Mueller Water Products, Inc. (MWA) Q1 2026 Earnings Call Transcript
Access earnings results, analyst expectations, report, slides, earnings call, and transcript.
Overview
The earnings call shows a mixed performance with positive adjusted EBITDA growth and margin expansion in some segments, but also declining sales in others. The Q&A reveals reliance on price increases and some uncertainties in market assumptions. Despite positive margin impacts from efficiencies, there are concerns about tariffs and inflation. The company's strategic investments and potential M&A are positive, but lack of specific guidance and a decrease in residential construction temper enthusiasm. Given the market cap and these mixed signals, a neutral stock price movement is expected.
Key Financial Performance
Net Sales $318.2 million, a 4.6% increase year-over-year. This growth was driven primarily by higher pricing across most product lines, partially offset by slightly lower volumes.
Gross Profit $119.8 million, a 16.3% increase year-over-year. Gross margin expanded 380 basis points to 37.6%. The improvement was driven by higher pricing, manufacturing efficiencies, and the absence of prior year inventory and asset write-downs.
SG&A Expenses $59.8 million, an increase of $5.9 million year-over-year. This increase was due to higher personnel costs, inflationary pressures, and unfavorable foreign currency impacts.
Operating Income $56.7 million, a 19.6% increase year-over-year. This was driven by higher pricing and manufacturing efficiencies, partially offset by increased tariffs, inflationary pressures, and higher SG&A expenses.
Adjusted EBITDA $72.1 million, a 13.5% increase year-over-year. Adjusted EBITDA margin expanded 180 basis points to 22.7%, driven by higher pricing and manufacturing efficiencies.
Free Cash Flow $44 million, an increase of $1.8 million year-over-year. This was driven by higher net income and noncash adjustments, partially offset by changes in working capital and other assets and liabilities.
WFS Segment Net Sales $173 million, a 0.9% decrease year-over-year. This was due to lower volumes of service brass products, partially offset by higher pricing and increased volumes of specialty valves.
WFS Segment Adjusted EBITDA $56.5 million, a 26.4% increase year-over-year. Adjusted EBITDA margin expanded 710 basis points to 32.7%, driven by manufacturing efficiencies and higher pricing.
WMS Segment Net Sales $145.2 million, a 12% increase year-over-year. This was driven by higher pricing and strong volume growth of hydrants, partially offset by lower volumes for natural gas distribution and repair products.
WMS Segment Adjusted EBITDA $29.5 million, a 9.5% decrease year-over-year. Adjusted EBITDA margin contracted 480 basis points to 20.3%, due to increased tariffs, manufacturing inefficiencies, and inflationary pressures.
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Operating Highlights
New brass foundry transition: Operational efficiencies and manufacturing improvements were achieved due to the transition to a new brass foundry, contributing to gross margin expansion.
Municipal repair and replacement activity: Healthy municipal repair and replacement activity and strong growth in project-related work using specialty valves are expected to offset slower new residential construction activity.
Manufacturing efficiencies: Manufacturing efficiencies offset higher tariffs and inflationary pressures, leading to gross margin expansion.
Price actions: Price adjustments were announced across most product lines to manage tariffs and inflationary pressures.
Strategic capital investments: Ongoing investments in commercial and operational capabilities, along with strategic capital expenditures, aim to increase capacity and sustain margin expansion.
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Risk or Challenges
Tariffs and Inflationary Pressures: The company faces ongoing tariffs and inflationary pressures, particularly related to brass, which could impact manufacturing costs and profitability.
Supply Chain Management: Challenges in managing supplier relationships and supply chain disruptions could affect operational efficiency and product availability.
Residential Construction Activity: Slower new residential construction activity is expected, which could negatively impact sales in this segment.
Foreign Currency Impacts: Unfavorable foreign currency fluctuations have increased SG&A expenses, potentially affecting overall profitability.
Manufacturing Inefficiencies: Certain segments, such as WMS, experienced manufacturing inefficiencies, which could hinder operational performance.
Higher SG&A Expenses: Increased personnel costs and inflationary pressures have led to higher SG&A expenses, which could reduce net income.
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Guidance & Outlook
Fiscal 2026 Guidance: The company is raising its full-year guidance for consolidated net sales by $20 million at the midpoint of the range. Net sales growth is now expected to be between 2.8% and 4.2% year-over-year, reflecting strong first-quarter performance and current expectations for end-market demand orders and price realization. Adjusted EBITDA guidance is increased by $10 million at the midpoint to a new range of $355 million to $360 million, representing an adjusted EBITDA margin of more than 24%, an improvement of over 100 basis points year-over-year.
Second Half of Fiscal 2026: The company expects adjusted EBITDA margin to be higher in the second half of the year, driven by seasonality of net sales and benefits from recently announced price actions, which will phase in over the coming months and benefit gross margins.
Capital Expenditures and Free Cash Flow: Capital expenditures are expected to be between $60 million and $65 million for the year. Free cash flow is anticipated to exceed 85% of adjusted net income for the year.
End Market Expectations: Healthy municipal repair and replacement activity and strong growth in project-related work using specialty valves are expected to more than offset slower new residential construction activity.
Operational and Commercial Initiatives: Ongoing investments in commercial and operational capabilities, along with strategic capital expenditures, are expected to increase capacity, achieve sustained margin expansion, and deliver long-term value creation.
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Shareholder Return Plan
Quarterly dividend payment: Approximately $16 million was returned to shareholders through quarterly dividend payment.
Share repurchases: Approximately $16 million was returned to shareholders through share repurchases.
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Key Q&A
Q:Can you quantify how much you have raised prices this year and how it compares to prior years? Is the revised guidance due to higher prices or improved demand?
