Q1 2024 Mueller Water Products Inc Earnings Call
And Kate Thank you you may begin.
Good morning, everyone. Thank you for joining us on Mueller water products first quarter conference call Yes.
Yesterday afternoon, we issued our press release reporting results of operations for the quarter ended December 31 2023.
A copy of the press release is available on our website Mueller water products Dot com.
I'm joined this morning by <unk>, our Chief Executive Officer, and Steve Heinrichs, Our Chief Financial Officer, and Chief Legal Officer.
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.
Welcome and thank you for standing by I would like to inform all participants that your lines have been placed on a listen only mode until the question and answer session of today's call. Today's call is being recorded if anyone has any objections. You may disconnect. At this time I would now like to turn the call over to Whit Kincaid. Thank you you may begin.
This mornings call is being recorded and webcast live on the Internet.
We have also posted slides on our website to accompany today's discussion.
They also address forward looking statements and our non-GAAP disclosure requirements.
Whit Kincaid: Good morning, everyone. Thank you for joining us on Mueller water products first quarter conference call.
At this time, please refer to slide two.
Whit Kincaid: Yesterday afternoon, we issued our press release reporting results of operations for the quarter ended December 31 2023.
This slide identifies non-GAAP financial measures referenced in our press release on our slides and on this call. It discloses the reasons why we believe that these measures provide useful information to investors.
A copy of the press release is available on our website and your water products Dot com.
Whit Kincaid: I'm joined this morning by Marty <unk>, our Chief Executive Officer, and Steve Heinrichs, Our Chief Financial Officer, and Chief Legal Officer.
Reconciliations between non-GAAP and GAAP financial measures are included in the supplemental information within our press release and on our website.
Speaker Change: 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 cute.
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.
Speaker Change: This mornings call is being recorded and webcast live on the Internet.
Speaker Change: We have also posted slides on our website to accompany today's discussion.
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 the 30th September.
Speaker Change: They also address forward looking statements and our non-GAAP disclosure requirements.
Speaker Change: At this time, please refer to slide two.
Speaker Change: This slide identifies non-GAAP financial measures referenced in our press release on our slides and on this call. It discloses the reasons why we believe that these measures provide useful information to investors.
A replay of this morning's call will be available for 30 days at 18885660411.
The archived webcast and corresponding slides will be available for at least 90 days on the Investor Relations section of our website.
Speaker Change: Conciliations between non-GAAP and GAAP financial measures are included in the supplemental information within our press release and on our website.
I'll now turn the call over to Marty.
Thanks Whit.
Morning, everyone. Thank you for joining our earnings call today I'll start with a brief overview of our first quarter performance.
Speaker Change: 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.
We delivered a solid start to the year as we expanded margins versus the prior year quarter. Despite the expected decrease in net sales first quarter net sales, which exceeded the high end of our previously announced expectations were down year over year as we lapped strong sales in the prior year, which benefited from elevated backlogs mainly for our.
Speaker Change: Please review slides two and three in their entirety.
Speaker Change: During this call all references to a specific year or quarter unless specified otherwise refer to our fiscal year, which ends the 30th September.
Gate valves and hydrants. Additionally.
Speaker Change: A replay of this morning's call will be available for 30 days at 18885660411.
Additionally, we believe that channel and customer inventory levels were largely normalize by the end of our first quarter.
Speaker Change: The archived webcast and corresponding slides will be available for at least 90 days on the Investor Relations section of our website.
Municipal end market remains resilient and the new residential construction end market appears to be stabilizing relative to a challenging 2023, our operating and corporate teams worked tirelessly to recover from the cyber security incident announced in October 2023.
Speaker Change: Now I'll turn the call over to Marty.
Marty: Thanks Wes.
Marty: Good morning, everyone. Thank you for joining our earnings call today I'll start with a brief overview of our first quarter performance.
We believe that there was a small impact to net sales mainly associated with the timing of shipments for some specialty valve products. Our first quarter results have been adjusted for the costs, we incurred relating to the incidence going forward, we have made and expect to make further investments to strengthen our cyber security resources and processes.
Marty: We delivered a solid start to the year as we expanded margins versus the prior year quarter. Despite the expected decrease in net sales first quarter net sales, which exceeded the high end of our previously announced expectations were down year over year as we lapped strong sales in the prior year, which benefited from elevated backlogs mainly for.
