Mueller Water Products, Inc. Q2 FY2025 earnings call

• Delivered second quarter records for consolidated net sales, adjusted EBITDA, and adjusted net income per share. Net sales grew 3.1% due to higher pricing and increased volumes.
• Gross margin and adjusted EBITDA margin improved sequentially. Focused on customer service, operational excellence, and cost discipline.
• Vertically integrated for major product categories, with 92% of net sales in the U.S. and 60-65% of net sales used for municipal water infrastructure repair/replacement.
• Tariffs impact: ~15% of cost of sales exposed, annualized impact ~8-9%, China-related tariffs ~75% of exposure. Implemented targeted pricing actions, monitoring supply chain and tariffs.

For WFS, net sales increased 5.1% to $216.2 million compared to the prior year, primarily due to increased volumes of iron gate and specialty valves and higher pricing across most product lines. Adjusted operating income increased 6.3% to $55.9 million in the quarter. Adjusted EBITDA decreased 0.3% to $62.2 million and adjusted EBITDA margin was 28.8% compared with 30.3% in the prior year. For WMS, net sales increased 0.3% to $148.1 million compared with the prior year, primarily driven by increased volumes of repair products and higher pricing across most product lines. Adjusted operating income increased 8.3% to $31.4 million in the quarter. Adjusted EBITDA in the quarter increased 2% to $36.4 million with adjusted EBITDA margin improving 40 basis points to 24.6%.

• Increased 2025 consolidated net sales guidance by $15 million at midpoint to $1.39 billion to $1.4 billion.
• Maintained adjusted EBITDA guidance range at $310 million to $315 million, reflecting higher net sales offset by tariff costs.
• Expect margin benefits from legacy brass foundry closure in the second half.
• Free cash flow expected to be >80% of adjusted net income, capital expenditures $45 million to $50 million.

• Tariffs increasing costs for products, with uncertainty in timing and magnitude of price mitigation benefits.
• External environment volatility affecting end market demand and supply chain.
• Impact of tariffs on customer order patterns and potential delays in project approvals.

Q: Any pre-buy related to tariffs?

A: No clear pre-buy observed, but analyzing closely.

Q: New foundry status?

A: Fully operational, old South foundry not producing; $800,000 impairment related to legacy foundry.

Q: CapEx for new foundry?

A: Most capital for new foundry already spent; anticipate CapEx at 3%-4% of sales.

Q: End market demand and tariffs?

A: Municipal market resilient, residential construction uncertain in fourth quarter.

Q: Pricing and tariffs?

A: Double-digit price increases on specialty valves and repair products, lag in benefit until fourth quarter.

Q: Gross margin outlook?

A: Expect improvements in back half, midpoint 37% gross margin for back half.

Q: Segment margins and SG&A?

A: Second quarter margin dip due to manufacturing inefficiencies; SG&A reduced by $4 million, step-up in back half.

Q: End market exposure breakdown?

A: ~60-65% repair/replacement, ~20-25% residential construction, <10% natural gas distribution.