A:The majority of the increased growth in guidance is predominantly price-related. The prior guidance included the previous year's price increase and the tariff price increase, which took effect in Q4 of the prior fiscal year. The annual price increase, recently announced, will show its main benefit in fiscal Q3.
Q:Can you break down the impact of manufacturing efficiencies and favorable pricing on Water Flow margins? How do you expect margins to trend for the rest of the year?
A:The largest impact on margins came from the closure of the legacy brass foundry, which benefited the first quarter and will continue through the second quarter. Tariffs also had an impact, which will start to lap in the second half of the year as they began affecting the company in Q3 of the prior year.
Q:Can you size the inflation pressures and clarify if price increases will offset these pressures?
A:Inflation is typically in the low single-digit range, but tariffs have more than doubled this impact. The guidance incorporates a 3% impact from tariffs, netted out by expected efficiencies. Price increases are expected to make the company price/cost positive for the full year.
Q:Has there been any update on assumptions regarding residential lot development activity?
A:There has been no change in assumptions. A high single-digit slowdown in residential construction is anticipated, aligned with external reports and public homebuilders. However, low housing inventory and population demographics could lead to increased activity if rates lower.
Q:What are the next steps in Mueller's transformation journey, and what does it mean for growth prospects and margins?
A:Mueller has improved commercial and operational investments, achieving results and margin expansion. Future steps include capital expenditures in iron foundries for domestic capability, driving capacity and efficiencies, and continuing customer interaction strategies. The company is well-positioned with its specialty valve portfolio for project work.
Q:What are the plans for capital deployment, including M&A and organic investments?
A:Acquisitions are a priority, focusing on drinking water, wastewater, and infrastructure exposure to drive synergies. Capital expenditures will be 4%-5% of net sales in the next few years, focusing on iron foundries and domestic capabilities to increase capacity and efficiency.
Q:Can you provide a breakdown of exposures, including repair and replace contributions, new builds, gas, and tech such as meters and leak detection?
A:The quarter saw 4.6% growth due to higher pricing and slightly lower volumes. Volume growth in specialty and hydrants was offset by decreases in service brass, natural gas, and repair. Resilient end markets are expected, with strong municipal performance and specialty valve growth offsetting residential declines.
Q:What are the growth rate assumptions for specific markets in the guidance?
A:Residential construction is expected to decrease by high single digits, while municipal repair and replacement growth is projected in the low to mid-single digits. Specialty valves are expected to grow in the mid- to high single-digit range.
Q:Review of Unclear Management Responses
A:Management avoided providing specific numerical details on the exact price increase compared to prior years and did not break down the precise impact of manufacturing efficiencies versus favorable pricing on margins. Additionally, while they discussed capital deployment priorities, they did not provide actionable details on M&A opportunities or specific assets of interest.
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Earnings Word Cloud
The most frequently occurring keywords in this quarter's earning call
CEO opening
Development Mueller
Manufacturing efficiency
Mueller CEO
Mueller chapter
Mueller legacy
Mueller role
Mueller today
Mueller word
Mueller year
SGA margin
SGA pressure
WFS period
WFS record
WFS result
action month
action product
activity project
activity supply
adjustment change
allocation capital
asset liability
asset write
benefit price
down WFS
efficiency tariff
employee
inventory asset
line volume
manufacturing efficiency
margin expansion
month period
passion
point record
pressure SGA
pressure currency
pricing manufacturing
sale pricing
start sale
tariff pressure
volume margin
write down
MWA Transcript
Mueller Water Products, Inc. (MWA) Q1 2026 Earnings Call Transcript
Unknown2-5
The earnings call shows a mixed performance with positive adjusted EBITDA growth and margin expansion in some segments, but also declining sales in others. The Q&A reveals reliance on price increases and some uncertainties in market assumptions. Despite positive margin impacts from efficiencies, there are concerns about tariffs and inflation. The company's strategic investments and potential M&A are positive, but lack of specific guidance and a decrease in residential construction temper enthusiasm. Given the market cap and these mixed signals, a neutral stock price movement is expected.
Mueller Water Products, Inc. (MWA) Q4 2025 Earnings Call Transcript
Positive11-7
The company's strong financial performance, increased guidance for net sales and EBITDA, and strategic investments in growth and operational efficiencies are positive indicators. Despite some uncertainties in residential construction, the overall market outlook remains favorable. The Q&A session revealed confidence in future growth and margin expansion, with potential upside from pricing actions. The market cap suggests moderate stock price sensitivity, leading to a positive outlook for the next two weeks.
Mueller Water Products, Inc. (MWA) Q3 2025 Earnings Call Transcript
Unknown8-5
The earnings call presents a mixed picture: strong financial metrics like record EBITDA and net income per share, yet margin pressures due to tariffs and FX impacts. The Q&A highlights concerns over residential market slowdown and unclear benefits from federal funding, offset by resilience in municipal markets and optimistic margin improvements. The market cap suggests moderate reaction, leading to a neutral stock price prediction in the short term.
Earnings call transcript: Mueller Water Products Q2 2025 beats EPS forecast
Unknown5-6
The earnings call reveals mixed signals: strong demand and operational improvements, but declining gross margins and uncertainties in residential construction. The Q&A highlights management's avoidance of detailed cost disclosures, which could worry investors. Despite positive financials and shareholder return plans, the market cap suggests a milder reaction, resulting in a neutral prediction.
MWA Slides
MWA Report
Frequently Asked Questions
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They are generated by a specialized financial-language model trained exclusively on 15+ years of earnings transcripts. The model extracts financial figures, guidance, and tone with 97%+ accuracy and is regularly validated against human analysts. The full raw transcript always remains available for verification.
