Mueller Water Products, Inc. (MWA) Earnings

Management highlights

- Overall Quarterly Performance * The company achieved record quarterly net sales, adjusted EBITDA, and adjusted diluted net income per share, with 4.1% year-over-year net sales growth. * Adjusted EBITDA grew 24.3% year-over-year to a record $107.4 million, with adjusted EBITDA margin expanding 440 basis points to 27.1%. * Free cash flow remained strong, allowing the company to fund capacity and efficiency investments while returning ~$21 million to shareholders via dividends and share repurchases. * Completed the exit of the I2O pressure monitoring business outside North America; GWF AG acquired the relevant assets and liabilities, and the company incurred one-time exit costs paired with a one-time tax benefit that lowered the quarterly effective tax rate. - Strategic and Operational Initiatives * Rolled out the Mueller Operating System as a company-wide framework to improve discipline, execution, and accountability, which management credits for ongoing margin expansion, stronger cash generation, and business simplification. * Continued to advance commercial initiatives focused on increasing market penetration for core products and expanding into adjacent markets for specialty valves. * Maintained a disciplined approach to cost management while continuing to invest in high-priority growth areas including operational capacity, product engineering, and commercial sales teams. - Sustainability and Safety * Published the 2025 Sustainability Report, highlighting progress in environmental stewardship, responsible operations, employee well-being, and community impact. * Achieved the lowest total recordable incident rate in company history, reflecting a strong company-wide commitment to workplace safety. * Reduced scope 1 and 2 emissions intensity by 13% year-over-year, progressing toward the company's carbon reduction goals.

Guidance

- Consolidated net sales growth guidance for fiscal 2026 was narrowed to a range of 2.8% to 3.5% year-over-year, updated to reflect current expectations for end market demand, volumes, and price realization. - Adjusted EBITDA guidance for fiscal 2026 was raised to a new range of $367 million to $372 million, representing a projected adjusted EBITDA margin of 25.1% at the midpoint, which would be a new annual record for the company. This marks the third consecutive quarter of upward adjusted EBITDA guidance increases. - Total SG&A expense guidance was lowered to a range of $241 million to $245 million, reflecting ongoing disciplined cost management amid strategic growth investment. - The annual effective tax rate guidance was lowered to a range of 21% to 23% to reflect the one-time tax benefit recognized from the I2O business exit in the third quarter. - Capital expenditure guidance for fiscal 2026 was reaffirmed at $60 million to $65 million, and full-year free cash flow conversion is still expected to exceed 70% of adjusted net income.

Segment performance

1. Mueller Water Products Infrastructure (WFS): Net sales were $215.3 million, a 0.6% year-over-year decline. Higher pricing and specialty valve volume growth offset lower volumes for iron gate valves and service brass. Adjusted EBITDA increased 9.5% year-over-year to a record $73.5 million, with an adjusted EBITDA margin of 34.1% (up 310 basis points year-over-year). WFS contributed 54.4% of total consolidated net sales in the quarter. 2. Mueller Water Products Measurement and Services (WMS): Net sales increased 10.3% year-over-year to $180.6 million, driven by strong volume growth in hydrants and natural gas distribution products, plus broad-based pricing increases. Adjusted EBITDA increased 43.6% year-over-year to a record $50.7 million, with an adjusted EBITDA margin of 28.1% (up 650 basis points year-over-year). WMS contributed 45.6% of total consolidated net sales in the quarter.

Risks & headwinds

- Slower new residential construction activity is expected to persist in the fourth quarter of fiscal 2026, negatively impacting volumes for short-cycle residential-focused product lines across both segments. - Elevated tariff and inflationary cost pressures continue to impact operations, and no further International Emergency Economic Powers Act (IEPA) tariff refunds are expected after the third quarter of 2026, with higher Section 232 tariffs replacing that prior relief. - Broader macroeconomic uncertainty creates unpredictability for near-term end market demand. - Working capital remains elevated due to ongoing inventory investments, inflation, and tariffs, though management notes these investments support customer service levels and long-term growth.

Analyst Q&A

• Q: The updated 2026 guidance implies slightly softer Q4 top-line performance against a strong year-ago comparison. What are the expected Q4 dynamics for each segment? /

  A: The narrowed net sales range reflects expected impacts from slower residential construction activity and lapping 2025 Q4 tariff price actions. For WFS, adjusted EBITDA is expected to be above prior year on gross margin improvements and price realization, though it will see a typical sequential seasonal decline driven by lower volumes for short-cycle products, with strength continuing in specialty valves. For WMS, margins are expected to be lower than prior year and sequentially, as hydrant backlogs normalize and the residential slowdown has a larger impact, plus lapping 2025 Q4 tariff pricing and ongoing Section 232 tariff pressures.

• Q: Specialty valve demand has been repeatedly noted as strong. Can you provide more detail on Q3 demand and Q4 visibility, including the emerging data center industrial water opportunity? /

  A: Specialty valves have the longest sales cycle, make up most of the company's backlog, and have been the fastest growing product category for several years. Growth is supported by prior operational and engineering investments, and the category serves potable water, wastewater, and fast-growing industrial water end markets. Demand for industrial water specialty valves for data centers is seeing a notable step-up in growth, and the company is gaining traction through a mix of distribution sales and direct investments to get on approved manufacturer lists for data center projects.

• Q: Federal infrastructure stimulus is set to sunset soon. What is your outlook for muni repair and replacement spending over the next 1-2 years? /

  A: Federal funding makes up less than 5% of total municipal water infrastructure investment, with the vast majority coming from state and local governments. All stimulus funds have already been appropriated and only need to be executed on existing projects, so management expects no meaningful impact on municipal spending over the next 1-3 years from the federal stimulus sunset.

• Q: What is the outlook for pricing realization going forward, after tariff-related price increases lap in the second half of the year? /

  A: The company has a strong brand and pricing power, and has historically successfully taken low-to-mid single digit pricing actions to offset cost pressures. Pricing is expected to remain cost-positive going forward, though Q4 2026 will see slightly lower year-over-year price realization as it laps the 2025 Q4 tariff-related price increases.