Mueller Water Products, Inc. Q1 FY2026 earnings call

Management Statement and Operational Highlights

• Martie Zakas notes it's her last week as CEO, praises the team's accomplishments, and expects Paul McAndrew and the team to build on momentum.
• Paul McAndrew highlights net sales growth of 4.6% in the quarter, gross margin expansion, $44 million free cash flow, and raises 2026 guidance. Mentions operational execution, supply chain efficiencies, and price actions across most product lines.
• Melissa Rasmussen reviews first quarter financial results, including consolidated net sales growth, gross profit increase, adjusted operating income and EBITDA records, and details segment performance. Also discusses cash flow, balance sheet strength, and updates 2026 guidance.

Segment Performance

• WFS: Net sales decreased 0.9% to $173 million, primarily due to lower volumes of service brass products but partially offset by higher pricing on most product lines and increased volumes of specialty valves. Adjusted operating income increased 28% to $49.4 million. Adjusted EBITDA grew 26.4% to $56.5 million, with adjusted EBITDA margin expanding to 32.7% (up from 25.6% prior year).
• WMS: Net sales increased 12% to $145.2 million, driven by higher pricing on most product lines and strong volume growth of hydrants. However, adjusted operating income decreased 11.2% to $24.5 million due to increased tariffs, manufacturing inefficiencies, higher SG&A expenses, inflationary pressures, and unfavorable foreign currency. Adjusted EBITDA decreased 9.5% to $29.5 million, with adjusted EBITDA margin contracting to 20.3% (down from prior year's 25.1%).

Guidance

• Raised consolidated net sales guidance at midpoint by $20 million, expecting growth between 2.8% and 4.2% year-over-year, driven by strong first quarter performance and price actions.
• Increased annual adjusted EBITDA guidance at midpoint by $10 million to a range of $355 million to $360 million, with adjusted EBITDA margin expected to be over 24%, an improvement of over 100 basis points year-over-year.
• Maintained SG&A expense expectations, expects second half adjusted EBITDA margin higher than first half, and benefits from price actions to phase in during the coming months.

Risks

• Tariffs and Inflation: Impact from higher tariffs and inflationary pressures, particularly on brass, which partially offset manufacturing efficiencies.
• Residential Construction: Expect slowdown in new residential construction activity, though municipal repair and replacement and specialty valve project work are expected to offset some of this.

Question and Answer

Q: Tyler Bisset asked about quantifying price increases so far this year, comparison to prior years, and margin breakdown.

A: Paul McAndrew stated the majority of guidance increase is price-related, with prior guidance not including recent annual price increase, and Melissa Rasmussen explained manufacturing efficiencies from legacy brass foundry closure and ongoing tariff impacts.

Q: Deane Dray inquired about inflation pressures and residential lot development.

A: Melissa Rasmussen said price increases should be price/cost positive for the year, with ~3% impact from tariffs, and Paul McAndrew mentioned no change in assumption for residential construction slowdown but noted potential for increase if rates lower.

Q: Bryan Blair asked about Mueller's transformation next steps and capital deployment.

A: Paul McAndrew discussed continued commercial and operational investments, capital expenditures in iron foundries for capacity and efficiencies, and focus on acquisitions in drinking water, wastewater, and infrastructure with synergies. Melissa Rasmussen added on capital expenditures targeting 4%-5% of net sales for domestic capabilities.

Q: Michael Anastasiou asked about market exposures and growth rates.

A: Melissa Rasmussen explained resilient end markets, expected high single-digit decrease in residential construction, low-to-mid single-digit growth in municipal repair/replacement, and mid-to-high single-digit growth in specialty valve project work.