Core & Main Inc (NYSE:CNM) stock rose 2.93% (As on December 6, 11:27:15 AM UTC-4, Source: Google Finance) after the company posted mixed results for the third quarter of FY 23. Municipal repair and replacement activity in the third quarter remained stable on a year-over-year basis. Despite still being below prior year levels, new residential lot development improved sequentially from the second quarter. There continues to be a shortage of existing homes for sale, which is driving a need for new lot development and new home construction. Gross margin of 27% was 50 basis points lower than last year as inventory costs continue to catch up with current market prices. Selling, general and administrative expenses increased 4% to $240 million for the third quarter. The increase in SG&A reflects the impact of acquisitions and cost inflation. Interest expense was $20 million for the third quarter compared with $16 million in the prior year period. The company recorded $158 million of net income in the third quarter compared with $178 million in the prior year period. The decrease was primarily due to lower operating income.

CNM in the third quarter of FY 23 has reported the adjusted earnings per share of 65 cents, missing the analysts’ estimates for the adjusted earnings per share of 68 cents, according to Zacks Investment Research. The company had reported the adjusted revenue of $1.83 billion in the third quarter of FY 23, which met the analysts’ estimates for revenue of $1.83 billion. Adjusted EBITDA decreased approximately 5% to $260 million, and adjusted EBITDA margin decreased 90 basis points to 14.2%. The decrease in adjusted EBITDA was due to the reduction in gross margin and the impact of cost inflation on SG&A. The company delivered excellent operating cash flow in the third quarter of $373 million, reflecting over 140% conversion from adjusted EBITDA. On a year-over-year basis, net inventory was down about $325 million or roughly 28%, even with higher product costs, inventory acquired through acquisitions and new inventory to support greenfields.

The company is narrowing the expectation for fiscal 2023 net sales to be in the range of $6.65 billion to $6.75 billion. The company is also raising the expectation for adjusted EBITDA to be in the range of $890 million to $910 million due to the margin performance in the third quarter. The company is also raising the expectation for operating cash flow conversion to be in the range of 110% to 115% of adjusted EBITDA.