Mueller Water Products(US:MWA)2022-05-03 16:26Financial Data and Key Metrics Changes - The company achieved record second quarter net sales of $310.5 million, an increase of $43 million or 16.1% compared to the prior year [10] - Gross profit increased by $4.4 million or 5% to $92.8 million, yielding a gross margin of 29.9%, which is a decrease of 310 basis points from the prior year [11] - Adjusted EBITDA was $50.6 million, nearly flat compared to the prior year quarter, with an adjusted EBITDA margin of 16.3%, down 310 basis points from the previous year [13] Business Line Data and Key Metrics Changes - Water Flow Solutions: Net sales increased by $36.8 million or 25% to $183.9 million, driven by increased volumes and higher pricing [15] - Water Management Solutions: Net sales increased by $6.2 million or 5.1% to $126.6 million, primarily due to higher pricing and increased volumes [17] Market Data and Key Metrics Changes - The municipal repair and replacement market remains robust, benefiting from healthy budgets, especially in larger municipalities [30] - New residential construction maintained momentum with a 10% increase in total housing starts [30] Company Strategy and Development Direction - The company is focused on becoming a technology-enabled solutions provider to water companies, bridging the gap between infrastructure and technology [33] - The company aims to maintain price increases that cover inflationary costs to preserve margins [29] Management's Comments on Operating Environment and Future Outlook - The management noted ongoing operational challenges due to inflation, supply chain disruptions, and unfavorable manufacturing performance [24] - The company raised its annual guidance for consolidated net sales growth to between 10% and 12% [31] - Adjusted EBITDA is expected to increase between 7% and 10% compared to the prior year [32] Other Important Information - The company reported a net cash provided by operating activities of $800,000 for the six-month period, a significant decrease from $63.2 million in the prior year [20] - Total debt outstanding was $447.1 million with total cash of $164.1 million as of March 31, 2022 [21] Q&A Session Summary Question: What is the expectation for sequential margin improvement? - Management anticipates that initiatives around uptime and supply chain logistics will contribute to sequential improvement in margins [38] Question: How will free cash flow be impacted by higher CapEx and inventory levels? - Management expects free cash flow to be positive in the second half of the year but below 2021 levels due to higher inventory levels and capital expenditures [42][43] Question: What pricing actions were taken in the quarter? - Management indicated that pricing actions were taken on brass and steel products, with price realization stepping up sequentially due to previous quarter actions [48][49] Question: How have higher natural gas prices impacted margins? - Management noted that natural gas has a minimal impact on operating costs as most foundries are powered by electricity [90] Question: What is the outlook for the infrastructure bill's impact on demand? - Management believes that meaningful impacts from the infrastructure bill will be seen in 2023 and beyond, with limited effects in the current year [81][82]