes, Mike, I'll talk first about the M&A pipeline. And while we don't disclose the multiples that I'll share with you, that certainly with Dana Kemner being the size and magnitude that it was and in fact, as payback was up at the high end of what we have had traditionally paid in terms of a multiple of from a synergy standpoint, all the other acquisitions of all come in on at the low to medium range that we have typically done priest pre-synergy. So really not seeing any change there in terms of the overall multiples on.
But certainly we felt really compelled with Dana Kempner given its locations in the long term viability of a lot. What are those markets and the position that they had that that was up that was worth of work looking at at that level of. So we'll continue to do that. Our M&A pipeline continues to look strong. And you'll see that there's a balance of of deals that are in the small to midsize and that in the range in our pipeline and everything else. So we feel really confident that we've got a good active pipeline. These things tend to be a little lumpy, and that's what you saw a little bit in this quarter. It looks outsized. And in terms of that of in terms of the M&A growth that we have traditionally done in that not a bad thing. It's just it's just the size and magnitude of Dana Kempner end and the timing of the other deals falling in line with that. And Mark will talk a little bit more about capital allocation.

Mark R. Witkowski

Yes, Mike, I think in terms of the capital allocation priorities, no real changes there. I mean organic growth, M&A, you're going to continue to be our top priorities and will continue to look at share repurchases and consider dividends at some point. We think we can execute all of that with the level of cash that we generate and expect to have that excess capital return back to that shareholders, I think it was just a highlighting that we did complete a lot of share repurchases in 2023. So I wouldn't expect it at that level. You'd expect that allocation to be a little bit more balanced as we move forward.

Michael Dah

That makes sense very helpful. Thanks. Stephane and Mark.

Operator

Anthony Pettinari, Citigroup.

Hi, this is Asher on for Anthony. Thanks for taking my question. It sounded like there was some maybe price pressure from the kind of mix down from more price-sensitive customers. If I understood your comments correctly, can you just talk about what's driving that kind of that sort of just the increased number of large projects that you called out and that you expect maybe competitive intensity to worsen over time as more large projects come online with IGA?

Stephen O. LeClair

I'd share that what we're seeing here was really kind of as expected in terms of the competitive nature of the normalizing of the supply chain and the pricing structure here have taken thinking about that time to really formulate. And just remind everybody, we go back to first quarter of last year where we had some pretty significant comps in terms of margins that we were going up against. So this is pretty standard for what we're seeing right now. Dot com in the industry. We're certainly seeing, you know, the competitive nature of the business is now on that as we traditionally have seen our ability to offset a lot of this with private label and some of our other pricing initiatives continues to be strong and will continue to see a lot of upside there to offset some of that. But there are definitely a lot of projects out there or seeing we're seeing some really good bid activity you mentioned or IIJA.
So one of the things that we are encouraged about is we're starting to see more bidding volume coming in over this last quarter from a IIJ funded projects. Many of these projects are what I would call a longer term, Tom treatment plant projects sell in many cases. What we're evaluating there is likely material flow on these things will be until we've laid back half of this year into certainly '25 on terms of timing. And we're evaluating how much of that will be incremental as we go forward. But we're starting to be encouraged by at least seeing the bidding activity accelerate in the first the first quarter of this year.

Got it other than, you know, sitting here saying you called out that an earlier start to the phase-in and finally, in both geographies, native and it failed tailwinds, I was just looking at the balance of the year. Can you walk through any notable weather comps and maybe pay thinking that maybe regionally?

Stephen O. LeClair

Yes. You know, shares, we got into the first quarter this year, particularly areas in the upper Midwest that are really softer winter, and we're able to accelerate some of that early season to to kick in, we're definitely dealing with some choppy, whether as we saw in May, with a lot of wet weather in for our business, whether it's not really conducive to digging and putting in pipe in valves and fittings. So we're watching that one closely. We figure that there's probably going to depending how the season pans out over the next the next month to get a better feel for how weather may impact it. But it's always tough a copy, you know, in women or it can be very dicey. And in spring, the start of the season can be delayed with with rain and what why and wet conditions. So we'll continue to monitor that. And usually that levels out over the quarter.

I think that's I have I'll turn it over.

Operator

Kathryn Thompson with Thompson Research Group.

Kathryn Thompson

Okay, thanks. And just a few clarifications based on presentation and Q&A, prepared guidance. On the municipal side, you can keep that steady, low single digit growth in that end market and implied in guidance. But it could you just clarify again on the non-res and residential end market, PDC. set non-license can be flattish on unless he had said single digit to mid-single digit growth. But any update on compliance team and market share guidance?

Mark R. Witkowski

Yes. Thanks, Kathryn. And have you got that. Got that right. In terms of the prepared commentary, I would say unique content continues to be very steady, kind of low single digit [non residual ]i. We are watching early kind of started the year now, definitely some different pockets going on there. But have you seen some really good strength in some of the highway work. A lot of the storm drainage product, as you can see in our breakout of storm drainage, we had a really good quarter there at that, gave us a little bit more confidence that we see maybe it ticked up on the nonresi side. And then from a residential perspective, we were kind of think of them. The mid single digit range in the first quarter was really strong time. We're kind of thinking that for the rest of the year, maybe slightly under that, that kind of low single to mid-single digit for resi, primarily due to the fact that we still are seeing these interest rates stay up a little higher. So just being a little bit more cautious on the resolution, but overall still feel good about the overall kind of low single digit volume growth for the for the end markets.