Which are reflected in our annual SG&A guidance I am grateful to our teams who worked higher Leslie to support our customers and helped quickly return our business to normal operations I am also grateful to our customers and vendors, who likewise supported us during the aftermath of the incident.
Marty: Iron gate valves and hydrants.
Additionally, we believe that channel and customer inventory levels were largely normalize by the end of our first quarter. Our municipal end market remains resilient and the new residential construction end market appears to be stabilizing relative to a challenging 2023, our operating and corporate teams worked tirelessly to recover from the cyber.
Our ability to expand gross margins, despite lower volumes and the challenges associated with the cyber security incident reflects our improved execution and agility the team's focus on customer service and driving operational and supply chain efficiencies led to a 410 basis point improvement in gross margin compared with the prior.
Marty: Security incident announced in October 2023, we believe that there was a small impact to net sales mainly associated with the timing of shipments for some specialty valve products. Our first quarter results have been adjusted for the costs, we incurred relating to the incidents.
Year during.
During the first quarter, we benefited from labor and material efficiencies along with lower freight costs. We also benefited from price realization, which once again more than offset inflationary pressures.
Marty: Going forward, we have made and expect to make further investments to strengthen our cyber security resources and processes, which are reflected in our annual SG&A guidance I am grateful to our teams who worked tirelessly to support our customers and helped quickly return our business to normal operations I am also grateful to.
We generated strong operating cash flow in our first quarter, reflecting our improved execution and some benefit from the timing of payables, resulting from delays caused by the cyber security incident.
Marty: Our customers and vendors, who likewise supported us during the aftermath of the incident.
Our initial fiscal 2024, adjusted EBITDA guidance reflects higher margins. Despite a forecasted decrease in net sales versus the prior year.
Marty: Our ability to expand gross margins, despite lower volumes and the challenges associated with the cyber security incident reflects our improved execution and agility.
Our improving operational and commercial performance leads to our expectation that our consolidated gross margins will improve relative to the prior year, even though we face lower volumes, resulting from lapping the elevated short cycle backlog, mainly for iron gate valves and hydrants.
Marty: The team's focus on customer service and driving operational and supply chain efficiencies led to a 410 basis point improvement in gross margin compared with the prior year.
Marty: During the first quarter, we benefited from labor and material efficiencies along with lower freight costs.
We expect gross margin to continue to benefit from operational and supply chain efficiencies, which will help offset the headwinds from expected lower volumes with price increases recently announced for the majority of our iron specialty and gas products, we anticipate that price realization will continue to more than cover.
Marty: We also benefited from price realization, which once again more than offset inflationary pressures, we generated strong operating cash flow in our first quarter, reflecting our improved execution and some benefit from the timing of payables, resulting from delays caused by the cyber security incident.
Her ongoing inflationary pressures, including higher labor rates.
Marty: Our initial fiscal 'twenty 'twenty four adjusted EBITDA guidance reflects higher margins. Despite a forecasted decrease in net sales versus the prior year.
Our teams remained focused on delivering the benefits from our strategic capital investments in specialty and large gate valves and service brass products.
Marty: Our improving operational and commercial performance leads to our expectation that our consolidated gross margins will improve relative to the prior year, even though we face lower volumes, resulting from lapping the elevated short cycle backlog, mainly for iron gate valves and hydrants.
These products are poised to benefit from the increased federal infrastructure funding beyond fiscal 2024.
I am proud of our brass foundry operations teams as they continue to sequentially improve operations and the new foundry, which utilizes state of the art equipment and a new sustainable lead free alloy, we continue to ramp up volumes at our new brass foundry as we look to return to normalized lead times for all of our service brass products, we continue to.
Marty: We expect gross margin to continue to benefit from operational and supply chain efficiencies, which will help offset the headwinds from expected lower volumes with price increases recently announced for the majority of our iron specialty and gas products, we anticipate that price realization will continue to more than <unk>.
Target to have it running full steam by the end of calendar 2024.
The external environment remains uncertain, especially considering the ongoing Israel Hamas War as a reminder, we have operations in Israel through our cross repair products business, which accounts for less than 10% of our consolidated sales.
Marty: <unk> ongoing inflationary pressures, including higher labor rates.
Marty: Our teams remain focused on delivering the benefits from our strategic capital investments in specialty and large gate valves and service brass products.
This did not have a material impact on our first quarter results due to our strategic level of finished goods inventory for our crouse repair products.
Marty: These products are poised to benefit from the increased federal infrastructure funding beyond fiscal 2024.
