Core & Main CEO Steve LeClair on Growth in Challenging Times

• In order to prepare for its eventual IPO, several years ago Core & Main CEO Steve LeClair started to implement some of the same principles used by public companies.
• Authenticity is one of the key traits that Core & Main fosters with its leaders.
• In addition to the pandemic, supply chain constraints and labor shortages, Core & Main also had to work through the challenges of several hurricanes in 2020 and 2021.

For the past 19 months, distributors have run an obstacle course that has included the trifecta of the pandemic, labor shortages and supply chain constraints, but Core & Main CEO Steve LeClair had to navigate an additional obstacle.

Early this year, Core & Main announced the filing of its initial public offering (IPO). The plan — in the works for several years — came to fruition in September when Core & Main conducted its first earnings call as a public entity.

In 2017, private investment firm Clayton, Dubilier & Rice (CD&R) paid $2.5 billion to acquire HD Supply Waterworks before re-branding the St. Louis-based distributor as Core & Main. Core & Main, ranked  No. 10 on MDM’s 2021 Top 40 Distributors list and No. 1 for PVF distributors, is a distributor of water, wastewater, storm drainage and fire protection products.

“When CD&R carved us out of HD Supply, we always knew that this could be a probable exit for them,” LeClair says. “We were preparing for that from day one and we understood the potential exit plans for them. We had put in place an independent board within the first year and put in some of the governance controls and everything else associated with that. Over the last year and a half to two years we’ve been trying to operate similar to a public company while holding ourselves to a lot of those same standards. We’ve been working that, really, from day one.”

In this Q&A with MDM, edited for clarity and length, LeClair talks about the IPO, the qualities of leadership that Core & Main emphasizes and the unprecedented challenges his company has faced. In the second installment, LeClair will speak about Core & Main’s training initiatives and its M&A strategy.

MDM: You were already on the IPO path before the pandemic hit. What are the core philosophies that you really leaned on to get you through those two big challenges?

LeClair: It was the IPO, the pandemic, supply chain disruptions and weather abnormalities that hit us as well. You name it, we had it all. What I would say is, in 2020 before the pandemic hit, we did our senior leadership meeting. We really talked about three traits that were going to be incredibly important for us to navigate through a lot of the uncertainties. We talked about agility, we talked about innovation and we talked about execution. We’ve held true to those things, and they became so important to help us overcome a lot of the challenges we were faced with last year and then into this year.

But we didn’t just overcome them, we really thrived on this. It’s a testament to the leadership team that we have and to our field team that we’ve got out there to overcome just numerous obstacles. And then, ultimately, to the business model that we have. It’s just been so resilient and strong. I think all of that really played to our strengths. I’m real proud of what we’ve been able to accomplish through all those external challenges that we’ve been facing.

MDM: What do you see as the key characteristics of being a good leader?

LeClair: Certainly, being a good leader means you’ve got to have a great team, there is no doubt about that. It’s so cliché to talk about having a great team. But when you look at facing unprecedented challenges, having a team that can think on its own, that can navigate a lot of uncertainty, those are all great characteristics.

One of the things individually that we really tried to emphasize as individual traits for good leaders is authenticity.  Authenticity is in rare supply, it seems, these days. I think authentic leaders really shine and differentiate themselves. People want to work with folks that are authentic. They can sniff out insincerity so quickly now. We all can.

When you have a leader that really does care about his people, is really competent and really motivated and excited to lead, that comes out really clear. I think that’s one of the traits, most importantly, that we look for in our leaders. In fact, something that we have as part of our performance reviews  is really driving authenticity and really trying to measure people as best we can on how authentic they are as leaders.

MDM: In your last earnings call, you talked about how the weather has impacted PVC, which has led to some of your PVC resin manufacturers declaring force majeure. How have you worked through those supply chain and weather challenges?

LeClair: We’re seeing unprecedented challenges right now with supply chain and availability. We’re certainly not alone in this, as nearly every distributor is encountering challenges whether it’s imported product, or in our case, PVC, which is a real challenge for those manufacturers. You go back to last fall, when Hurricane Laura hit and then the petrochemical plants were impacted by the deep freeze that happened in Texas in February, which impacted them again. Then, you had Hurricane Ida coming through.

What I would share with you is that one of the advantages that we’ve had is obviously our size and scale are significant right now. Being able to get access to product is something that’s been really important, and we’ve been able to utilize our size and scale to do that. So, for a lot of the manufacturers and suppliers that we have out there, we’re often their biggest customer and that helps give us preferred access right now.

The other thing I’d share with you is that this is very much a local game when it comes to water infrastructure. There’s a lot of local specifications and requirements. We’re running into material shortages along those lines, but projects need to continue on. We’re often able to help support these customers by looking at alternative materials if something’s in real short supply to get projects completed.

Having the size and scale has really helped us to be able to serve our customers. It really hasn’t impacted what you’ve seen in our financials in terms of the overall growth and performance, but it certainly allowed us to demonstrate the value that we provide to our customers when we get into these shortages.

MDM: On that note, can you talk about the growth drivers you see in the marketplace for Core & Main?

LeClair: If you look at the municipal end market, which is nearly half of our end-market exposure, those markets have traditionally been incredibly stable over the last decade. So, modest growth there, but the repair and replace aspect of that becomes so important. Everyone knows how fragile the municipal infrastructure is. What we’ve seen is, going back to 2019, is an acceleration in some of the investment needed in there that’s been starting to come to fruition.

Obviously, COVID caused a slight pause. But quarter after quarter, for the last several quarters, we’ve seen an acceleration in demand for that municipal. Then, you move on to residential and residential is really surging right now. Barring supply chain challenges and labor challenges, it’s still showing significant growth and will continue, we believe, for the medium and long term. Those dynamics continue to be strong. What we see on the heels of good municipal and good residential businesses is this non-commercial construction continuing to evolve. We think we could be in the start of a new cycle for that as well. So, all those things play well.

Then, you can layer on top our organic growth plans that we have. We’re very focused on geographic expansion, and continuing to gain share in all the markets that we’re in. And then, also look at our strategic accounts with our ability to support these large national contractors and some of the most critical infrastructure projects out there — whether it’s new water, wastewater treatment plants, or new water source projects. We have a dedicated national team to support them that really complements our field team. We’re into innovative new products like smart meters and high-density polyethylene infusible. We are able to introduce a lot of this new technology into our municipal customer base. All those things allow us to grow well in excess of the market.

MDM: Does that include whatever funds may be available through the infrastructure bill that’s currently being hashed out?

LeClair: There’s certainly that elusive infrastructure bill that’s been out there for quite a while. If you look at what’s in that bill, there’s $55 billion that has been earmarked specifically for water and wastewater infrastructure, which is really incremental to what’s already been happening in terms of those markets. I think that has a lot of potential to really modernize this infrastructure. It is so desperately needed, and it has really good potential to do that.

I think the municipalities are also much better prepared now than they were over a decade ago when federal funds were trying to find their way to these projects. Now, there’s state revolving funds and the requirements to be able to draw on those funds is much clearer, much better understood, and projects have better scope now than they did a decade ago for being able to meet a lot of those requirements.

Coming soon: part two of MDM’s interview with Core & Main CEO Steve LeClair, where he addresses training initiatives and M&A.