Mueller Water Products, Inc. Q4 FY2025 earnings call

• Martie Zakas announced her retirement as CEO effective February 9, 2026, with a transition to Paul McAndrew and serving as a special adviser. - Record fourth quarter and full-year performance with net sales, gross margin, adjusted EBITDA, and adjusted net income all at record levels. - Paul McAndrew discussed commercial and operational insights, including investments in iron foundries for capacity expansion and operational improvements, and safety performance. - Melissa Rasmussen provided financial details, including net sales growth, gross margin expansion, and cash flow information.

For the quarter, WFS (Water Filtration Solutions) had net sales of $217.5 million, a 8.6% year-over-year increase, with adjusted operating income of $55.1 million, up 32.5% y/y, adjusted EBITDA of $62.7 million, up 21.3% y/y, and an adjusted EBITDA margin of 28.8%. WMS (Water Management Solutions) had net sales of $163.3 million, a 10.4% year-over-year increase, adjusted operating income of $39.8 million, up 33.6% y/y, adjusted EBITDA of $45 million, up 22.6% y/y, and an adjusted EBITDA margin of 27.6%. For the full year, net sales increased 8.7% to over $1.4 billion, adjusted EBITDA grew 14.6% to a record $326 million, and adjusted net income per diluted share was $1.31, a 37% year-over-year increase.

• Fiscal 2026 consolidated net sales expected to be between $1.45 billion and $1.47 billion, representing 1.4%-2.8% year-over-year growth. - Adjusted EBITDA expected to range from $345 million to $350 million, reflecting 5.8%-7.3% year-over-year growth. - Capital expenditures expected to be 4%-5% of net sales over the next 3 years, focused on expanding capacity and driving efficiencies in iron foundries.

• External operating environment challenges. - Impact of tariffs on cost of sales, with an estimated 3% of cost of sales impact from 2026 tariffs. - Potential impact of government shutdowns on business, though currently no noticeable impacts seen.

Q: To level set on fiscal '26 outlook, how did muni and residential market sales shake out in fiscal '25 and what's contemplated in FY '26?

A: Melissa Rasmussen said contemplated slightly positive volumes, with residential construction expected down high single-digit, muni repair/replacement low to mid-single-digit growth, and project-based specialty valves mid to high single-digit growth, with muni and specialty offsetting residential slowdown.

Q: Paul, details on initiatives and investments going forward and M&A outlook?

A: Paul McAndrew discussed multiyear investments in iron foundries for capacity and capability upgrades with no 2026 margin benefit but future growth and margin expansion. Marietta Zakas mentioned strong balance sheet, cash position, and looking for acquisitions in water infrastructure with well-established brands.

Q: On margin trajectory for '26 across segments?

A: Melissa Rasmussen said margin expansion expected in both segments, greater in second half, benefit from legacy brass foundry closure in first half of WFS, and no 2026 price actions factored in yet.

Q: On revenue growth targets for fiscal '26 and pricing actions?

A: Paul McAndrew said current guidance doesn't include new pricing, but past pricing actions spill over, with potential upside if new pricing implemented.

Q: On inventory in channel, backlog, and seasonality?

A: Paul McAndrew said channel inventory normalized, seasonality expected with third quarter highest and first quarter lowest, and 2026 expected to follow typical seasonality.

Q: On government shutdown impact and warranty charge?

A: Marietta Zakas said no noticeable impacts from government shutdown on business. Melissa Rasmussen said warranty charge related to metering products in WMS segment, monitored and adjusted periodically.

Q: On leak detection initiatives and commercial opportunities?

A: Marietta Zakas said introduced new hydrant renewal product with Echologics' monitoring technology, in pilot phase, to roll out in 2026.

Q: On CapEx programs and top priorities as CEO?

A: Paul McAndrew said CapEx programs are a priority for long-term value creation, along with commercial and operational investments and people development.

Q: On special charge announced?

A: Melissa Rasmussen said it was related to strategic reorganization and other charges, partially related to leadership transition and transaction-related expenses.