Marty: I am proud of our brass foundry operations teams as they continue to sequentially improve operations and the new foundry, which utilizes state of the art equipment and a new sustainable lead free alloy, we continue to ramp up volumes at our new brass foundry as we look to return to normalized lead times for all of our service brass products. We continued.
However, we expect to see higher manufacturing and freight costs, resulting from the war starting in our second quarter.
We have made incremental operational investments at crouse to help ensure we meet customer demand. These.
These include labor and supply chain investments to return to normalized production levels.
These costs will be a headwind to our margins in fiscal 2024 as production levels ramp up our team in Israel has done a remarkable job adapting to the impacts of the war and we will continue to support them in our business as the situation evolves.
Marty: To target to have it running full steam by the end of calendar 'twenty 'twenty four.
Marty: The external environment remains uncertain, especially considering the ongoing Israel Hamas War as a reminder, we have operations in Israel through our crouse repair products business, which accounts for less than 10% of our consolidated sales.
Overall, I am very pleased with our start to the year, especially considering the headwinds our teams faced during the quarter. We are on track to improve our gross margin for a second consecutive year. Despite expected lower overall volumes. Our performance is a testament to the operational investments and improvements we've made over the past year as we.
Marty: This did not have a material impact on our first quarter results due to our strategic level of finished goods inventory for our crouse repair products.
Marty: However, we expect to see higher manufacturing and freight costs, resulting from the war starting in our second quarter.
Look to deliver more consistent execution and further strengthen our customer service to drive future sales and margin growth with that I will turn it over to Steve.
Marty: We have made incremental operational investments at crouse to help ensure we meet customer demand. These.
Marty: These include labor and supply chain investments to return to normalized production levels.
Thanks, Marty and good morning, everyone for the quarter, our consolidated net sales were $256 4 million.
Marty: These costs will be a headwind to our margins in fiscal 'twenty 'twenty four as production levels ramp up our team in Israel has done a remarkable job adapting to the impacts of the war and we will continue to support them in our business as the situation evolves.
A decrease of 18, 6% compared with the prior year.
Although we exceeded our top line guidance net sales primarily decreased due to lower volumes of both water flow solutions and water management solutions, which were partially offset by higher pricing across most product lines.
Marty: Overall, I am very pleased with our start to the year, especially considering the headwinds our teams faced during the quarter.
As a reminder, our iron gate valve and hydrant sales in the prior year quarter benefited from serving an elevated backlog.
Marty: We are on track to improve our gross margin for a second consecutive year, despite expected lower overall volumes.
The backlog at quarter end for these products was down more than 80% versus the prior year.
Marty: Our performance is a testament to the operational investments and improvements we've made over the past year as we look to deliver more consistent execution and further strengthen our customer service to drive future sales and margin growth.
In the first quarter gross profit of $86 $3 million decrease.
Decreased to seven 4% compared with the prior year.
Gross margin of 33, 7% increased 410 basis points compared with the prior year and reflects our highest quarterly gross margin in over two years.
Marty: With that I'll turn it over to Steve.
Steve Heinrichs: Thanks, Marty and good morning, everyone for the quarter. Our consolidated net sales were $256 4 million a decrease of 18, 6% compared with the prior year.
Benefits from higher pricing and improved manufacturing performance more than offset lower volumes.
Steve Heinrichs: Although we exceeded our top line guidance net sales primarily decreased due to lower volumes of both water flow solutions and water management solutions, which were partially offset by higher pricing across most product lines.
This includes improved labor material and freight efficiencies will.
For the quarter total SG&A expenses of $56 9 million.
$6 million lower than the prior year.
Compared with the prior year. The decrease was primarily driven by lower personnel related and incentive costs and reduced third party fees, partially offset by inflationary pressures and unfavorable foreign exchange expense operating income of $22 $8 million decreased 32, 9% in the quarter compared with the prior year.
Steve Heinrichs: As a reminder, our iron gate valve and hydrant sales in the prior year quarter benefited from serving an elevated backlog.
Steve Heinrichs: Backlog at quarter end for these products was down more than 80% versus the prior year.
Steve Heinrichs: In the first quarter gross profit of $86 $3 million decreased to seven 4% compared with the prior year.
Operating income includes the strategic reorganization and other charges of $6 $6 million in the quarter, which have been excluded from adjusted results.
