Mueller Water Products(US:MWA)2022-08-04 16:00Financial Performance - Net sales for the three months ended June 30, 2022, increased by $22.7 million or 7.3% to $333.2 million compared to $310.5 million in the prior year, primarily due to higher pricing across most product lines [118]. - Gross profit for the same period decreased by $7.1 million or 6.7% to $98.3 million, with a gross margin of 29.5%, down from 33.9% in the prior year, attributed to unfavorable manufacturing performance and inflation [119]. - Selling, general and administrative expenses (SG&A) rose by $2.0 million to $60.8 million, representing 18.2% of net sales, compared to 18.9% in the prior year [120]. - Net sales for the nine months ended June 30, 2022 increased by $100.6 million or 12.3% to $916.0 million compared to $815.4 million in the prior year, driven by higher pricing and increased shipment volumes [134]. - Gross profit for the nine months ended June 30, 2022 rose by $6.5 million to $278.7 million, with a gross margin of 30.4%, down from 33.4% in the prior year due to inflation and supply chain disruptions [135]. - SG&A expenses increased by $12.9 million to $175.1 million, representing 19.1% of net sales, compared to 19.9% in the prior year [136]. Segment Performance - Water Flow Solutions net sales increased by $18.9 million or 10.7% to $195.9 million, while gross profit decreased by $0.4 million or 0.7% to $60.8 million, with a gross margin of 31.0% [125][126]. - Water Management Solutions net sales rose by $3.8 million or 2.8% to $137.3 million, with gross profit declining to $37.5 million and a gross margin of 27.3% [128][129]. - Water Flow Solutions segment net sales increased by $81.8 million or 18.1% to $534.7 million, with a gross margin of 31.8% [141][142]. - Water Management Solutions segment net sales increased by $18.8 million or 5.2% to $381.3 million, but gross profit decreased by $11.0 million or 9.2% to $108.8 million [144][145]. Challenges and Expectations - The company expects continued challenges in the operating environment for fiscal year 2022 due to inflation, labor availability, and global supply chain disruptions [111]. Management and Structural Changes - A new management structure was announced effective October 1, 2021, aimed at increasing revenue growth and enhancing profitability through better alignment of products and services [114]. Financial Charges and Expenses - The company recorded a $4.5 million warranty charge in the three months ended June 30, 2022, impacting the gross profit of the Water Management Solutions segment [129]. - Interest expense, net decreased by $2.6 million to $4.2 million due to refinancing efforts, resulting in lower interest costs [122]. - Interest expense, net decreased by $6.0 million to $13.0 million due to refinancing of senior notes [138]. Capital and Cash Management - Capital expenditures for the nine months ended June 30, 2022 were $36.7 million, down from $46.1 million in the prior year, with guidance for fiscal year 2022 set between $50.0 million and $55.0 million [152]. - Cash and cash equivalents were $154.9 million at June 30, 2022, with an additional $160.7 million of borrowing capacity under the ABL Agreement [148]. - A quarterly dividend of $0.058 per share was declared, resulting in an estimated cash outlay of $9.1 million [149]. Debt and Credit Facilities - The ABL Agreement includes a $175.0 million revolving credit facility, with the potential to increase by an additional $150.0 million under certain conditions [155]. - As of June 30, 2022, excess availability under the ABL Agreement was $160.7 million, reduced by $14.1 million of outstanding letters of credit and $0.2 million of accrued fees and expenses [159]. - The company has $450.0 million of 4.0% Senior Unsecured Notes maturing on June 15, 2029, with cash interest payments of $18.9 million in 2022 and $18.0 million annually thereafter [166]. - The company incurred a $16.7 million loss on extinguishment of the 5.5% Senior Notes, which included a $12.4 million call premium and a $4.3 million write-off of deferred debt issuance costs [163]. - The company has purchase obligations for raw materials and other parts of approximately $163.1 million expected to incur during the next 12 months [166]. - The corporate credit rating as of June 30, 2022, was Ba1 from Moody's and BB from Standard & Poor's, both with a stable outlook [165]. - The ABL Agreement is secured by a first-priority perfected lien on all U.S. inventories, accounts receivable, and certain cash [158]. - The company capitalized $5.5 million of financing costs related to the 4.0% Senior Notes, amortized over the term using the effective interest method [160]. - The ABL Agreement terminates on July 29, 2025, with a commitment fee for unused borrowing capacity of 37.5 basis points per annum [159]. - The company had $14.1 million of letters of credit and $33.1 million of surety bonds outstanding as of June 30, 2022 [168]. Seasonal Business Trends - The business is seasonal, with net sales and operating income historically lowest in the three-month periods ending December 31 and March 31 due to weather conditions [169].