Q3 2023 Mueller Water Products Inc Earnings Call
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I'd like to turn the conference of the Whit Kincaid. Thank you you may begin.
Good morning, everyone. Thank you for joining us on Mueller water products third quarter conference call.
Yesterday afternoon, we issued our press release reporting results of operations for the quarter ended June 32023.
A copy of the press release is available on our website newer water products Dot com.
Scott Hall, our president and CEO and Marty <unk>, our CFO will discuss our third quarter results and markets and current outlook for 2023.
Following our prepared remarks, we will address questions related to the information covered on the call. As a reminder, please keep to one question and a follow up and then return to the queue.
This mornings call is being recorded and webcast live on the Internet.
We have posted slides on our website to accompany today's discussion. They also address forward looking statements and our non-GAAP disclosure requirements.
At this time, please refer to slide two this slide.
I would identify as non-GAAP financial measures referenced in our press release on our slides and on this call and discloses. The reasons why we believe that these measures provide useful information to investors reconciliations between non-GAAP and GAAP financial measures are included in the supplemental information within our press release and on our web.
Right.
Slide three addresses forward looking statements made on this call. This slide includes cautionary information identifying important factors that could cause actual results to differ materially from those included in forward looking statements.
Please review slides two and three in their entirety.
During this call all references to a specific year or quarter unless specified otherwise refer to our fiscal year, which ends on September 30.
A replay of this morning's call will be available for 30 days at 18665104837.
<unk> webcast and corresponding slides will be available for at least 90 days on the Investor Relations section of our website.
I'll now turn the call over to Scott.
Thanks, Rick and good morning, everyone. Thank you all for joining our third quarter earnings call.
Our third quarter results came in below our expectations with both consolidated net sales and adjusted EBITDA below the prior year.
We experienced the sequential decrease in orders during the quarter and manufacturing inefficiencies, primarily associated with lower volumes and the ramp up of our new foundry we.
We believe these lower order levels largely reflect the return to pre pandemic lead times for most of our short cycle products, specifically R&D valves and hydrants. Additionally, we believe the new residential construction end market continues to adjust to higher interest rates as a result, we continue to be impacted.
Acted by a more prolonged inventory correction than previously anticipated.
Despite the challenges I am encouraged by our execution in the quarter with the sequential improvement in adjusted EBITDA margin, our past pricing actions across most product lines again more than offset ongoing inflationary pressures similar to the second quarter water management solutions delivered strong results.
Courted by an elevated backlog for hydrants and improved manufacturing performance we.
We expect the relatively low order rates for our short cycle products to continue in the fourth quarter also we anticipate lower brass production levels relative to previous expectations.
As a result, we are revising our annual guidance for 2023, we have taken actions to streamline our cost to help mitigate the headwinds from lower volumes, which I will address later in the call.
We believe our end markets have strong long term fundamentals, especially with the future benefits from the infrastructure Bill.
Our new foundry remains on track to fully ramp up by the end of fiscal 2024 positioning us to capture increased demand related to lead service line replacement projects. Although the external environment continues to evolve we remain confident that we can return to pre pandemic margins in 2025 after we get through.
The current transformational period with that I'll turn the call over to Marty to discuss our financial results.
Thanks, Scott and good morning, everyone I'll start with our third quarter 2023, consolidated GAAP and non-GAAP financial results. After that I will review, our segment performance and discuss our cash flow and liquidity.
During the quarter, our consolidated net sales decreased 2% to $326 $6 million compared with the prior year.
This decrease was primarily due to lower volumes at waterflood installations, partially offset by higher pricing in both segments across most of our product lines and volume growth at water management solutions gross profit at $100 $1 million increased one 8% compared with the prior year, while gross margin of 30.
6% increased 110 basis points compared with the prior year as a reminder, the prior year quarter included a $4 $5 million warranty accrual charge, excluding the warranty charge gross margin decreased 30 basis points. The decrease was primarily due to lower volumes at waterflood installations.