Steve Heinrichs: Gross margin of 33, 7% increased 410 basis points compared with the prior year and reflects our highest quarterly gross margin in over two years.
This includes approximately $1 5 million of nonrecurring expenses associated with the cyber security incidents, which Marty referenced earlier.
Steve Heinrichs: Benefits from higher pricing and improved manufacturing performance more than offset lower volumes.
This amount includes the expected benefit of insurance recoveries.
Steve Heinrichs: This includes improved labor material and freight efficiencies for.
Turning now to our consolidated non-GAAP results for the quarter.
Steve Heinrichs: For the quarter total SG&A expenses of $56 $9 million were $6 million lower than the prior year.
Adjusted operating income of $29 $4 million decreased 3% compared with the prior year.
Steve Heinrichs: Compared with the prior year. The decrease was primarily driven by lower personnel related and incentive costs and reduced third party fees, partially offset by inflationary pressures and unfavorable foreign exchange expense.
Benefits from higher pricing favorable manufacturing performance and lower SG&A expenses were more than offset by the decrease in volumes.
Our adjusted operating margin improved 190 basis points to 11, 5% compared with the prior year, despite the lower volumes.
Steve Heinrichs: Operating income of $22 $8 million decreased 32, 9% in the quarter compared with the prior year.
Steve Heinrichs: Operating income includes the strategic reorganization and other charges of $6 $6 million in the quarter, which have been excluded from adjusted results.
Adjusted EBITDA of $44 8 million.
Increased one 4% in the quarter. Despite the expected lower volumes, our adjusted EBITDA margin improved 350 basis points to 17, 5%.
Steve Heinrichs: This includes approximately $1 $5 million of nonrecurring expenses associated with the cyber security incidents, which Marty referenced earlier.
For the last 12 months adjusted EBITDA was $202 7 million.
Steve Heinrichs: This amount includes the expected benefit of insurance recoveries.
Were 16, 7% of net sales, a 190 basis point improvement compared with the prior 12 month period.
Steve Heinrichs: Turning now to our consolidated non-GAAP results for the quarter.
Steve Heinrichs: Adjusted operating income of $29 $4 million decreased 3% compared with the prior year.
Net interest expense for the quarter declined $400000 to $3 $3 million compared with the prior year, primarily as a result of higher interest income.
Steve Heinrichs: The benefits from higher pricing favorable manufacturing performance and lower SG&A expenses were more than offset by the decrease in volumes or.
For the quarter, our effective tax rate was 15, 4% as compared with 23, 5% for the prior year.
Steve Heinrichs: Our adjusted operating margin improved 190 basis points to 11, 5% compared with the prior year, despite the lower volumes.
The lower income tax rate in the quarter was primarily due to a $1 $6 million income tax benefit associated with the exploration of an uncertain tax position that expired on December 31 2023.
Steve Heinrichs: Adjusted EBITDA of $44 $8 million increased one 4% in the quarter. Despite the expected lower volumes, our adjusted EBITDA margin improved 350 basis points to 17, 5%.
This tax benefit was offset by the release of a $1 6 million indemnification receivable in other expense.
Steve Heinrichs: For the last 12 months adjusted EBITDA was $202 $7 million or 16, 7% of net sales a 190 basis point improvement compared with the prior 12 month period.
For the quarter adjusted net income per diluted share of <unk> 13 was flat compared with the prior year.
Turning now to quarterly segment performance, starting with water flow solutions.
Steve Heinrichs: Net interest expense for the quarter declined $400000 to $3 $3 million compared with the prior year, primarily as a result of higher interest income.
Net sales of $141 $3 million decreased 14, 7% compared with the prior year lower volumes, mainly for iron gate and specialty valves were partially offset by higher pricing across most of the segments product lines.
Steve Heinrichs: For the quarter, our effective tax rate was 15, 4% as compared with 23, 5% for the prior year.
Net sales for Iron gate valves were down double digits compared with the prior year, primarily due to normalized lead times.
Steve Heinrichs: The lower income tax rate in the quarter was primarily due to a $1.6 million income tax benefit associated with the exploration of an uncertain tax position that expired on December 31, 2023. This tax benefit was offset by the release of a $1 $6 million indemnification receivable in other expense for.
As a reminder, iron gate valve sales in the prior year quarter had benefited from serving an elevated backlog.
Specialty valves were also down double digits compared with the prior year, primarily due to production challenges, which were mainly caused by disruptions and delays related to the cyber security incident.
