Earnings call transcript Q1 2023

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Operator

Welcome and thank you for standing by. [Operator Instructions] This call is being recorded; any objections you may disconnect at this time.

I'll now turn the call over to Whit Kincaid.

Whit Kincaid

Good morning, everyone. Thank you for joining us on Mueller Water Products' First Quarter 2023 Conference Call. release XX, of XXXX, press quarter for our December ended yesterday issued reporting operations results the We afternoon. A is copy available release on our of website, www.muellerwaterproducts.com. the press will and Scott outlook and Zakas, Hall, and XXXX. our CEO; our our quarter President for CFO, be results discussing first Martie

call morning's Internet. recorded live on and This webcast being the is

X. supplemental our website. non-GAAP press time, slides non-GAAP and in provide disclosure Please and factors the useful actual measures information posted also call. to identifying Reconciliations X that differ please have between their non-GAAP believe that X our on statements and Slide to This statements. our website GAAP information press cause Slides these investors. financial in our made within identifies It why accompany the slide on reasons release our on information At on forward-looking X this This today's our measures important and forward-looking could referenced in We review forward-looking slides measures we in on discloses materially discussion financial this included addresses statements are refer cautionary Slide which slide address release, this entirety. from requirements. call. those to to includes our results included and

During specified XX. this year otherwise, specific year call, unless ends all on September references or refer fiscal quarter, to a which to our

The archived XX corresponding Investor morning's this least of our section the website. and call will at be webcast replay Relations XXXX-XXX-XXXX. XX will A for on for be available slides days at available of days

to turn I'll over now the Scott. call

John Hall

in pleased year. increase again quarter our joining for start generated a to you earnings this Thank for We everyone. morning, solid Good XXXX I'm call. our Whit. first with in double-digit Thanks, us price pricing was volumes as sales from decrease benefited quarter. improved offset offset help net consolidated inflationary in partially by pressures. overall The the modest actions taken a realization past to we

contributed to compared production partially and construction We volumes. helped the and production believe year offset the improve decrease repair sequentially, resilient the residential with brass slowdown prior did levels remains lower municipal in the our levels Although market replacement activity. in

As We the are working our levels. combined offset gross partners environment, end closely margins sequentially order to performance economic level with as channel manufacturing inventories improved with than this manage higher and price volumes. more of in in markets and our lower quarter a inflation lower realization, better we evolve

inflationary increases. us pressures leading the price still compared eased, additional to the While have are prior they elevated implement with year,

ramp-up foundry. on Our the benefits the our our new teams particularly from focused brass capital remain of delivering projects, large

seeing are to the specialty We in at facility Kimball believe quarter. operational increase the the improvements year. growth half in are margins improvements of our needed our achieve this second We track operational as valve strongest on delivered we to the products year-over-year

remain with pleased quarter Martie in our and our are XXXX. for I'll this we first results, end outlook we our financial While guidance. environment After reiterating are also vigilant provide discusses quarter color first and on our more markets performance, results, annual

to the call Martie. over Now, I'll turn

Martie Zakas

consolidated XXXX everyone. financial Thanks, our start I review and liquidity. GAAP with results. flow discuss cash will and quarter and performance our good morning, that, will first After our Scott and I non-GAAP segment

Water across to year, million primarily the in most in Management compared sales growth due The with and $XXX.X was XX.X% net consolidated to to product increase both Water pricing lines Our increased prior Solutions million, profit of Solutions. Flow Solutions. most a Water with $XX.X products across benefits growth by Management at compared year. Water partially Flow X.X% These Solutions. and volume the and offset Gross in segments increased prior volumes both decrease were higher

volumes. than pricing performance, unfavorable year as associated and compared by inflation points with benefits from XX.X%, manufacturing gross were more of margin cost with However, decreased offset lower prior higher basis increased XXX the

quarter. the our driven by performance unfavorable of The sequentially. primarily and improved sequentially was manufacturing in inflation outsourcing, productivity, machine our improved impact The basis points operations. disruptions supply which by labor downtime, We gross chain the foundry margin impact includes negative XXX of

we and year. raw purchased with labor costs materials, and the However, utilities, prior freight to to associated relative higher continue experience

with material year. costs around total Our increased X% the compared prior

price T&E offset more covering compared increased year. fourth Selling, exchange Our in inflationary the of third-party personnel driven and inflation consecutive pressures The sequentially, costs, gains. the for by realization quarter. by primarily the again improved foreign prior was expenses, quarter, general million partially expenses services, increase administrative and XX.X% than $XX.X with

reorganization a in $XX benefit sales year of was quarter. to of Aurora, decreased net $X quarter as prior $X.X prior a sale increased quarter. expenses. charges gain primarily a consisted other XX.X% gain from offset the with transaction-related percent on and million pretax benefit net partially in strategic The the as of includes the million Illinois compared This the million in year. net facility. by of of SG&A the XX.X% the million, in income Operating Operating XX% compared $XX.X to income