Unfavorable manufacturing performance and higher costs associated with inflation, which more than offset benefits from higher pricing and higher volumes at water management solutions. We were pleased to see our gross margin improved 120 basis points sequentially. Despite the lower volumes.
Additionally, higher pricing more than offset ongoing inflationary pressures as we continued to experience higher costs associated with materials and labor relative to the prior year.
The level of total material cost inflation improved relative to prior quarters with a 2% increase compared with the prior year.
Selling general and administrative expenses of $60 $6 million in the quarter were comparable with the prior year.
Lower personnel incentive and it costs helped to offset inflation and the impact of foreign exchange SG&A as a percent of net sales increased to 18, 6% in the quarter as compared to 18, 2% in the prior year quarter opt.
Operating income of $35 $6 million decreased three 5% in the quarter compared with $36 $9 million in the prior year.
Operating income included strategic reorganization and other charges of $3 $9 million in the quarter, which were primarily related to severance and certain transaction related expenses. Additionally, the prior year quarter included the warranty accrual charge mentioned earlier.
Turning now to our consolidated non-GAAP results adjusted operating income of $39 $5 million decreased $2 5 million.
Compared with $42 million in the prior year the.
The benefits from higher pricing were more than offset by the decrease in volumes unfavorable manufacturing performance and increased costs associated with inflation adjusted EBITDA of $54 $4 million decreased five 9% in the quarter, leading to an adjusted EBITDA margin of 16, 7% as compared with $17.
3% in the prior year as a reminder, during the quarter, we incurred $900000 of pension expense other than service compared with a benefit of $900000 in the prior year for the last 12 months adjusted EBITDA was $185 3 million or.
Or 14, 2% of net sales net interest expense for the quarter declined $400000 to $3 $8 million compared with $4 $2 million in the prior year. The decrease in the quarter, primarily resulted from higher interest income.
Adjusted net income per diluted share of <unk> 18.
Decreased five 3% or <unk> compared with the prior year.
Turning now to segment performance, starting with Waterflood solutions net sales of $150 $1 million decreased 23, 4% compared with the prior year IR pricing across most of the segments product lines was more than offset by lower volumes for iron gate valves specialty valves experienced double digit net sales growth.
Paired to the prior year, driven by both higher pricing and increased volumes service brass product volumes were slightly lower than the prior year quarter due to manufacturing inefficiencies.
Adjusted operating income of $12 $7 million decreased to 66, 7% in the quarter the benefits from higher pricing and lower SG&A expenses were more than offset by lower volumes at our iron gate valves products unfavorable manufacturing performance and higher costs associated with inflation unfavorable manufacturing performance.
<unk> anticipated inefficiencies related to the new foundry and lower production levels of the current foundry adjusted.
Adjusted EBITDA of $20 $9 million decreased 54, 3% or $24 8 million, leading to an adjusted EBITDA margin of 13, 9% compared with 23, 3% last year.
Moving on to water management solutions net sales of $176 5 million increased 28, 6% compared with the prior year due to higher pricing across most of the segments product lines and increased volumes, primarily in hydrant and water application products adjusted operating income of $40 million.
Increased 142, 4% in the quarter.
Benefits from higher pricing and increased volumes more than offset unfavorable manufacturing performance largely due to higher costs from outsourcing the impact of foreign exchange and higher costs associated with inflation adjusted EBITDA of $47 $6 million increased 108% or $23 9 million.
In the quarter, leading to an adjusted EBITDA margin of 27% compared with 17, 3% last year.
Adjusted EBITDA conversion margin for the quarter was 61%.
Moving on to cash flow net cash provided by operating activities for the nine month period ended June 32023 increased $32 million.
To $52 $5 million compared with the prior year period. The increase was primarily due to improvements in working capital in the third quarter, including a sequential decrease in inventories.