Steve Heinrichs: The quarter adjusted net income per diluted share of <unk> 13 was flat compared with the prior year.
Despite lower net sales adjusted operating income of $27 $4 million increased 13, 2% in the quarter the benefits from higher pricing favorable manufacturing performance and lower SG&A expenses more than offset lower volumes.
Turning now to quarterly segment performance, starting with water flow solutions.
Steve Heinrichs: Net sales of $141 $3 million decreased 14, 7% compared with the prior year lower volumes, mainly for iron gate and specialty valves were partially offset by higher pricing across most of the segments product lines.
Adjusted EBITDA of $36 $7 million increased 15% and adjusted EBITDA margin also improved 670 basis points to 26%.
Steve Heinrichs: Net sales for Iron gate valves were down double digits compared with the prior year, primarily due to normalized lead times.
Turning to quarterly results for water management solutions.
Net sales of $115 $1 million decreased 22, 9% compared with the prior year.
Steve Heinrichs: As a reminder, iron gate valve sales in the prior year quarter had benefited from serving an elevated backlog, especially.
Lower volumes, mainly in hydrants and water applications were partially offset by higher pricing across most of the segments product wise net.
Steve Heinrichs: Especially valves were also down double digits compared with the prior year, primarily due to production challenges, which were mainly caused by disruptions and delays related to the cyber security incident.
Sales for hydrants were down double digits compared with the prior year, primarily due to normalized lead times, which as a reminder had benefited from serving an elevated backlog in the prior year quarter.
Steve Heinrichs: Despite lower net sales adjusted operating income of 27 $4 million increased 13, 2% in the quarter the benefits from higher pricing favorable manufacturing performance and lower SG&A expenses more than offset lower volumes.
Adjusted operating income of $15 $1 million decreased 23% in the quarter.
Benefits from higher pricing favorable manufacturing performance and lower SG&A expenses were more than offset by the lower volumes.
Adjusted EBITDA of $36 $7 million increased 15% and adjusted EBITDA margin also improved 670 basis points to 26%.
Adjusted EBITDA of $22 1 million decreased 16, 9%. However, adjusted EBITDA margin improved 140 basis points to 19, 2%.
Steve Heinrichs: Turning to quarterly results for water management solutions.
Steve Heinrichs: Net sales of $115 $1 million decreased 22, 9% compared with the prior year.
Moving onto cash flow.
Net cash provided by operating activities for the quarter was $67 9 million.
Steve Heinrichs: Lower volumes, mainly in hydrants and water applications were partially offset by higher pricing across most of the segments product wise net.
An increase of $74 $4 million compared with the prior year.
Steve Heinrichs: Net sales for hydrants were down double digits compared with the prior year, primarily due to normalized lead times, which as a reminder had benefited from serving an elevated backlog in the prior year quarter.
This was primarily due to improvements in working capital compared with the prior year. This.
This included a smaller increase in inventories and higher receivables collections and an increase in payables largely related to delays caused by the cyber security incident.
Steve Heinrichs: Adjusted operating income of $15 $1 million decreased 23% in the quarter.
We expect the benefits from the increase in payables to reverse in the second quarter as those processes have normalized.
Steve Heinrichs: Benefits from higher pricing favorable manufacturing performance and lower SG&A expenses were more than offset by the lower volumes.
During the quarter, we invested $5 7 million in capital expenditures, which is $4 $2 million lower than the prior year quarter. The.
Steve Heinrichs: Adjusted EBITDA of $22 $1 million decreased to 16, 9%. However, adjusted EBITDA margin improved 140 basis points to 19, 2%.
The decrease was primarily due to the timing of spending on our new brass foundry in the prior year and some short term delays related to the cyber security incident.
Steve Heinrichs: Moving on to cash flow net.
Steve Heinrichs: Net cash provided by operating activities for the quarter was $67 9 million, an increase of $74 $4 million compared with the prior year.
Our free cash flow for the quarter increased to $78 6 million to $62 $2 million compared with the prior year driven by higher cash from operations and lower capital spending at.
Steve Heinrichs: This was primarily due to improvements in working capital compared with the prior year.
At the end of the first quarter, our total debt outstanding was $447 4 million and we had cash and cash equivalents of $216 7 million our net debt.
Steve Heinrichs: This included a smaller increase in inventories and higher receivables collections and an increase in payables largely related to delays caused by the cyber security incident.