Turning Adjusted leading unfavorable $XX.X with X.X% margin of with additional to compared now EBITDA XX.X% consolidated prior an our year. SG&A expenses costs Adjusted income in inflation, manufacturing or higher prior The offset the with million and volumes. decreased year. of million from million, benefits decreased performance, were in million, increased the XX% adjusted by X.X% to pricing $X results. of than the associated operating $XX.X lower $XX.X non-GAAP compared more in quarter, EBITDA

The adjusted from pension the declined prior was to $X.X increase $X.X in quarter. reminder, primarily higher in expense also by million the the quarter expense $X.X interest for resulted year-over-year million income. in as with a impacted a the in of year. EBITDA decrease quarter interest compared Net million As

flat income adjusted the of compared net with year. per quarter, we $X.XX prior generated the which share For was

products quarterly most due increased to valve lines. brass service starting segment experienced for with performance, We Water were gate valve primarily products. lower Flow on primarily higher to the for partially product which the sales pricing Net the offset Moving compared Solutions. by specialty prior segment's volumes across of our higher and volumes year, with X.X%

$XX.X manufacturing our at income quarter. the EBITDA decreased EBITDA decreased pricing foundry Adjusted associated year. last $XX.X volumes by operations, an higher Benefits leading million, lower more primarily Adjusted of were XX% offset in with adjusted than of margin performance, of XX.X% with and million, XX.X%, XX.X% operating inflation. increased costs compared from to unfavorable

our Solutions. to operating of in Turning SG&A water performance, and expenses. manufacturing quarter, Management compared the product Adjusted additional increased increased increased operations, pricing was Net inflation $XXX.X and of in associated and primarily higher mainly across to lines million, costs million, pricing than year. Water increased at hydrant increase volumes, from $XX.X sales prior unfavorable segment's offset higher application This XX.X% the most of the as due products. more benefits and with volumes income XX.X% foundry primarily with

quarter, leading an of $XX.X EBITDA with margin last Adjusted adjusted EBITDA in XX.X% million, of XX.X% XX.X% to the year. compared increased

compared quarter prior Moving for XXXX, increase the by higher year. million year, increased to the inventory method using percent on an to cash levels. December was operating in in Net was $X.X in the to ended primarily $XX.X of of of primarily flow. net XX, capital quarter in with net inventory. working XX.X% last provided due net activities sales compared Average first cash The to due X-point XX.X% a cash million decrease with used the activities operating as

million negative year. During with million the to $XXX the by prior as in flow with partially expenditures. remaining XX, quarter by capital Free had did we activities, December $X.X was we million $X.X under any year, invested cash common offset decrease in And positive for $XX.X in share million the capital compared cash expenditures primarily $XX due quarter, not authorization. compared prior the the provided of million lower our repurchase operating repurchase We in stock.

agreement At of XXXX, the debt million. of and million leverage did first during of we borrow the was We at the quarter nor any borrowings our end end under not we and December had cash have quarter, $XXX our our quarter. XX, equivalents At amounts ratio X.Xx. debt total any ABL did $XXX.X under cash net ABL

before strategic As total acquisitions. priorities, million we reminder, ample XXXX, currently had XX, including us capacity giving have to debt December XXXX. a At maturities June our support $XXX we of liquidity, no

to Scott, you. back

John Hall

that, Thanks, Martie. on questions. quarter and for comment XXXX now up year I'll end open call outlook. first we'll performance, markets After our full the

our earlier, mentioned with to start the are pleased year. As we solid

gross margins the the prior in our quarter, were improved below margins sequentially year. we While

continue our to which more quarter. be offset consecutive fourth price the with realization pleased for We than inflationary pressures

foundries, manufacturing our primarily Unfavorable leading manufacturing our and unfavorable foundries, at the under-absorption overhead. labor higher to pricing by at and Chattanooga expected, performance, primarily from benefits of Decatur first the offset impacted lower production, partially As performance quarter. in was

Christmas production, Our year, focused primarily production period. is planned the Chattanooga maintenance on lower relative over by increased driven due delivered foundry gate the prior to fewer which valve days to volumes

Our foundry increased melt production Decatur sequentially. our at

year. prior However, XX% more it the than below was

the improved increase made is The uptime to sequential teams melt well in the foundry machine Our contributing brass foundry at progress challenges of ramp-up on with underway. production. the our new operational

