Mueller Water Products(MWA)2023-05-12 21:27Financial Data and Key Metrics Changes - Consolidated net sales increased by 7.2% to 1.2 million to 33.6 million, impacted by decreased volumes, inflation-related costs, and higher SG&A expenses [3][60] - Adjusted EBITDA of 48.1 million decreased by 4.9%, resulting in an adjusted EBITDA margin of 14.4%, down from 16.3% in the prior year [14][30] Business Line Data and Key Metrics Changes - Water Management Solutions net sales increased by 38.8% to 157.2 million, with higher pricing unable to offset lower volumes for iron gate valves and service brass products [61] - Specialty valves experienced double-digit net sales growth, driven by higher prices and increased volumes [31] Market Data and Key Metrics Changes - The new residential construction market accounted for 25% to 30% of net sales in 2022, with total housing starts down 18% year-over-year during the second quarter [38] - The municipal repair and replacement market remains strong, benefiting from healthy budgets, particularly in larger municipalities [39] - The company anticipates that the federal infrastructure bill will provide a tailwind for water infrastructure activity, with funding allocated to various projects [72] Company Strategy and Development Direction - The company aims to become a sustainability leader by providing intelligent products and services that help municipalities manage aging infrastructures and respond to climate impacts [11] - The focus is on improving operational efficiencies and increasing domestic manufacturing capacity to enhance delivery times and capture demand for American-made products [42] - The company is committed to returning to pre-pandemic margins by 2025 through strategic capital investments and operational initiatives [19][68] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in achieving adjusted EBITDA growth and conversion margin expectations in the second half of the year, supported by operational improvements [71] - The company reiterated its annual guidance for consolidated net sales and adjusted EBITDA growth, expecting higher pricing to drive top-line growth [40] - Management acknowledged ongoing inflationary pressures and the need for continued cost management, particularly in SG&A expenses [29][55] Other Important Information - The company reported a total debt of 89.2 million as of March 31, 2023, with a net debt leverage ratio of 1.9 times [34] - Free cash flow for the six-month period was negative $42.7 million, primarily due to a decrease in cash provided by operating activities [33] - The company continues to utilize outsourcing for brass parts to mitigate lower production at its brass foundry operations [59] Q&A Session Summary Question: Discussion on margins in the Water Management Solutions segment - Management discussed the recent realignment of segment reporting and the sustainability of margin improvements, indicating that the jump in margins is expected to be maintained going forward [6] Question: Update on the certification process at the new foundry - Management provided updates on the production targets and the certification process, indicating that they are on track to meet their goals [84][106] Question: Insights on the backlog and lead times - Management expressed confidence that backlog will normalize before the demand wave from legislation, with expectations for lead times to return to historical norms [116] Question: Performance of the old foundry - Management highlighted improvements in the old foundry's performance due to better staffing and maintenance practices, contributing to increased production efficiency [119] Question: Update on the impact of the federal infrastructure bill - Management noted that they are tracking bids related to the infrastructure bill and are positioned to benefit from increased demand for American-made products [123]