Kathryn Thompson

And on annualized revenue contribution from acquisitions you gave the percentage change that could be could you frame the acquisition contributions from our from a revenue standpoint and a clarify this a little bit more in his script? I believe that our margins but help us think about it a finer and finer point on follicular spectrum margins more on an annualized basis fund this acquisition?

Mark R. Witkowski

Yes. Thanks, Katherine. From a from a contribution standpoint, as we talked about in the remarks, it's about a seven to eight points of growth for the year. That's in the I'd say, $450 million range for the top line. So good, good revenue growth coming from the acquisitions, and I'm very pleased with how those are being integrated at this point. We're seeing a lot of good lot of good progress from the acquisitions that we've been working through.
In terms of the EBITDA contribution. I would think about those kind of at the company average kind of neutral from that perspective. We've seen a little better contribution at the gross margin level, but not a little higher SG&A rate, but some of this acquisition. So it's coming out just about neutral from a from an EBITDA standpoint.

Kathryn Thompson

Okay. And then just another clarification on your fire protection on self declined due to lower selling prices on offset somewhat by acquisitions. What are you seeing in terms of just volume is really to decline in that segment more and due to pricing? Or are you seeing any on changes in volumes?

Mark R. Witkowski

Yes, on the fire protection product line, a couple of different moving pieces there. Obviously, the steel pipe deflation that we've talked about spending has been a big driver of the top line there. We've offset some of that with some some good M&A on the fire protection side. So from a, I'd say, Organic Valley. So it's been down a little bit. I never really represents more of that completion work and some of the traditional facilities that are out there and that nonresi space at the total company level, nonresi has been stronger due to more of the, like I said, the Street highway work that gets a lot of the storm drainage and then some other work going around around the mega projects and some other areas. So I'd say it's been a little little soft there. But again, nothing that was kind of coming in as expected. And that's going to be a good growth category for us going forward. There's still a lot of good opportunity for expansion and that fire protection space, and we're going to continue that trend to drive that above the market.

Kathryn Thompson

Any update on just private label as a percentage of magazine article square to 10-15 competing in and around 10%? Any any update there?

Mark R. Witkowski

Yes. You know, prior we had a good a good quarter from a private label pull through perspective. We were kind of hovering around kind of low to 2% of COGS and that ticked up a tick normalized, I'd say, buying pattern from an inventory perspective. That was something that was hampering our private label growth. It's a little bit in 2023 assets. We've been able to clear out a lot of that inventory has allowed us to replenish a lot of that with our private label product. And we were very pleased with the results we had in the first quarter and expect we'll be able to continue driving some more growth there throughout the rest of this year.

Kathryn Thompson

Okay, great. Thanks so much.

Operator

The next question is from Joe Ritchie with Goldman Sachs.

Joe Ritchie

Hi, thanks. Good morning, everyone. And so I won't ask the gross margin question and good morning. I maybe just going back a bit deflation for a second high. So I'm just curious, there's been some some talk of on a large municipal pipe expansion from from companies like Westlake. I'm just wondering, is that is that happening any kind of impact on thethe deflationary comments that you guys are making are expected to have an impact going forward?

Stephen O. LeClair

Yes, Joe, this is Steve. But really no impact right now, and I think will be awhile before any type of capacity comes online for that. And you know, there's been a lot of talk about other expansion into plastic pipe that can sometimes be confused with what's happening really in our end markets in the municipal piece. So a number of the expansions that have been cast a vote noted out. There are areas like and in polyethylene pipe and corrugated thermal plastic pipe and some of these areas and plumbing, et cetera, that really aren't related necessarily to our end markets.
So we're not seeing any real impact at all from any new capacity coming on board and don't anticipate that to be an issue in the near or medium term.

Joe Ritchie

Okay, great. That's good to hear. And I just wanted to circle back on the M&A at the M&A commentary and also the -- how it relates to the guidance increase. And I guess we were roughly thinking that the new acquisitions were roughly about $100 million sale in revenue. So even at that kind of below company-wide margins, probably higher EBITDA contribution than the $5 million increase that you have at the midpoint. Just want to understand like how that how M&A with like contributed to the guidance and then what are my numbers are close to correct?

Mark R. Witkowski

Yes, Joe, thanks for that yet. You're pretty spot on with the figures. I would say really no significant changes to how you're thinking about guidance. We did look at the low end and given the M&A contribution, we felt very confident to take the low end of the range up. That was consistent kind of with the acquisition contribution. And that was really the rationale there still watch and it's still early in the year. We were very pleased with how the quarter came in, very pleased with the bidding activity and the backlogs that are building. So a lot of good momentum in the quarter.
As Steve mentioned, there was a little little, um, you know that the weather and severe storms in May. So we really wanted to see that kind of play out before we consider taking the guidance up anymore. But that was really the rationale was felt very confident and taking the low end and very pleased with the quarter and how biddings covenants.

Joe Ritchie

Okay. Got it. Thank you

Operator

We currently have no further questions. So handing back over to Mr. Steve LeClair for closing remarks.

Stephen O. LeClair

So I think you all again for joining us today. It was a pleasure to have you on the call our consistent execution quarter after quarter as a result of the hard work of our branches and functional support teams are focused on operational excellence and the diversity of our products and end markets. We are confident in our base to drive ongoing value creation as we continue to execute our growth strategy and deliver on our capital allocation priorities. We have many levers for driving growth and profitability. The cash flow generation to capitalize it and the team to execute it. So thank you for your interest in Core&Main. Operator that concludes our call.

Operator

Thank you Steve . This concludes today's call. Thank you for joining. You may now disconnect your lines.