X have hydrants working We approval including highest in process, gate parts prioritizing the lines our production volume and parts, used parts our valves. through

expect pleased casting components later to new drinking this the working initial Mueller alloy processes begin machining and the manufactured are to the We am continue XX ship NSF products crucial water alloy certification This under parts customers. with certified will for be to components underwriters foundry the using utilizing through new I new shipping is parts laboratories. that new product and to containing the system at to through quarter. share

times teams brass and our and backlogs, orders, improving production remain on lead satisfy elevated especially for to products. hydrants reduce levels, With our focused

outsourcing maintenance. continue We year-over-year, primarily to related machining higher and materials, experience costs to

second the of carry We headwinds expect on to these year. as as the second well into half quarter the

to production costs. brass us back Increasing bring in-house from ultimately production levels lower will allow some foundries both and

decreasing of As brass our backlog we use outsourcing. new product, begins anticipate levels normalize shipping foundry and the

for Additionally, of key at increase to facility. Albertville of associated the sale we with assets Foundry the to shifts We've our parts. working closure internal add are hydrant our already mentioned Aurora production

new are Tennessee from the We of have now to divestment facility. the all that operations transitioned completed the which have we Kimball, pleased locations

and ramp specialty CapEx continuing are to up large accordingly. vial follow expect to year the Our we this benefits and margin investments

resulted the of quarter, and in gross lines year-over-year first year-over-year products our of the improvement valve a strongest sequential specialty During all margin. product our growth delivered which in

now review will end markets. I our briefly

As municipal replacement remains construction repair resilient, market mentioned offset in earlier, residential we activity. believe and the partially the slowdown helping

later we benefits Bill the repair the about starting excited municipal replacement and the market, remain effect year. of For to take this Infrastructure

with all from Build the capital additional taken large of X distributions Buy This requirements. guidelines wave strategic place rationale the of first sourcing supports America the regarding EPA America projects. further have domestic our The for

iron we well domestic for larger and increased our As domestic increase, valve products. for requirements our believe we brass positioned steel and service with capacity sourcing products will be

XX.X% seasonally adjusted million starts X.X in with the residential year-over-year at around during our construction Total annual new Looking housing were market. first rate quarter down December.

the is products. typical in activity of up expect We to our our the first core seasonality which to construction relative pick spring quarter

For fiscal that XXXX, to we in continue range. will housing X.X total be starts million forecast the million to X.X

impact higher we inventories economic lot believe we interest relatively rates While expect continue and residential to to remained construction, low. uncertainty

outlook our to for on XXXX. Moving

As slowdown expected, order we experienced during a first the quarter. activity in

total like quarters, depending service While products project backlog we on end we our for market could activity. especially for and improving, times product have continue backlog, cycle backlog normalize timelines lead decreased over and to an levels anticipate With shorter coming sequentially, our elevated hydrants. the

expect of order inventory clearer spring move sell-through and We get we to as upcoming a levels sense construction into season. plans the channel

X%. we with that our and we quarter will sales reiterating We consolidated which net provided fiscal earlier, anticipate for between XXXX our earnings. increase are mentioned XXXX X% guidance fourth As our

quarter pricing growth again Our backlog to the the higher net sales deliver expected XXXX. at first the us in of realization end position and from

improvements our the between second benefits from by half and primarily XX% expect of prior year, year. realization the XX% higher with operational compared in will price and driven increase adjusted We EBITDA the as

benefits executing In the closing, domestic maintaining for to generating commercialization price large achieving of capital new accelerating customer focus while which priorities realization. from relationships include on improvements, development continue operational delivering ongoing and and year our investments, teams products top our our strong our

a new We are the and have manufacturing sustainability the best track our deliver brass more solutions on with significantly led-free will long-term initiatives brass capacity new alloy. to foundry advance which ramp-up our with of

greatly the in our supported are replacement capital for These benefits will are with various manufactured in projects position stages domestically important large transformational We market. ramping and and products. enhance for our We believe by these requirements improvements of as Bill the Infrastructure increase repair utilities especially investments a and from projects up. ongoing in period the projects Mueller the needed Federal water operational

portfolio us of and infrastructure the help broad to products climate and address water workforce utilities Our challenges solutions aging change growing demographics. enable from

shareholders, sheet. resilient more dividend. quarterly to to has returning business a while strong much uncertainty gives through While This by our increased, balance the a in continue from we external cash capacity to organization us are supported primarily and environment our reinvest liquidity

growth investments pre-pandemic both further XXXX. and confident that strategies, growth a deliver and will return to are net our operational We capital initiatives in sales margins

That concludes my for call questions. please Operator, this comments. open

Operator

The [Operator is from Dray question first in Instructions] queue Markets. Deane with the Capital RBC

Deane Dray

resi the and about your Scott, across we We're in in had we with the quarter what's pipe to in some commentary the their a and can start, dire on lot manufacturer a dynamics today. order side. the you that of see you're perspective was talking was on can -- some demand outlook about there's destocking than Maybe going with particular, the of yesterday more of hearing lots industrials a slowdowns. respect And what the seeing same dynamics

I there's order is for [ph] specifically and break on to us frame fix going this but muni And know the side. the from destocking? of just just So the resi very kind offset be slowdown,

John Hall

Yes.

that recall DRP it's that I if X this down the double this previous get a there comments X as that lead or X as housing as in driven. One, that distribution lead down think big the driven planning theme is whammy. X, the with but But much is resource kind notion as well. here X, you'll range this quarters, So dynamic slowed sell-through described. X the you may times that coming as to collapse times X of piece goes is And are X my have of you from

material of channel the amount to in And continues needed so that's decline. the

And so not. and necessary what's what's

to I closely I work think and negatives. the enough there spring that down? to be that it everybody is is sell-through channel overly construction And with start I So to think there think and you look is Or at manage inventory tendency bearish of end market further be season and the be once partners levels order evolution the be even will at going saying, to resiliency? kind this a to will see looking key.

