Mueller Water Products(MWA) - 2022 Q2 - Quarterly Report

PART I. FINANCIAL INFORMATION Item 1. Financial Statements The unaudited condensed consolidated financial statements for the period ended March 31, 2022, show increased net sales and income, a slight decrease in total assets due to lower cash, and a significant decrease in operating cash flow primarily from increased inventories and changes in current liabilities Condensed Consolidated Balance Sheets As of March 31, 2022, total assets slightly decreased to $1,511.5 million, driven by lower cash and cash equivalents, partially offset by increased inventories, while total liabilities decreased and stockholders' equity rose Condensed Consolidated Balance Sheet Highlights (in millions) | Account | March 31, 2022 | September 30, 2021 | Change | | :--- | :--- | :--- | :--- | | Cash and cash equivalents | $164.1 | $227.5 | ($63.4) | | Inventories, net | $229.2 | $184.7 | $44.5 | | Total current assets | $647.1 | $653.7 | ($6.6) | | Total assets | $1,511.5 | $1,518.0 | ($6.5) | | Total current liabilities | $201.5 | $220.1 | ($18.6) | | Long-term debt | $446.1 | $445.9 | $0.2 | | Total liabilities | $805.4 | $823.1 | ($17.7) | | Total stockholders' equity | $706.1 | $694.9 | $11.2 | Condensed Consolidated Statements of Operations For the three and six months ended March 31, 2022, net sales and net income increased significantly year-over-year, with Q2 net sales reaching $310.5 million and six-month net sales at $582.8 million Statements of Operations Summary (in millions, except per share data) | Metric | Q2 2022 | Q2 2021 | YoY Change | H1 2022 | H1 2021 | YoY Change | | :--- | :--- | :--- | :--- | :--- | :--- | :--- | | Net sales | $310.5 | $267.5 | +16.1% | $582.8 | $504.9 | +15.4% | | Gross profit | $92.8 | $88.4 | +5.0% | $180.4 | $166.8 | +8.2% | | Operating income | $34.2 | $33.4 | +2.4% | $63.1 | $61.2 | +3.1% | | Net income | $23.6 | $20.9 | +12.9% | $43.0 | $37.6 | +14.4% | | Diluted EPS | $0.15 | $0.13 | +15.4% | $0.27 | $0.24 | +12.5% | Condensed Consolidated Statements of Cash Flows For the six months ended March 31, 2022, net cash from operations significantly decreased to $0.8 million, primarily due to increased inventories and other current liabilities, while investing and financing activities used $25.8 million and $39.1 million respectively Cash Flow Summary - Six Months Ended March 31 (in millions) | Activity | 2022 | 2021 | | :--- | :--- | :--- | | Net cash provided by operating activities | $0.8 | $63.2 | | Net cash used in investing activities | ($25.8) | ($30.8) | | Net cash used in financing activities | ($39.1) | ($14.5) | | Net change in cash and cash equivalents | ($63.4) | $19.3 | - The sharp decline in operating cash flow was mainly driven by a significant increase in inventory ($47.5 million use of cash) and payments of other current liabilities ($36.0 million use of cash)[20] Notes to the Unaudited Condensed Consolidated Financial Statements The notes detail the company's new segment structure, borrowing arrangements including $450.0 million in Senior Notes, segment performance with Water Flow Solutions showing stronger growth, and disclosures on environmental and other contingencies - Effective October 1, 2021, the company reorganized into two new reportable segments: Water Flow Solutions (iron gate valves, specialty valves, service brass) and Water Management Solutions (fire hydrants, repair, metering, leak detection)[23][87] Segment Net Sales - Six Months Ended March 31 (in millions) | Segment | 2022 | 2021 | YoY Change | | :--- | :--- | :--- | :--- | | Water Flow Solutions | $338.8 | $275.9 | +22.8% | | Water Management Solutions | $244.0 | $229.0 | +6.6% | | Total | $582.8 | $504.9 | +15.4% | - The company's long-term debt primarily consists of $450.0 million of 4.0% Senior Unsecured Notes due in 2029[58][63] - On April 22, 2022, the Board of Directors declared a quarterly dividend of $0.058 per share[103] Management's Discussion and Analysis of Financial Condition and Results of Operations Management attributes Q2 2022 sales growth to pricing and volume, but gross margin declined due to inflation and manufacturing issues, with expectations of continued challenges despite strong liquidity Results of Operations Q2 2022 consolidated net sales increased 16.1% driven by both segments, though gross margin compressed to 29.9% due to cost pressures, with similar trends observed for the six-month period - Q2 2022 net sales increased 16.1% to $310.5 million, primarily due to higher pricing and increased shipment volumes[114] - Q2 2022 gross margin declined to 29.9% from 33.0% in the prior year, impacted by inflation and unfavorable manufacturing performance which offset the benefits of higher pricing[117] Segment Net Sales Growth - Q2 2022 vs Q2 2021 | Segment | Q2 2022 Sales (M) | Q2 2021 Sales (M) | YoY Growth | | :--- | :--- | :--- | :--- | | Water Flow Solutions | $183.9 | $147.1 | 25.0% | | Water Management Solutions | $126.6 | $120.4 | 5.1% | Liquidity and Capital Resources As of March 31, 2022, the company maintained strong liquidity with $164.1 million in cash and $160.1 million in borrowing capacity, having repurchased $20.0 million in stock and paid $18.3 million in dividends, with projected capital expenditures of $70.0-$75.0 million for fiscal year 2022 - The company maintains a strong liquidity position with $164.1 million in cash and $160.1 million of additional borrowing capacity at the end of the quarter[146] - In the six months ended March 31, 2022, the company repurchased $20.0 million of its common stock, with $115.0 million remaining under its share repurchase authorization[147] - Capital expenditures are projected to be between $70.0 million and $75.0 million for fiscal year 2022[150] Controls and Procedures Management, including the CEO and CFO, concluded that disclosure controls and procedures were effective as of March 31, 2022, with no material changes to internal control over financial reporting identified - The Chief Executive Officer and Chief Financial Officer concluded that the company's disclosure controls and procedures were effective as of the end of the period covered by this report[170][171] - There were no changes in internal control over financial reporting during the quarter that have materially affected, or are reasonably likely to materially affect, these controls[168] PART II. OTHER INFORMATION Legal Proceedings The company refers to Note 12 of the condensed consolidated financial statements for details on legal proceedings - For details on legal proceedings, the report directs readers to Note 12 in Part I, Item 1[175] Risk Factors No new risk factors are disclosed in this report, with investors directed to the comprehensive risk factors section of the most recent Annual Report on Form 10-K - The report refers to the 'Risk Factors' section in the company's Annual Report on Form 10-K for a comprehensive discussion of potential risks[176] Unregistered Sales of Equity Securities and Use of Proceeds During the six months ended March 31, 2022, the company repurchased 1,408,274 shares for $20.0 million, with $115.0 million remaining under the share repurchase authorization Share Repurchase Activity - Six Months Ended March 31, 2022 | Metric | Value | | :--- | :--- | | Total Shares Repurchased | 1,408,274 | | Total Cost | $20.0 million | | Remaining Authorization | $115.0 million | Exhibits This section lists exhibits filed with the Form 10-Q, including CEO and CFO certifications and XBRL-formatted financial data - The exhibits filed with this report include CEO and CFO certifications pursuant to Sections 302 and 906 of the Sarbanes-Oxley Act[179]