Leverage ratio was one one times at quarter end.
Steve Heinrichs: We expect the benefits from the increase in payables to reverse in the second quarter as those processes have normalized.
As a reminder, we currently have no debt financing maturities before June 2029.
Steve Heinrichs: During the quarter, we invested $5 7 million in capital expenditures, which is $4 $2 million lower than the prior year quarter.
We did not have any borrowings under our ABL agreement at quarter end, nor did we borrow any amounts under our ABL during the quarter.
I'll now review our outlook for fiscal 2024.
Steve Heinrichs: The decrease was primarily due to the timing of spending on our new brass foundry in the prior year and some short term delays related to the cyber security incident.
We are slightly improving our expectations for consolidated net sales, we now anticipate net sales to decrease between 2% and 6% in fiscal 2024 as compared with the prior year. This.
Steve Heinrichs: Our free cash flow for the quarter increased $78 6 million to $62 $2 million compared with the prior year driven by higher cash from operations and lower capital spending at.
This takes into account our first quarter performance and recent pricing actions as a reminder, we still expect year over year volume headwinds related to lapping of the elevated short cycle backlog, mainly for iron gate valves, and hydrants, which decreased by nearly 90% in fiscal 2023.
Steve Heinrichs: At the end of the first quarter, our total debt outstanding was $447 4 million and we had cash and cash equivalents of $216 7 million. Our net debt leverage ratio was one one times at quarter end.
In addition to updating our net sales growth expectations. We're now providing initial guidance for fiscal 2020 for adjusted EBITDA.
Steve Heinrichs: As a reminder, we currently have no debt financing maturities before June 2029.
Despite lower forecasted volumes, we anticipate that our adjusted EBITDA will increase between three and 7% compared with the prior year. Additionally.
Steve Heinrichs: We did not have any borrowings under our ABL agreement at quarter end, nor did we borrow any amounts under our ABL during the quarter.
Additionally, we expect our free cash flow as a percentage of adjusted net income to be more than 65% for fiscal 2024 as compared with 62, 7% in fiscal 2023.
Speaker Change: I'll now review our outlook for fiscal 2024.
Speaker Change: We are slightly improving our expectations for consolidated net sales, we now anticipate net sales to decrease between 2% and 6% in fiscal 2024 as compared with the prior year. This.
With that I'll turn it back to Marty for closing comments.
Thanks, Dave I want to highlight a few key items before opening it up for Q&A.
Speaker Change: This takes into account our first quarter performance and recent pricing actions as a reminder, we still expect year over year volume headwinds related to lapping of the elevated short cycle backlog, mainly for iron gate valves, and hydrants, which decreased by nearly 90% in fiscal 2023.
<unk> plays a critical role in helping our customers deliver clean safe drinking water to hundreds of millions of people, we wouldn't be where we are today without our dedicated team members customers and suppliers. Despite the external challenges. We have faced we remain focused on delivering value to our customers while all.
Speaker Change: In addition to updating our net sales growth expectations. We're now providing initial guidance for fiscal 2020 for adjusted EBITDA.
Speaker Change: Despite lower forecasted volumes, we anticipate that our adjusted EBITDA will increase between 3% and 7% compared with the prior year.
Also driving further efficiencies in our operations and supply chain, we continue to ramp up the new brass foundry and are committed to meeting our goal of having it running full steam by the end of calendar 2024.
Speaker Change: Additionally, we expect our free cash flow as a percentage of adjusted net income to be more than 65% for fiscal 2024 as compared with 62, 7% in fiscal 2023.
Newer has been a trusted partner for water utilities for over a century, our broad portfolio of products and solutions allows us to play a critical role in addressing the challenges and opportunities facing the water infrastructure industry.
Speaker Change: With that I'll turn it back to Marty for closing comments.
Marty: Thanks, Dave I want to highlight a few key items before opening it up for Q&A.
Marty: Neil or plays a critical role in helping our customers deliver clean safe drinking water to hundreds of millions of people.
Municipal water end market is poised to benefit from increased attention and investment towards addressing the aging water infrastructure, our products solutions and large capital projects position us to benefit from the infrastructure Bill once funds begin to flow.
Marty: We wouldn't be where we are today without our dedicated team members customers and suppliers. Despite the external challenges. We have faced we remain focused on delivering value to our customers. While also driving further efficiencies in our operations and supply chain, we continue to ramp up the new brass foundry.