To $52 $5 million compared with the prior year period. The increase was primarily due to improvements in working capital in the third quarter, including a sequential decrease in inventories.
During the nine months period, we invested $32 4 million in capital expenditures, which is $4 $3 million lower than the prior year period.
Our free cash flow for the nine months period increased $36 3 million to $21 million compared with the prior year period due to the increase in cash provided by operating activities and lower capital expenditures, we did not repurchase any common stock in the third quarter and as of June 30, we had $100 million remaining under.
Our share repurchase authorization.
As of June 32023, we had total debt outstanding of $447 5 million in cash and cash equivalents of $141 2 million at the end of the third quarter. Our net debt leverage ratio was one seven times, we did not have any borrowings under our ABL agreement at quarter end nor did we.
<unk> announced under our ABL during the quarter as a reminder, we currently have no debt financing maturities before June 2029, our total liquidity increased to $303 $5 million as of June 32023, giving us ample capacity to support our strategic initiatives I will turn the call back.
Over to Scott.
Thanks, Marty I will provide additional comments on our third quarter performance and markets and updated full year outlook for 2023 after that we'll open up the call for questions.
We are seeing lower order rates for most of our short cycle products with lead times, returning to pre pandemic levels and end markets continuing to adjust to higher interest rates, we are experiencing a more prolonged inventory correction than previously anticipated.
During the third quarter hydrogen service for us products, both benefited from elevated backlogs. However.
However, starting the fourth quarter are short cycle backlog was close to normalized for hardwoods that R&D trials, while backlog for service brass products remains elevated we are working closely with our channel partners to understand sell through and channel inventories for our short cycle products up a local level, while the fundamental growth drivers of our business.
Must remain intact for the longer term, we have updated our view on order levels for the fourth quarter. As a result, we continue to adjust plant spending including labor schedules to improve our conversion margins on the anticipated lower volumes.
During the third quarter, we improved for us production with a sequential increase in pounds produced which translated into our highest quarter of sales. Since 2021. We've made further progress on the ramp up of our new foundry was increased production levels. We have our sand system installed along reporting line designed for high turnover high mix.
Products.
As anticipated, we were experiencing inefficiencies and startup costs associated with the new foundry.
We are working through the engineering and technical challenges associated with the new foundry equipment and lead free brass outward we are over halfway through the tooling for our highest volume parts and have slowed the new tooling process to focus on increasing production levels. We have trained and transitioned second shift team members to the new foundry to increase.
Production levels. Despite the progress we have made production levels for both foundries were below our expectations, leading to under absorption and outsourcing costs overall outsourcing costs improved sequentially to approximately $5 million in the quarter, which was flat to the prior year as.
As a reminder, most of the outsourcing costs relate to brass parts used in R&D valves and hydrants with a hybrid portion impacting water management solutions, we expect production levels for the rest of the year to improve as we continue to refine processes with the new equipment, we anticipated the third line ramping up in 2024.
Which will help us simultaneously process, new truly and ramp up production levels. We remain confident that we will meet our goal by having the new foundry fully ramped up by the end of fiscal 2024.
This achievement will allow us to close the current foundry and eliminate outsourcing costs, primarily those associated with brass parts ultimately, helping us to return to pre pandemic margins in 2025.
To better align our cost structure with anticipated volumes and position us for more profitable growth.
We have taken actions to reduce our SG&A spending.
During the third quarter, we restructured our sales and marketing organization to bring our business teams closer to customers, while we take a more disciplined approach to our go to market strategies, we will remain focused on improving business processes that enhance our customers' experience and strengthen our channel relationships.
Additionally, we have taken actions to streamline other G&A expenses, including corporate G&A to drive efficiencies in our support functions. In total. These actions are expected to deliver approximately $25 million in annual SG&A savings, which will improve future sales growth leverage and help mitigate and.
<unk> pressures.
Based on the timing of the actions, we expect most of the savings to occur in fiscal 2024 with some benefit this year.
