Mueller Water Products(MWA) - 2020 Q4 - Earnings Call Transcript

Financial Data and Key Metrics Changes - Consolidated net sales for Q4 2020 were $265.3 million, a decrease of $1.6 million or 0.6% compared to the prior year, primarily due to reduced shipment volumes related to the pandemic [17] - Gross profit increased by $5.1 million or 5.7% to $93.9 million, with a gross margin of 35.4%, reflecting a 210 basis point increase versus the prior year [18] - Adjusted EBITDA for Q4 was $57.6 million, an increase of $700,000 or 1.2%, leading to an adjusted EBITDA margin of 21.7%, which is 40 basis points better than the prior year [23] Business Line Data and Key Metrics Changes - Infrastructure net sales were $242.5 million, increasing 15.5% sequentially and 3.3% year-over-year, driven by increased shipment volumes and higher pricing [24] - Technologies net sales were $22.8 million, increasing 22.7% sequentially but decreasing 29.2% year-over-year, primarily due to lower volumes related to the pandemic [26] - Adjusted operating loss for technologies was $2.5 million compared to an adjusted operating income of $800,000 in the prior year [27] Market Data and Key Metrics Changes - Municipal customers increased their activity levels, prioritizing critical network maintenance and existing infrastructure projects, although project-related areas remain challenged due to budget adjustments from the pandemic [33][34] - The residential construction market showed strength with a double-digit increase in housing starts, primarily for single-family residences, expected to continue outperforming due to low mortgage rates and elevated demand levels [35] Company Strategy and Development Direction - The company aims to become an innovative leader in the water infrastructure industry, focusing on new product development, particularly digitally enabled products [14][36] - Significant capital investments are planned, with $80 million to $90 million expected for fiscal 2021, primarily for ongoing large capital projects [39] - The company is committed to operational excellence and modernizing manufacturing facilities, with three transformational projects expected to drive approximately $30 million of annualized incremental gross profit [38] Management's Comments on Operating Environment and Future Outlook - The management expressed confidence in navigating the ongoing challenges posed by the pandemic, emphasizing the importance of maintaining employee safety and delivering exceptional products [42] - For fiscal 2021, the company anticipates consolidated net sales to be flat to 3% higher than the prior year, with adjusted EBITDA expected to increase between 4% and 7% [41] - The management highlighted the resilience of the break-fix portion of municipal budgets, which is expected to remain stable despite challenges in project-related areas [34] Other Important Information - The company ended the fiscal year with $209 million in cash and cash equivalents, and a net debt leverage ratio of 1.3 times, indicating a strong balance sheet with ample liquidity [30][31] - The company plans to return cash to shareholders primarily through quarterly dividends, which were recently increased by 5% [13] Q&A Session Summary Question: What is behind the delays in projects and approvals? - Management indicated that delays are primarily due to COVID-related access issues and budgetary uncertainties among municipalities, leading to postponed decisions on projects [50][51] Question: How is the dialogue with utilities regarding new digital offerings? - Management noted that COVID has accelerated the adoption of digital solutions, with utilities recognizing the need for automation in their networks to manage aging infrastructure [52][53] Question: What visibility does the company have into residential lot development? - Management stated that visibility is mixed, with some insights from large home builders, but overall, the residential construction market remains strong [61][62] Question: What are the expectations for municipal budgets next year? - Management expects municipal CapEx to be down slightly year-over-year, with unplanned OpEx continuing to grow due to increased emergency response needs [81] Question: What impact is expected on the single-family housing market if a vaccine is available? - Management believes that the preference for single-family homes will continue to strengthen, driven by demographic trends and the pandemic's impact on living preferences [82] Question: What is the company's approach to pricing and cost expectations for 2021? - Management anticipates continued benefits from pricing, while also facing inflationary pressures on raw material costs, aiming to balance the price-cost ratio [88][89]