also to indicate which would these I But would of the levels which be be that report the rising to levels average the the point for jobs where market. income enter housing American people potentially I counterpoint kind employment would could think the January housing and starts

offset governments that, I balance I X demand to cash flush drinking believe in the market. of along the we'll that is seen. they the with think is from months years in what's important going the housing the municipalities of last But that that emergence X kind profile counterpoint is watching most more interest the the kind how with remains of still water of that reduction be stream to And to the sheets us see and later. from are

So remain, let's cautiously we it, optimistic. call

Deane Dray

that the That's orders the whole slowing really as times heard And all helpful. normalize. dynamic lead we've pace about of

be All to getting right. that's well. us. So pretty as for familiar

buffer was typical really free cash Martie. you that because use? free on that the a flow Is for on your chain below destocking supply channel, question less well you're Is about talked follow-up there's inventory. this still flow taking a there's So just about Can inventories impact the issue? cash it inventory of talk inventory? Scott more how your in on going Is inventory? but

So just through please. walk us that,

Martie Zakas

Yes.

levels. So in I'll was inventory driven quarter, higher at looking negative had you the as cash by certainly the flow that free say pointed out, the we

reiterated be capital -- inventory year, through year the to with being improvement driven expect by free to our that consistent of we improvements work that's we with flow XX% turn. from we and respect As going in income, our guidance cash through largely working XXXX full net the certainly to the come adjusted that and year XX% have to

So needed production inventory just the that say, the think and particularly I'm chain of -- parts as the as products improving teams on outsourcing, in with in bring -- levels, all had as going supply are through, going backlog we've our case of philosophy lead times, time, focused as that disruptions. any I more rather you we with than to the in just that the just Scott we've we're to talked short-cycle had lowering the

referenced of -- balance We're inventory some bring as levels some free that. would to will estimates transition are, impact say, around that we're will the activity think to greater through the I look if have distributors is sort that begin up, improvements focus we with the destocking to our foundry guidance. going supply going and look -- to the certainly could And Scott our year through see to going levels brass of that chain. our associated shift and levels the and and I down see overall certainly, to new to the help are to in destocking There we we some be we will coming inventory what is look as what could that. which year. these cash in from flow than elevated inventory with

Deane Dray

Martie, helpful. that I that's underdelivered expectations. flow, prefaced industrial versus with cash the companies most throughout of reporting And should it the have think, probably have on free season, I real

So you're throughout we're a a here. down. X-quarter just to to It's take what year working that all capital all is see But the not to -- going anxious flush. company I it's It's just think it. see we're longer learning good come

reference the frame appreciate for you. about I So time the

it's And guidance potential since been a had boost. an just about last question Scott, for me. while opportunity a we

guidance here. But and first this that cautious? like -- help Is the quarter frame of not quarter lower So early, it us reaffirming Just we of idea does you're outlook? you that. year. not a are results more It's after when still saw out nice this, the bit get boosting a I boosting a imply

John Hall

Yes.

how to out some there the first the So external that internal. quarter I definite was came think difference in -- estimates

they the that have timing. different think market's I our timing from So

talked call, our about foundry XXXX, important that we we when year. timing last was the you to the improvement the say, starting of point initial new ramp-up the provided guidance just about take if then, the in margins the talked And for on the your half how brass So of where where to second improved we were for earnings of our and year year. really the I early with externals processes. brass is improvement we're the PPAP the that. can new still improving margins. to mindful I of in start was solid year -- those still speak were? where sequential the I'm to in in improving from period can't we're ramp-up the the that say foundry versus earnings that the But And those additionally, What was

And I say a level of there also remains high in fairly would external the uncertainty environment.

has end construction residential I times slowed. market on Product improving. are levels over expect timelines lead quarters, coming backlog normalize that depending the could and project activity. the So

So, clear sell-through the to and season. construction channel I channel get in we of sense as a move expect the inventory the into the plans spring

a time in we year. be the sell-through that I as balance of being will And at critical the the channel the think set what for pace will that happens the inventories. with think look I

when couple look little I can first -- we I quarter but a at we keep than the elected better think here, of powder -- look ways So the elected this there's a our as go. anticipated certainly of think we kind we rest year, to dry of

say, the for materials I it's say And keys materials. we at path. and by just are people's to soon to our would numbers are going to for hit throughput the most elements execution. to important that And our not our guidance other own think too to facilities or using be everybody hit be and throughput where outsourced met I on And is speak those

Operator

with from Next Oppenheimer. question Bryan Blair is

Bryan Blair

point to that now to year-on-year? continues catch-up is is inflation being to a pending? the good Are accretive Or outpace price/cost Solid that quarters start where that X at still margin price year, process. you into see