Turning to our end markets and current 2023 outlook.
New residential construction market continues to provide headwinds and drive uncertainty for our channel partners and their customers.
<unk> seasonally adjusted annual rate for total housing starts was around $1 4 million for June .
Total housing starts were down 11% year over year during our third quarter.
This was driven by a 14% decrease in single family starts.
Over the last 12 months total housing starts have been down 13% with a 22% decrease in single family housing starts.
Even though demand appears to be stabilizing due to a variety of factors, we believe activity levels compared with the prior year, we will continue to decline and reflect a normalization below $1 4 million total starts.
The slowdown isn't affecting all areas of the U S. Equally it is influencing local distribution inventories to various degrees the municipal repair and replacement market continues to help partially offset the anticipated slowdown in residential construction activity.
We remain excited about the benefits of the infrastructure Bill ramping up over the next 12 months, our large capital projects significantly expand our domestic capacity for specialty valves large gate valves and service brass products, which can be used in lead service line replacement projects.
I will now briefly comment on our outlook for the balance of 2023.
As mentioned earlier, we are revising our annual guidance based on current expectations for the channel inventory normalization and our anticipated brass production levels.
Based on projected order rates for our short cycle products.
We now anticipate a double digit year over year decrease in volumes for the year.
With short cycle backlog close to normalized with the exception of service brass products, we anticipate that annual consolidated net sales will be between flat and down 2% compared with the prior year adjust.
Adjusted EBITDA is expected to be flat to down 5% compared with the prior year.
As a reminder, our annual adjusted EBITDA guidance includes a $7 7 million headwind from higher pension expense other than service, which is excluded from adjusted operating income.
Additionally, we expect working capital improvements relative to 2022 to drive improved free cash flow for the full year, primarily driven by opportunities to improve inventory levels.
Moving onto our key takeaways for the quarter. We believe our end markets have strong long term fundamentals, including the accelerating age of our water infrastructure and benefits from the infrastructure Bill our product portfolio and manufacturing footprint align well with the challenges facing water utilities, we expect service for <unk>.
Alex and specialty valves to see the largest benefit with additional benefits for R&D valves hydrants and repair products.
When a significant period of capital investment comes to an end, we will be well positioned to drive operational improvements and commercial strategies.
We believe that there is a substantial long term margin improvement opportunity for <unk>. In addition to the benefits from our large capital projects, especially the new foundry, we are focused on improving operational and supply chain efficiencies and cost out initiatives, including a more streamlined approach to SG&A spending we have.
A strong balance sheet with ample capacity to support our strategies with a balanced and disciplined approach to cash allocation and a consistent track record of returning cash to shareholders.
Looking beyond 2023, we expect improved operations and manufacturing efficiencies to lead to net sales growth and a significant increase in margins as we look to get back to pre pandemic margins in 2025.
I'd like to thank our dedicated team members for their hard work and resolve as they continue to navigate the challenging external environment and focus on servicing our loyal customers executing our operational initiatives and delivering on our strategic initiatives to grow and optimize our business beyond 2023.
And with that operator, please open this call for questions.
Thank you we will now begin the question and answer session.
I'd like to ask a question. Please press star one.
And our record your name clearly.
Your name and company is required to induce your question if we need to withdraw your question Press Star two again to ask a question. Please press star one let's take a few miles further questions to come through please standby.
Operator ratio of questions in the queue are you going to.
And our first question is from Deane Dray from RBC go ahead. Your line is open thank.
Thank you and good morning, everyone.
Good morning.
Hey, maybe we can start with the Destocking.
Phenomenon and look we're seeing this across pockets of the industrials and also win like life Sciences yesterday, I'd like to short cycle electrical products with Wesco is that yes. There is a common theme. This is the back side of the whole COVID-19 product shortage lead times are now getting back to normal.
