Release Date: May 07, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Mueller Water Products, Inc. (MWA, Financial) achieved record quarterly net sales and a strong sequential increase in volumes, reflecting robust execution of operational and commercial initiatives.
- Gross margin improved significantly by 750 basis points to 36.9%, marking the highest quarterly gross margin in over seven years, driven by manufacturing and supply chain efficiencies.
- Adjusted EBITDA grew over 70% compared to the prior year, with adjusted net income per diluted share increasing by more than 100%, demonstrating strong financial performance.
- The company received the highest ESG rating of AAA from MSCI, highlighting its commitment to sustainability and the effectiveness of its environmental, social, and governance practices.
- Mueller Water Products, Inc. (MWA) is increasing its annual guidance for net sales and adjusted EBITDA, reflecting confidence in continued strong performance and healthy end market demand.
Negative Points
- Despite overall strong performance, net sales growth in the quarter would have been nearly flat without the pull forward effect, indicating potential volatility in future revenue streams.
- The company anticipates the pull forward of orders to impact third quarter sales negatively, as reflected in the updated annual guidance.
- Mueller Water Products, Inc. (MWA) experienced higher costs associated with labor, materials, and freight during the quarter, which could affect future profitability if not mitigated.
- The closure of the old brass foundry by the end of calendar 2024 is expected to create additional near-term costs and operational challenges.
- While the company has made significant progress, there is still considerable work ahead in executing key strategic initiatives to ensure sustained growth and operational efficiency.
Q & A Highlights
Q: Hey, everyone. Good morning. Thanks for taking the questions and kudos on the impressive execution here. On maybe a big picture question for you, Marty, you've had some quite a tenure at Mueller. You've seen a lot of change at the company over the years and you're not necessarily new to the CEO role as it becomes your full-time responsibility, though, how are you thinking about the strategic priorities?
A: Thanks, Brian, and thanks for the question. Look, I think one of the most important things I'm going to say is, look, we have been on continuing to lead change, not just today going forward. But I think even looking at the last eight months and importantly, as we look out, we are a water focused company. We do have a long history within the business, but I think in many ways, the time has never been better for us to really leverage on many of the products that we have together. And importantly, as we say, when we look at the opportunity as we have aging infrastructure, as we have continued focus on water starved areas and importantly, particularly how different regions are going to need to focus on improving. They're on their ability to provide water and provide water to reasonable cost to all their all their customers. We have over the years, look to broaden our portfolio. We're a full service provider as we look across our hydrants, certainly brass products.
Q: Maybe that's a good segue into just the second question. I had a little bit more mundane on and less big picture and then I'll pass it on. When you think about the six kind of seven year high in gross margins and you mentioned specifically price and manufacturing improvements. How sustainable do you kind of see those two pillars? It seems like you still have some outsourcing benefits that are still to come? And then price sounds like it's some it's something that's moving into your into your wheelhouse in terms of something you can leverage, but can you kind of speak to sort of the impacts on gross margin this quarter between the two buckets and then how you think about them going forward as having sustainability? Thank you.
A: And absolutely so in and around price. I think when you look over certainly a longer-term period, I think is, um, we have generally benefited from price over the longer longer term and our objective, as we said, is always for price to more than cover any of the inflationary costs that we are experiencing on not to delve too much into the history but I think with sort of the level of inflation that we had, coupled with some of the challenges with COVID and demand levels, that know it was a challenging period, but I think we've gotten back into you've seen this quarter. We're probably sort of mid-single digit in and around pricing. I think we told you last quarter that we had implemented a price increase across most of our product lines in February. And as we called out in our script, we do think as a result of the price increase that we announced in February. Importantly, our ability to manufacture and ship product with shorter lead times. We think that caused a little bit of a pull forward of some of the shipments into our second quarter. So I think pricing, I would say we would expect to continue to benefit covering inflationary costs and preserving margin as we go forward.
Q: Hey, good morning, guys.
A: Good morning, Joe.
Q: Hey, so I wanted to just ask on like if you look back over the last year. There's just been huge volatility in the guide, both directions. I mean, we're happy to see it in the positive direction this time. But both direction has been huge up-and-down moves. And then also like the actual performance relative to the guide, there's been huge volatility. So you've had quite extended extenuating circumstances over the last year with what's going on internally in the inventory situation at channel partners.
A: But like can you kind of talk through the internal modeling process and how you feel the comfort level you have about the ability to forecast the businesses from here and certainly So I'd say, look, overall on one of the areas that we're certainly going to tried to do is to give you the explanations for why we have the guide that we have as well as to provide you insights into what our performance was and why our performance was what it was. And look I think as we take a look at our outlook for 2024, I think importantly, as we move from our first quarter and I'll remind you, we did see our net sales down about 18% in the first quarter. And certainly the explanation that we provided then as we were still and experiencing in our 2023 servicing a very elevated level of short-cycle backlog, which was a situation that I will say we had not experienced at the company.
Q: Thank you. Good morning, everyone, and I'll add, Mike, congrats to Marty and Paul with.
A: Great. Thank you, Dane.
Q: Maybe we can start off with the on any more specifics on the new foundry. I know there are limitations in terms of comparisons. You can't say necessarily what inning or how many SKUs or product certification, but just any color in terms of where you stand on that process of being closer to a full ramp?
A: Again, our foundry teams are continuing to improve the operations in the new foundry. And as you can see this translated into higher year-over-year production volumes and better sales through the foundry and then for others using new equipment, which pieces of it continue to be installed. And we're focused on ramping up the production volumes there to satisfy the backlog while continuing to work through our tooling process. We do expect closed the old foundry at the end of calendar 2024, which does continue to run today, we think that the impact of the duplicative costs of running two foundries is around 80 to 100 basis points as a headwind to gross margin. And with the closure of that facility, we expect to see that benefit coming in 2025, turning to 2026,
Q: That's great. And then Marty, and just the idea on the pull forward, you've put through price increases before in the past was the magnitude of the pull forward surprising at all in outlook. That's a high-quality problem to ask about that got more business coming through in the quarter. But just the idea that the pull forward surprise you in any way on a deal?
A: I probably think of it may be it may be a little bit the way I'm thinking about it. I think with the timing of the price increase, I think from number one, it was the ability that we had to deliver and ship the product, which was a piece of it.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