John Hall

know, years back argue know you Well, is year-on-year, is We could on. you trough. cycle multiple I go that entire accretive. inflationary that Bryan, don't it the guess, we it measure But way. as the We that to

we to in expect said 'XX. we the when in back margins at there So prepared pre-pandemic to that our be comments end

accretion. We of the are looking at rate

kind in XXXX. expect over have to on effect this inflation to that's entire breakeven So the going not accretive to at we're the in if back throughput XX that backlog back we price but assumptions cycle get piece price be there, we and we trapped the will sometime sometime of the the back we'll dilution the -- still in XXXX year

we'll margins believe at be We pre-pandemic XXXX. in that

it piece margins won't and pre-pandemic of part throughput the is the us and XXXX. it of So one to things the back getting outsource but of rid actual rid getting other until price of the have

second So go inefficiencies headwinds outsourced associated but inflationary got it. that accretive hope targets back margins XXXX. until other still cycle to or we in and out when until answers be the XXXX manufacturing to foundry ways the get inefficiencies, the we production our product of we a hit our to We'll can we won't I to everything close with and by the year-on-year of have anticipate be and those all to internally pre-pandemic back we system began can that

Bryan Blair

that getting be Is past Yes. 'XX progression, out that think would into back this kind rate, once you price/cost run margin stamping would so that driving into year, for I color step -- in I read-through benefits forward? be of the completion to recovering million appreciate then 'XX. the year it called next of and projects it's I inefficiencies $XX all at you've allowing the the are that full to or the and simplify guess there. that

John Hall

Yes, yes.

been as the movers. are end is. to as outsource that's together, be foundry, -- back levels big throughput saying hang biggest the XX%, So the the and XX% it X end will range, we'll we own were we we're foundries. and the the -- level, look really in at will XX%, if repeatedly, margin to in long is XXXX XX%, 'XX. a It elimination basis fine. to things, high get a our as lot XXX XXX call And points of markets things. Those with getting a you brass EBITDA I've be like two to combination at And that it's of at The in up to us now XX%

I'd the growth are to to what thing us I other a for out IIJA carry us look going markets think everybody slump. through probably to likely will is, here housing to the be I timing the we're temporary to end conducive but point think have continue to the

Bryan Blair

And color IIJA to can I you that's actually on other offer perfect impact a minimal. date, segue Scott. assume Any there,

More importantly, your confidence into tangible latter looking there in impact a 'XX 'XX. of 'XX, being part the to

Just awarded do looking at of with lot now the underwhelming project and seem a funding it's issues moving the funding SRF that forward specifically data and funding of lot administrative coordinates right lot to a just of somewhat a to work at remains hand before this. and

catalyst curious forward. your in or that. level Just on perspective incremental confidence being real then again, confidence this a And of going

John Hall

Well, I a be forward. will real catalyst going think it

I Or seeing these many some part government There's steel? the how there of we sets fastener you're like iron fastener these is to being meet it American you're seeing give the a stainless be that can programs, all process. are whenever and American these of Is a U.S. all think new made? an fasteners? we rule steel, sausage-making have use the fasteners example things. be going to in have imported the like Well, manufactured you

of through constitute have the is the not, to working are, so to materials labor cost all And bulk the exemptions those say the with what content. sets rule EPA they're what the what

you $XXX-ish was to And So it to as states. said, expected we sausage-making a And of small bigger X for see. that of billion California, kind last saw those funds going you released has some all piece the been some of months. on the the

is any And let's catalyst 'XX so the got 'XX. and let's that today a those that of I say even be 'XX I would the early are happen beyond. approved part even, in installs be of going project 'XX the for to to say, believe and money or say it none But set. going will today, that

multi-month the business the these engineered, not could cut, available, to valve materials large backlog the water those By those where is mention the labor the position the are a in the jobs of specialty projects, gate happen the business. time are system in is are valve and and builds size or install

yes, makes. can water investment have water, Mueller bullish a the and both do the see of think for on drinking to need dollars No, see I we the as think, wastewater I result impact So in we a in next opportunities. be need funding very, market very Yes, the and I'm actually storm products where meaningful the it spent the served for happening X it's of to don't quarters. going size these that

Operator

next Halloran The Mike from is question Baird. with

Unidentified Analyst

It's on Paz for [ph] Mike.

question on So another backlog.

flip this how you side. versus and puts backlog We the then So thinking of a also on this levels are backlog the and Obviously, duration lot about year. backlog about manufacturing normal? opportunity at The puts levels point are takes numerous about elevated. outsourcing on we takes. talked side, the talked But and an to normalize

suspect the if any the I'll I answer How but on guidance? based current secondarily, to answers is assumed normalization in I here backlog question, know ask Deane's then anyway. much And the

