Mueller Water Products(US:MWA)2023-02-03 20:03Financial Data and Key Metrics Changes - Consolidated net sales increased by 15.6% to $314.8 million compared to the prior year, driven by higher pricing and volume growth in Water Management Solutions [67][68] - Adjusted operating income decreased by 3.2% to $30.3 million, impacted by increased costs associated with unfavorable manufacturing performance and lower volumes [69] - Adjusted EBITDA decreased by 6.9% to $44.2 million, leading to an adjusted EBITDA margin of 14% compared to 17.4% in the prior year [69] - SG&A as a percentage of net sales decreased to 20% from 20.7% in the prior year [52] Business Line Data and Key Metrics Changes - Water Management Solutions net sales increased by 27.1% to $149.2 million, primarily due to higher pricing and increased volumes [1] - Water Flow Solutions net sales increased by 6.9%, primarily due to higher pricing across most product lines, but adjusted operating income decreased by 22.7% [70][71] Market Data and Key Metrics Changes - Total housing starts were down 15.6% year-over-year, with expectations for construction activity to pick up in the spring [5] - The municipal repair and replacement market remains resilient, partially offsetting the slowdown in residential construction activity [47][75] Company Strategy and Development Direction - The company is in a transformational period with large capital projects ramping up, aiming to enhance operational improvements and increase margins [6][76] - Focus on domestic sourcing requirements due to the Federal Infrastructure Bill, positioning the company well for increased demand in the municipal market [75][76] Management's Comments on Operating Environment and Future Outlook - Management remains cautiously optimistic about the demand dynamics, noting the importance of monitoring municipal balance sheets and the impact of government interest in drinking water [9] - The company expects to return to pre-pandemic margins by 2025, driven by operational improvements and increased internal production [14][114] Other Important Information - The company had total debt of $447 million and cash and cash equivalents of $125.6 million at the end of the first quarter [72] - Free cash flow for the quarter was negative $16.4 million, primarily due to higher inventory levels [102][110] Q&A Session Summary Question: What is the perspective on demand dynamics and order slowdowns? - Management indicated that the slowdown is partly driven by destocking and that the municipal repair market is expected to provide some resilience [61][79] Question: How is inventory impacting free cash flow? - Higher inventory levels have negatively impacted free cash flow, and management plans to reduce inventory as supply chain conditions improve [80][110] Question: Why is there no guidance boost despite strong first-quarter results? - Management cited uncertainty in the external environment and the need to observe sell-through in channel inventories before adjusting guidance [82][83] Question: What is the outlook for backlog normalization? - Management expects backlog levels to normalize over the coming quarters, depending on end market activity and improvements in lead times [90][91]