Mueller Water Products(MWA) - 2025 Q1 - Earnings Call Transcript

Financial Data and Key Metrics Changes - The company achieved record first quarter results for adjusted EBITDA and adjusted net income per diluted share, with net sales growth of 18.7% to $304.3 million compared to the prior year [12][22] - Adjusted net income per diluted share increased by 92% to$ 0.25, marking a record for the first quarter [30][31] - Adjusted EBITDA rose 41.7% to $63.5 million, with an adjusted EBITDA margin of 20.9%, a 340 basis points improvement year-over-year [28][29] Business Line Data and Key Metrics Changes - Water Flow Solutions net sales increased 23.6% to$ 174.6 million, driven by higher volumes of iron gate and specialty valves [32] - Water Management Solutions net sales increased 12.7% to $129.7 million, primarily due to higher volumes of hydrants [35] - Adjusted operating income for Water Flow Solutions increased 40.9% to$ 38.6 million, while adjusted EBITDA increased 21.8% to $44.7 million [33][34] Market Data and Key Metrics Changes - The company noted that more than 90% of annual sales are in the US, indicating a strong domestic market focus [15] - The company experienced headwinds in the Kraus repair products segment due to the Israel-Hamas war, impacting overall performance [19] Company Strategy and Development Direction - The company is focused on operational improvements and capital investments to enhance capabilities and efficiencies, particularly with the closure of the legacy brass foundry expected to generate an 80 to 100 basis point annualized improvement in gross margin starting in the second half of 2025 [18][21] - The company aims to capture benefits from long-term end market growth trends through product innovation and service, particularly in response to aging North American water infrastructure [48] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in navigating external challenges, including potential tariffs, through price actions and operational efficiencies [15][84] - The company is increasing its guidance for 2025 net sales and adjusted EBITDA, reflecting strong first quarter results and anticipated benefits from recent price actions [13][42] Other Important Information - The company generated$ 42 million of free cash flow in the quarter, after allocating $12 million towards capital expenditures [13][38] - The new CFO, Melissa Rasmussen, is set to join the company, with the current CFO transitioning to a consulting role [16] Q&A Session Summary Question: How is the company thinking about pricing and volumes in guidance? - Management indicated that the sales guidance assumes benefits from both volume and price, with expectations for low to mid-single-digit price realization [52][53] Question: What is the outlook for infrastructure funding and project timing? - Management noted a trend of increasing infrastructure bill activity but emphasized that guidance does not assume a meaningful impact from infrastructure funding [58][101] Question: Can you discuss order levels and the impact of inventory cycles? - Management highlighted that order levels exceeded expectations, with normalized lead times aiding in converting orders to shipments, though some headwinds are expected from lapping record sales [61][64] Question: What are the implications of tariffs on the business? - Management stated that while tariffs could increase costs, the company is well-positioned to manage these through pricing actions and strategic sourcing initiatives [82][84] Question: How is the company positioned regarding land development and customer demand? - Management observed resilient demand for new homes despite elevated mortgage rates, with homebuilders maintaining strong balance sheets [114]