And it really becomes a question of how long does it take to work through the system. It's not a question of execution Thats just absorption as long as end market demand stamps stays steady so Scott from your perspective, what has surprised you so far on the Destocking side, so the hydrants and iron gates.
It seems to have worked itself as we'd expect shorter cycle, but what's unique about service brass and why would that be taking a bit longer.
Well I think the service prices somewhat.
Related to our ability to produce so as I said in my prepared comments, we still have elevated backlog levels and service breadth.
And I think that the.
The delay that you are seeing at us working that off.
Are really a result of continued poor.
Oftentimes in core performance at the old foundry and in fact during the quarter.
We ultimately took the second shift off the.
The legacy foundry and move them to the new foundry and adjusted because we've just not been able to get the throughput on the on the machines that we need to satisfy customer demand and so really what youre seeing in the quarter was albeit higher throughput.
Approximately 100 110 individuals being trained up on all the new equipment, so kind of changing the tires, while the car is running down the highway but.
But we expect the recovery.
And Brad to be pushed out so what youre seeing in gate valves and hydrants.
Two quarters away and bras.
So that the channel will be full with all of this bulge of backlog finally getting shipped out.
And then we will see at <unk>.
Market order slowdown.
All right with regard to our gate valves and hydrants I do want to say that I think that the channel has had sell throughs.
A decline year over year basically on the back of their service to the resi market.
Alright, Thats helpful. When we see where that's connected and just well I don't think anyone is expecting the new foundry ramp to be necessarily linear.
And we appreciate the data points that you've been giving us the idea here.
The offset to this as the outsource activity and there was a reference about higher costs was that you were putting more volume through outsourced on the brass side or was that just a year over year comparison, and just got it yes.
If you could give us some dimension to how much outsource activity and what the expectation reset now is on how that eventually ramps down.
Yes so.
What we tried to convey is that sequentially outsourcing went down by about 1 million Bucks.
Year over year was basically flat higher costs were associated in the foundries combined associated with the off shift moving from the old system to the new system. So we basically had a few weeks of O J.
Jay to year on the job training for for the operators, who are the off shift at the old foundry now on the op shift at the new foundry, but for approximately three four weeks most of those individuals were working days as they learned their job shadowing.
Other members and solve those costs associated with the ramp up both nonproductive labor hours they were all.
Driving the year over year increased cost to produce a powder for us.
Our next question is from Joe Giordano from TD Cowen Go ahead. Your line is open.
Hey, guys good morning.
I just wanted to understand kind of like we've been talking about destock. So like I guess, some modest revisions, okay and I don't think anyone go crazy on that the magnitude is so.
Is so large that.
I almost feel like how has it caught off guard for this type of magnitude of change like over three months ago. When we were already talking about destock.
Yes, I think what's fundamentally changed in our view of the fourth quarter as the pace at which we will start to see the flow through come back yet.
I think that.
Originally we felt like our fiscal fourth quarter would still be a strong construction cycle quarter for both <unk> and resi.
And that the channel will have depleted.
Excess inventory levels, and we would start to see flow through in June and July .
<unk> gate valves first because if you recall it was the one that was.
We exhausted the backlog there first last year.
<unk> Q3.
Basically exhausted the backlog for hydrants and work through all of that so if you looked at the flow through models. You would've said, we should have seen increased orders activity in gate valves back to kind of pre pandemic volume levels in June and July we have not observed those booking rates in fact, those booking rates have been.
Less than 50% of those so we've.
Checked with the channel to see what the recovery looks like and I think what we have is a softening.
Demand for construction for the channel.
Along with ending the construction season, so I think that a recovery to flow through is going to be muted and so what we're now thinking Joe is that as we traditionally go into the winter months, and we lose basically half the country's ability to do.
Any meaningful work, it's really break fix in the north at that point, but we're not going to really start to see those kind of pre pandemic levels again until our second quarter next year. When we start to start loading in for construction. So we're going to have this gradual.
Backup as opposed to the.