John Hall

time valves think The Chattanooga we're sector now. the knowing interested a I advantaged call gate about plant has Let our are analysts keenly done plowing in And times. great first a in probably because lead at I hydrants it disadvantaged me there. in think the how competitors our through lead it. their I'm where little now. believe think job than right hit about I But we're in on differently the I the of right backlog

our think are long our to lead competitors. compared I times too

the on par. we should as chain with in investment we're the specialty about advantaged, valve think supply get as we're should When business, dependent and China we competitors the that some can -- we near throughput, I not the our think specialty we're I be of valve But market. domestic. And

to backlog it's in to reduced want improvement production terms because that take I what share. of an I days see of opportunity there So think on

there, question. of what the the it I'm I your I amount is about considerable much don't about to I asking about honest think kind But context in a backlog there's trapped that. of be financial So is. the is number although an or with that how know you how I and optimal me think evading you're answer and want to price

has is rapid looks X.XX% months and the let's they competitive want or What get turn be They rapidly. short-cycle to gate for and smaller for hydrants, think the have weeks to most of inside Those the be size wet the valves don't Xs on I of what probably normalization we valves, Centurion inventory though those the X markets hydrants. that the them X are do gate barrel call to need call Super channel that like sitting to turn that couple X the channel. months of the because the business, sitting therefore, on or

partners, so we And that balance channel to our to get be out have of is chain today. which -- balanced continues out supply with

and grow. valves. a, these we continue b, But business. So times start see lead those expect and backlog we XX-day the competitors IIJA times year out of and as more by to on and those would bigger back for of that end of a and having the the will longer The business, shrink short-cycle continue puts projects longer engineered more, more will valves get lead ideally, to money inside there that engineered project that I our

can foundry, If we XX-foot we did anybody casting America remembers tools Build printer so a bed Buy the XX-foot x for a we large American put tools, back for XD products. when large in make for

but be than times that the time engineer We par. cycle our will on throughput competition our be to that expect will better

there. advantaged be to hope we so And

So, backlogs to the be in that's say where fall it's a about context competitive market expect long-winded days. worry in for think, much to to I and important, are more even us than I or advantaged know too of continue to to we answer

Unidentified Analyst

was answer question. helpful, than better a absolutely. No, much Scott it That's and incredibly

thank good switch sheet a you. shape. So bit. little balance is I'll The gears in

ample capacity M&A called Can there pursue the now? you the has right provide just priorities. Is strategic color out a that you to on little out excited there looks You maybe what like? anything landscape

John Hall

our we're and, would is always I properties now. pipeline mean, right fulsome say, there's pipeline our I constantly that evaluating

country at offer or years see bolt-ons around see to you today say I some massive Mead, Coast, if X population getting where water will dollars amounts for the that of there's conversation Lake probably like you think where where going around going the the these declining I the think to the seem retention concentrations. perhaps that the you we crisis over have the needed X next investment that that to we and investment don't water would plentiful Mueller water gain around be to in line especially be that opportunities look offers on the from water are think looks I moving adjacencies move areas money. we what to West valves the we

drive and think, And continue of some those all to is on acquisition our things, sure. the But ability feed for be fairly in that's we get So that pipeline. next bullish quarter, to our nothing I done. of

Operator

from question in queue Brian is next with the Sachs. The Lee Goldman

Miguel De Jesus

on out question. on on I dynamic detail just Is This We possibly one is you're you're get Could down is again. into is wanted the there to? had you monitoring, to on channel able Brian. in the for trying that there number estimate been to weeks what the or and Miguel a inventory maybe dynamic -- terms to you've touch channel much seeing. for to more how go that key products that of months that level the of way

John Hall

because to the question they is say answer to I hard were a think inventory. lot a ask it's if channel, the would inventory you of Yes, committed

in take look in XX% of making your you've just take seen you inventory at with what's you and going is to And price, you increase if by price so baseline in happened this I'm this up, -- add channel XX% driven. that the so the don't

is the we inflationary space. water see constant. result are the in taken pressures And the of a increases that price balance units increase the as in So

or committed. -- waiting balance But is to call or was -- order that, on let's labor the the that or the increase on waiting XX% inflation. but earmarked. XXX% Then say That that ballpark, portion that's waiting XX% the for when XX% of, you that took is contractor, units, units. municipality, and So huge on that's there's it, increase distributor pipe of a XX% it -- of for in

backlog weeks of high now there's a what's logistics so measured And just fairly in backlog.

inventory targeted on basis. the that would Let's get quickly. that's would speculative of XX%, would I piece the inventories it expect call the the channel are So that be right? balance, speculative XX%

And so that's I think the that at-risk.

are value, have site. then add to a warehouse and other being for always part contractors again. They're work they and Those the delivered from some not to channel those center job the The almost municipality to jobs. the serve truck going those distributors' municipality loaded on

this inventory Some we deliver here for of other valves of up to that between become this distributor piece backlog because much one for lease when support it, I the that with -- here, pipe install left and of other a the a lot of it's piece. think, is so we want And larger and here. -- have we and between and disparate you that been needed to there, logistics that crew has fittings inventory have and simultaneously the a the times lot that end

shrink as to start And as that that that, I shrinks, that then think -- see you'll well. inventory

one. speculative, able XX% lead you'll if And price kind use logistics, to of, the you you so XX% as times let's the use XX% be trash, it, call see

have timing at too to drive channel increase, As can I you of it what And see prices And quarter my the again. X be other in comments, then, it's the mix prepared prices inventory, as increased part, think the of it? -- inventories. will down then we see you pressure. said an driven I you and all their as upward last piece though, elements And that will what's that look you make

