• Fourth Quarter Net Sales: Increased 15.5% to $348.2 million.
• Full Year Net Sales: Exceeded $1.3 billion, a 3.1% increase.
• Fourth Quarter Gross Margin: Increased 250 basis points to 31.8%.
• Full Year Gross Margin: Reached 34.9%, an increase of 520 basis points.
• Fourth Quarter Adjusted EBITDA: Increased 30.9% to $72.5 million.
• Full Year Adjusted EBITDA: Increased 40.9% to $284.7 million.
• Adjusted Net Income Per Share: Increased 52.4% to 96 for the full year.
• Free Cash Flow: Increased $130 million to $191.4 million for the year.
• Water Flow Solutions Net Sales: Increased 24% to $200.3 million in the quarter.
• Water Management Solutions Net Sales: Increased 5.7% to $147.9 million in the quarter.
• 2025 Net Sales Outlook: Expected to be between $1.34 and $1.36 billion.
• 2025 Adjusted EBITDA Outlook: Expected to range from $300 million to $305 million.

• Warning! GuruFocus has detected 7 Warning Signs with MWA.

Release Date: November 07, 2024

For the complete transcript of the earnings call, please refer to the full earnings call transcript.

Positive Points

• Mueller Water Products Inc (NYSE:MWA) reported a double-digit year-over-year increase in consolidated net sales for the fourth quarter, driven by healthy order levels and steady market demand.
• The company achieved record levels for net sales, gross margin, adjusted EBITDA, adjusted net income per diluted share, and free cash flow in fiscal 2024.
• Mueller Water Products Inc (NYSE:MWA) increased its full-year consolidated gross and adjusted EBITDA margins by more than 500 basis points year-over-year, supported by improved manufacturing performance and favorable price/cost dynamics.
• The company successfully reduced lead times and improved customer service, contributing to its strong financial performance.
• Mueller Water Products Inc (NYSE:MWA) has a strong and flexible balance sheet with ample liquidity, allowing for strategic investments and shareholder returns, including share repurchases and dividends.

Negative Points

• The company faces challenges from the Israel-Hamas conflict, impacting its operations in Israel and potentially affecting supply chain and production capabilities.
• Mueller Water Products Inc (NYSE:MWA) anticipates headwinds in fiscal 2025, particularly in the first half, due to higher costs associated with repair products and the closure of its legacy brass foundry.
• The company reported a $16.3 million non-cash goodwill impairment charge related to lower forecasted revenues in its applications product lines, particularly in technology-related products like meters.
• Mueller Water Products Inc (NYSE:MWA) expects minimal impact from the federal infrastructure bill in its fiscal 2025 guidance, indicating potential delays in realizing benefits from government spending.
• The company faces ongoing inflationary pressures and higher incentive costs, which have contributed to increased SG&A expenses.

Q & A Highlights

Q: Can you provide insights on the impact of the infrastructure bill and any potential policy changes following the recent election? A: Marietta Zakas, CEO, explained that the infrastructure bill, supported by both parties, is expected to continue due to the aging water infrastructure challenges in the US. There is a lag in fund flow due to regulatory processes, particularly around domestic sourcing requirements. The 2025 outlook assumes minimal impact from the bill, with no expected changes due to the election results.

Q: How is Mueller managing risks related to the Middle East conflict, particularly concerning Kraus products? A: Paul Mcandrew, COO, noted that the repair product segment is a small part of sales, and the team has increased production flexibility, strengthened supply chains, and increased labor to meet demand. They are working to de-risk production elements and maintain a strong supply position for Kraus products in the US.

Q: With a strong balance sheet, what is the capital allocation strategy moving forward, and are there any significant organic investments planned? A: Marietta Zakas, CEO, stated that capital allocation will continue to focus on returning value to shareholders through dividends and share repurchases. Capital expenditures will be less than 4% going forward, with investments in facility efficiency and product innovation. Acquisitions remain a focus, looking for opportunities to leverage distribution and customer relationships.

Q: Can you elaborate on the growth expectations for fiscal 2025, particularly regarding pricing and volume? A: Marietta Zakas, CEO, mentioned that the guidance includes benefits from carryover pricing and expected volume growth in municipal and residential markets. There are modest headwinds from service brass backlog reductions, and no significant impact from infrastructure spending is assumed in the guidance.

Q: What are the details behind the goodwill impairment and warranty charges, and what is the plan for the affected businesses? A: Steven Heinrichs, CFO, explained the $16.3 million non-cash goodwill impairment was due to lower forecasted revenues in technology-related products, mainly meters. The warranty charge was related to metering products, reflecting historical warranty experience and forecasted replacement costs. The company is focusing on a streamlined approach to the metering business.

For the complete transcript of the earnings call, please refer to the full earnings call transcript.