The recovery, we were forecasting only 90 days ago, and I think the recovery length is going to be extended by about two quarters.
Are you, saying that the actual sell through from your customers from your distributors to their ultimate customers is that deteriorating pretty quickly too I guess.
Thing that everyone used to calibrate as like.
Yes. This is weaker fourth quarter is going to be significantly weaker in 2024 demand like materially different than what we thought it was three months ago.
No I don't think so I think that the.
Channel inventories are going to be enough to get us through the end of this construction season and so the the rate to go fill it back up to just have it sit there in the winter months I think there is low appetite for that so.
So I think the non construction season in our Q1 and Q2 for seasonally adjusted year normally they are our lowest quarters.
So.
Think that theres enough inventory in the channel that we're going to have.
Difficult booking fourth quarter, and I think we'll start to see recovery for bookings in our Q2.
Our next question is from Ryan Connors from Northcoast go ahead. Your line is open.
Good morning, Thanks for taking the question.
I wanted to ask on the price side. It seems like price was actually pretty positive in the quarter.
Kind of an offset precluded things from being maybe even tougher.
I wanted to get can you remind us sort of how much price. You think you took in the last couple of years and how sustainable that side is to the extent some of this.
<unk> continues to push <unk>.
A little bit in the 'twenty four as Joe kind of.
<unk> there is price going to continue to be something that can offset some of this or are we kind of getting to the end of that rope as well.
Well I think that.
Price for the for the quarter was double digits.
Really on the strength of hydro and so if you think about what was in the tail end of the what was kind of stuck in the backlog Ryan.
Really all of those pricing actions, we took in the.
During Covid amendment kind of through the inflationary period now.
We're all paying dividends as you know this industry.
The way it normally works is there's a February price increase it's an annual price increase and youre given a window too.
To get your load in so that we.
We encourage people to put stock in place in the February March and two weeks of April time frame. So that we can kind of level load our factory and not just kind of trying to spike.
During the summer months when the construction season is the highest and so I think the.
As a whole.
<unk>.
Price structure will return to normal for the industry. That's certainly what we anticipate and we would expect to get.
Rice cutting that February window, but we don't announce anything until we talk to our customers. The other thing I would like to point out is that.
We're seeing a significant slowdown in inflation was.
I think raw material prices have continued to move into different directions. So that also helped.
The sequential margin improvement.
Yes, Okay fair enough and then the other was.
Kind of bigger picture I mean, given how long we're kind of almost a year into this these manufacturing uptime issues and production issues and given how thats kind of dragged on a bit I mean, you have to imagine competition must be selling against you on that.
And trying to pick up share I mean, what are the market share and competitive.
Sort of a ramp vacations of whats this process you're going through with.
On the production side.
Well I think interestingly.
All of our competitors in bras have now announced increases in capacity.
One is building a brand new foundry, we feel like we have a three year head start on them and why.
One is going to try and modify an existing footprint and add belt add mold capacity and thats in the public domain you can look at the various so I think that.
I think that they are now realizing what we identified three years ago with not just lead service lines.
Dependence on Chinese business.
Lot of the other factors that kind of spurred us into investing in the foundry I think if you were to criticize US you would criticize us and say when we pause a project in Q3 of 2019.
It cost us might've been in 2020, sorry.
It cost us more than the three months, we paused because of the supply chain implications inability to get.
Our equipment and things like that I think that that is fair, but I would say in bras.
We have not been able to keep the old foundry running at EBIT, It's historical.
Rates as we've had more and more difficult to even getting parts.
Walker being table parts central parts, I mean thats been its been.
A very challenging engineering environment.
For our team.
And I think that is fair criticism that.
We should have been able to keep that kind of daily throughput at the old foundry for longer than we have.
As I said in my comments this quarter, we have had to.
Just finally uptake everybody off that second shift at the old foundry, let's get them getting productive at the new foundry because.
There are just too many.
Complex technical and engineering challenges at the 100 year old foundry.