Operator

next The Giordano from with is Cowen. Joe question

Joe Giordano

like baked the this, to realization year price I that like expectations based moderating Can the quarter sequentially, for already the like incrementally how probably is on like I right? taken? you've inflation a actions about embedded given you much year? full of do full little and assume bit talk in -- what's harder it's assume

John Hall

in price Yes. from realization multiple price for We're think in past the actions the the something realization sequential Look, increases QX. I benefiting over price taken pleased mid-teens in were very year was the we with QX with.

that realization. improved think I price

seen inflation pre-XXXX overcame earlier, of to inflation. dilutive we've kind it not get more than and dilution said the was I back As that but order to it's from that us in necessary

me year-over-year versus negative it remains XX% sequentially. I included impact total price approximately around inflation, while and think -- year quarter, improved material first elevated somewhere in ago, right X% of a Martie cost but inflation purchase the here, was keep

We raw purchase materials. with experience continue and higher to costs associated

the -- So to be lot how dilutive can not it -- the that's I'm ship to really of quickly much of on or to the price say answer trapped your a will there's question, it trying pieces backlog, depends we and how backlog. in moving there

is sooner evidenced kind by shipping having our it. price better mid-teens Obviously, QX as of that in

-- hard level I back tell inflation. kind we to in of XXXX So what's it's guidance can our flat to to in of price terms that I get you say. is with

offset that year but with it's the will So about. costs all we not no inefficiencies outsourcing associated dilutive this other and that and talked longer of the problems

be won't to by margins price then and we So back pre-pandemic efficiencies until the XXXX. contributed

Joe Giordano

like But year the can is growth that say So growth guide? that, price? contribution to guide, within it full is I in the than revenue fair overall price higher contemplate

John Hall

the we from of were about did Yes. of No, we growth when explicit. we to unit X% be in we X% The it. down all Perhaps -- all expect the That being guidance, that is growth, actual our talk driven price. missed volume, you slightly to

Joe Giordano

like respect the like that things the like right kind see new With need you're that, that's and on track? -- the to Like do to okay. to progressing, like like -- way give or of going work? along what you Yes, how what this ramp-up of okay, know is Decatur we of kind this year the is see points you need into to to how comfort kind the of far trigger that,

John Hall

Gate where going Of with then X, parts significant week, you out porosity, things at it's then and and If X machining look volumes volumes game every machining meet process, like you our some are kind many at what's tooling on as significant function form we looking all parts mean is PPAP, whether fit trials a are of start a that our free like? that dimensional things answer PPAP I around or XK get that. and date how is wear in you Gate and those into PPAP, and of your that Yes. schedule? those the machining

those produced a to day. pass end thousand need and we about where In and wrong last tons can March. on call these a parts know in be we're of in our for of the go our to my rate track top the XXXX to by XX,XXX pounds somewhere But at right approach But get said prepared comments, I quarterly we So that. I that exit XXX-ish the through talked next things between at that there's day, XX XX,XXX days. of end

new that customer all founder satisfy into foundry at the get demands we the of then all afford existing can to And we range our and our and XX demand. and internal shut

to on. don't adapt day, wrong. you I to say, how know what go and react capital to that's gone answer another So you get and adapt, And other ensure we're of thing right, thing project to really react that react and question focused the adapt, targets end the one your At than the will would

yes, outsourced this X paying our the so brass. execution. because And produce avoiding comes to margin that's premiums in And inability a It there's huge project we're part of job of from our improvement.

Joe Giordano

products you cost Can the is speak the bring you maybe have cost to scale at between what to these like be differential that internally? would what into outsourced

John Hall

want because you're They what wouldn't it's have and paying. premium Absolutely obviously, it's know I premium not. infer obviously you trying And partners there. this that, and to multiple people paying that don't we're not I here

to So premiums. no, spreads sorry. into get not I'm of the I'm going

Joe Giordano

And last for me.

this your maybe development you to what of Can mentioned lot for think You year. like look will that the year? for expectation you housing starts kind compare

John Hall

Yes.

or art custom of It's a spec comments, builders loss. that the we housing We to talking into for think, a I X.X to even lot publish in my into. and prepared in comments that and looks either of developed then their lot try think you backlog now it's but inventories said on about a and are back more inventories the lots of huge portfolio still, numbers. that I unfortunately, we million their look, try because still like. don't the are year which or builders than do science, options people order sell I relatively about start of still a think As option know believe low lot a there's what and homes you not if

living going to how I like the to overhang but is lots I work of guess looks even long work through in business, or one it's be way in And here so the that and describe weeks people overhang, I be not measured XXXX after a as days this it but will off years. measured would wasn't certainly, it

much of level much, X the XXXX so is And it by a than or X. think factor at in lower I a inventory was

