Mueller Water Products, Inc. Q1 FY2025 earnings call

Management Statement and Operational Highlights

• Achieved record first quarter adjusted EBITDA and adjusted net income per diluted share, with net sales growth of 18.7% driven by healthy order levels and customer service.
• Closed legacy brass foundry, resulting in inventory and asset write-downs in Q1, but expects 80-100 basis point annualized gross margin improvement starting H2 2025.
• Normalized lead times for iron gate valves and hydrants, but faces headwinds from lapping prior year backlogs for service brass products.
• New CFO Melissa Rasmussen to join early next month, with Steve Heinrichs transitioning to a consulting role through fiscal 2025.

Segment Performance

• Water Flow Solutions: Net sales increased 23.6% to $174.6 million. Adjusted operating income rose 40.9% to $38.6 million. Adjusted EBITDA increased 21.8% to $44.7 million, with an adjusted EBITDA margin of 25.6% (vs. 26% prior year).
• Water Management Solutions: Net sales increased 12.7% to $129.7 million. Adjusted operating income jumped 82.8% to $27.6 million. Adjusted EBITDA increased 47.5% to $32.6 million, with an adjusted EBITDA margin of 25.1% (up 590 basis points).

Guidance

• Increased 2025 consolidated net sales guidance to $1.37 billion - $1.39 billion, representing 4.2%-5.7% year-over-year growth, reflecting first quarter performance and price actions.
• Raised adjusted EBITDA guidance to $310 million - $315 million, a 8.9%-10% year-over-year growth, with a midpoint adjusted EBITDA margin of 22.6% (90 basis points improvement y-o-y).
• Guidance does not include impacts from recently announced tariffs.

Risks

• Potential impact of proposed new tariffs as a headwind, manageable through price actions and efficiencies.
• Uncertainty in external environment including mortgage rates, tariffs, inflation, global tensions, labor availability, and policy changes.
• Remediation risks related to decommissioning the legacy brass foundry, with no specific estimates for future costs at this point.

Question and Answer

Q: How are you thinking about the price embedded in the guidance and volumes from here, especially with normalized lead times?

A: Guidance assumes benefits from volume and price. Sees normal seasonality, low-mid single-digit price realization, some headwinds from lapping prior sales, and uncertain external environment.

Q: Impact of infrastructure funding on customers?

A: Monitoring increasing infrastructure bill activity but no material change, well-positioned as US vertically integrated.

Q: Pricing strategy and mix change?

A: Price realization in low-mid single-digit range, comparable to past except unusual inflation period.

Q: Commercial benefits of new foundry and tariff impact?

A: New foundry improves efficiency and servicing, tariffs manageable through pricing and sourcing, 92% US sales, 6% Canada sales.

Q: Closure of old foundry and remediation risks?

A: $3.3M write-downs, decommissioning ongoing, no future cost estimates yet.

Q: Municipal spending impact on water infrastructure?

A: Resilient municipal can, bipartisan support for infrastructure, lead service line replacements a focus.

Q: Margin acceleration and land development outlook?

A: Seasonal margin improvement, resilient residential construction despite mortgage rates.

Q: Tariffs and raw material supply?

A: Predominantly domestic raw materials, manageable through pricing and sourcing, normalized lead times for short cycle products.