As for the brass I mean, sorry, the iron side of the business, Yes, I think we've had share moving back and forth as lead times Jockeyed.
When we were inside our two competitors, they're out gate valves I think we took share.
While they were inside us.
Our lead times and hydrants I think they I think we probably lost some share so I think it's been.
Kind of a an opportunistic but I don't think the share in either direction either the share we gained in gate valves or the share we lost potentially in a hydrant is is permanent by any sense of the imagination. These are all service related projects.
Again as a reminder, please press star one on your following record your name. If you have a question. Our next question is from Walt Liptak from Seaport Research go ahead. Your line is open.
Hey, Thanks for taking my question.
I wanted to go back to one of the earlier questions and just better understand.
We have been talking about Destocking.
<unk>.
Why was the visibility on this destock.
<unk>.
Why didn't we get a heads up on it.
And then maybe as a follow up and then maybe as a follow up.
It's good to see you taking cost out of SG&A was this something reactionary.
You guys data or was this a response to.
I think a quick response to whats happening with the destock in the channel.
Well I think that.
First and foremost the SG&A as a percent of sales are suffering them already in our review.
Every quarter.
We look at where we've placed our bets both in marketing and selling initiatives.
<unk>.
We got out of Ace and we looked at.
Where the market was and thought we were a little heavy.
And cost to serve.
A couple of our businesses and started with the selling restructuring.
But I'm a firm believer that once we got into the downturn of <unk>.
We can lay off.
Hourly personnel as well as doing the sales restructuring.
That we create a sense of urgency and I think we went after the G&A costs.
During our fourth quarter, certainly we would have done the planning in the third quarter and so yes to both yes. It was partly a response to the.
Declining outlook, but it was also part of a more proactive work at our cost to serve and selling and marketing and so that's why it was done in two steps.
And we will continue to watch SG&A as a percent of sales and we'll continue to watch our cost to serve various customer groups and make sure that we're making money and have the ability to get leverage as we grow sales.
With regard to your first part of your question I think that the the first thing.
I would rephrase it like what do I think the failure mode was in the <unk>.
And the drawdown in inventories and I think it really comes down to what we thought the sell through.
Rates were going to be through the construction season. So if you think about the construction season for May June July and August .
And you say, okay. The sell through rates for gate valves are going to be X of our sell through rates for pirates are going to be y.
And then we checked with the channel and I thought may showed some nice recovery.
June was certainly a disappointment and then July was was we knew we were not getting the sell through in the channel to warrant.
Return to booking levels at that kind of pre 19 pre.
<unk> 2020.
Kind of daily rate.
And so the sell through I think was the overoptimism, perhaps but not as much going through the channel in those summer months that we've previously experienced in previous years was the failure mode. Walt for how we have come to a different point of view.
I think the other thing that investors should know is even though the sell through might be higher in June July August September , albeit lower than we anticipated that doesn't mean, they're going to refill.
And carry a ton of inventory November December January I think that Thats.
Not how the industry has worked and so I think the.
The compound of a slow.
Kind of buy rate, our sell through rate and.
Their willingness to put in a.
Amount of inventory is really good compounded to create this sharp.
So I think.
Hope that clears it up.
Okay, Yes. It does thank you.
I show no further questions at this time I will now return the call back to Scott I'll go ahead.
Thank you operator.
To everyone for joining us on today's call. Obviously this is a transformational time for both Mueller and water industry in the U S. I believe we are poised to benefit from the accelerating age of our water infrastructure and increased federal spending and we're focused on driving the operational improvements and commercial strategies as we believe there is a substantial long term March.
An improvement opportunity for Mueller and for our shareholders I am confident we can grow net sales and significantly increased margins over the next two years as we look to get back to pre pandemic margins in 2025 I. Thank you for your continued interest in our company and operator, please conclude the call.
That concludes today's conference. Thank you for participating you may disconnect at this time.