Operator

Instructions] Research. is with Seaport The question Liptak next Walt [Operator from

Walt Liptak

versus you the I where forecasting that wanted question the said you internal commented Deane's you -- we go about the the wrong. forecast to about had were sell-side and back just and to were -- they forecast

the the is, be half I So was then going be and thought the that stronger. first to to second weaker question was half going

pickup you thinking doing on quarter? a you typically I that we into the so sort to to a about? helpful is season, the of see how And sequentially quarter flat guess What -- everybody second going question are that you are we expecting Are like, is spring this seasonally, going are so have that? is, selling

John Hall

this basis Well, Gross year-over-year adjusted Okay. margin will I around, of QX is say how hard margins midpoint. don't don't think know, improvement the I and kind around I EBITDA guidance of get -- get in implies I XX to guidance annual general. it's I into points quarterly expectations want our it. Look, to giving in but at

improvements I margins the think I basis are by approximately points total it think, SG&A. gross from in higher was expense pension and headwinds, which XXX driven with

know you call improvement. it, so And let's XX that,

on think dependent have performance be the the all And going quarter. We will all manufacturing to we're maintenance QX. services are -- the certainly think going for I on in be inflation to certainly outsource. indicator headwinds pressures dependent third-party of continue and I to

the gross took our issue in variance with associated ought write-up inflation inventory the timing and with flattish that that of capitalized I think be So, says the kind margins place believes that to those you're improvement see things. will QX start to won't impacting volume that growth start the leverage you generate with of on the until the And to X actually then, QX. step-up able

Does that Walt? model, help your

Walt Liptak

-- you're And uptick, to that wait and got on is the saying see inventory piece you've channel you how got I the that the going does. know is for that quarter, second to revenue the fair? if Is seasonal think you you've don't Yes, what regular be. to get quarter, that because

John Hall

Yes.

as have that. throughput backlog that we the number. sequentially. be up getting I'm more enough not able about margin think concerned a I to It's sales concerned we big and should our the hit flow-through about

we do be comments, as done. in could because QX that maintenance facility some so So period had for we year and my an the extended down fewer of time I said in that took other days valves our versus gate we in previous needed to some the

so And we days had fewer in QX.

We expect in that gate we'll be up QX. back get to volumes valve able

hydrants in improvement in expect Albertville throughput for We QX. in

throughput them. they've quarter-on-quarter-on-quarter from and improving We been we've expect opened since in continued improvement the Kimball

that. with pleased So

really think implied you that's adjusted think in I about So EBITDA. where that improvement

producing clawing which inefficiency start of the the new half pounds lifting in manufacturing come had the the outsourced We're to be back when still and to meaningful only do going got foundry. remove some we in second the but heavy at bulk will QX we of in we we get only

Walt Liptak

Okay. I guys with. for great. activist one guess you last think that one working takeaways was another is All that right, me quarter, big are of the I

way? Has same You still you didn't comment the about on thinking them at all. changed? Are it anything

John Hall

thinking still we're the about way. it mean I Yes. same

don't I with they speak new I company. agreement with certainly, them members. we would discussions other in. be think shareholder. Board to the than in associated were has well to that with and we got but integration Part our that I Ancora shareholders. any anybody have committee misled more the mean, And gone the are running members our with with new is think Board activist. but we're of the the about with any was independents want We we comment off contact I X not that that And don't don't

are, from we've have capital priorities large we And and we've about priorities are. is as for though, about projects. business those discussions committee, think the the operational talked CapEx our the meetings think I I had allocations, And improvements. our the been them what had inaugural So about alignment I've in

So I it. feel about good

for the to think Look, everybody operator. final of our this to on I'd And and top sitting just the while thank I remain keep with to call uncertainty the our we I to deal I at capital our I dedication, joining the times place want share uncertainty. customers outsource in the customers continued Well, the hour, our to with ongoing investments, and we're thing, to with benefits important especially through though, think staying continue in our focused they from preserve us thank morning. them as external want and us to delivering is of our their these like preserve not markets. teams terribly will because and

at I Mueller is to going and going think through a remarkable the be that at through be water be to this going time transformation the in and Mueller is is to exciting and industry time invest Mueller.

continue we margins grow margins are I and think to back net get to well positioned those XXXX. to pre-pandemic in sales

benefits the improvement of be driven the -- volumes, improved expect the inflation in manufacturing by the primarily realization [ph] priced large replacement, increased the from to mini growth and to ability capital And in I from this projects. than performance the and cycle, repair get our more

want blue there's lot done. for here at I it's support I to because your from thank to and But to you And left pollyannish a interest continued that certainly your of so to skies work I for but don't want be you. and be nothing thank here you want rosy

With that, the operator, we'll end call.

Operator

for today's participation. concludes call. Thank This you your

at disconnect may this You time.

Mueller Water Products (MWA) 3 Feb 232023 Q1 Earnings call transcript