With a solid start to the year, we are at an inflection point with our strategic investments and operational improvements that will expand margins I am confident that the actions. We are taking to execute our strategy will position us to deliver long term sustainable organic growth and margin improvement.
Marty: And are committed to meeting our goal of having it running full steam by the end of calendar 2024.
Marty: Mueller has been a trusted partner for water utilities for over a century, our broad portfolio of products and solutions allows us to play a critical role in addressing the challenges and opportunities facing the water infrastructure industry.
That concludes my comments operator, please open this call for questions.
Thank you we will now begin our question and answer session. If you would like to ask a question. Please press star one please on mute your phone and record your name slowly and clearly when prompted your name is required to introduce your question again that is star. One if you would like to ask a question. Our first question comes from Deane Dray with RV.
Marty: Municipal water end market is poised to benefit from increased attention and investment towards addressing the aging water infrastructure, our products solutions and large capital projects position us to benefit from the infrastructure Bill once funds begin to flow.
<unk> capital markets. Your line is open.
Thank you and good morning, everyone Thats, a strong start to your fiscal year.
Marty: With a solid start to the year, we are at an inflection point with our strategic investments and operational improvements that will expand margins.
Hey, good morning.
Hey.
Marty you mentioned, the new foundry are progressing nicely I would love to get some more details there.
Marty: I am confident that the actions we are taking to execute our strategy will position us to deliver long term sustainable organic growth and margin improvement.
The certification process.
How many shifts are you running now and the expectation through the year and what does that mean for outsourcing that you had to do while this ramp up what's happening so give us a sense there. Thank you.
Speaker Change: That concludes my comments operator, please open this call for questions.
Speaker Change: Thank you we will now begin our question and answer session. If you would like to ask a question. Please press star one please on mute your phone and record your name slowly and clearly when prompted your name is required to introduce your question again that is star. One if you would like to ask a question. Our first question comes from Deane Dray with RBC.
Yes, so overall I think in terms of looking at where we are with respect to the new brass foundry. We are pleased with the continued.
Ramp up that we're seeing there I think importantly, I want to hit the point that we have.
Deane Dray: <unk> capital markets. Your line is open.
Deane Dray: Thank you and good morning, everyone Thats, a strong start to your fiscal year.
We're continuing to run the old brass foundry and just as a quick reminder, part of the reason for that is we want to continue to bring down the backlog that we have with the service brass products that we have that we have and continue to meet the.
Deane Dray: Hey, good morning.
Deane Dray: Hey.
Marty you mentioned, the new foundry are progressing nicely I'd love to get some more details there.
Deane Dray: The certification process.
Customer demand with respect to the new new foundry, we are continuing to make.
Marty: How many shifts are you running now and the expectation through the year and what does that mean for outsourcing that you had to do while this ramp up what's happening so give us a sense there. Thank you.
Improvements with a production level, we do have a couple of shifts that are running.
With that.
And that facility right now we have some additional pouring the equipment part of the capital.
Marty: Yes, so overall I think in terms of looking at where we are with respect to the new brass foundry. We are pleased with the continued.
Capital expenditures debt.
We will still need to complete this year as well and as we said we expect to have.
Marty: Ramp up that we're seeing there I think importantly, I want to hit the point that we have.
Fully ramped up by the end of <unk>.
Our calendar 2020 for.
Marty: We're continuing to run the old brass foundry and just as a quick reminder, part of the reason for that is we want to continue to bring down the backlog that we have with the service brass products that we have that we have and continue to meet the.
The new <unk> will have higher capacity than the old foundry as well as greater efficiencies in our own.
With respect to our own foundry.
Over mind, you as well that.
The brass foundry not only supplies our service brand products, but it also is a source of supply I apologize for our iron gate valves as well as our fire hydrants that was part of this I know we've talked about the outsourcing that we've done and as we are continuing to ramp up that foundry. It will also allow us to reduce some of the hour.
Marty: Customer demand with receptor.
Marty: New foundry, we are continuing to make.
Marty: At Christmas with the production level, we do have a couple of shifts that are Rani.
Marty: With that.
Marty: And that facility right now.
Sourcing.
Marty: Some additional pouring the equipment part of the capital expenditures that we.
Is that outsourcing reductions started just kind of as it may.
Marty: We will still need to complete this year as well and as we said we expect to have it.
Maybe a percent versus last year.
Yes, so absolutely the outsourcing is coming down with one of the benefits that we have seen contributing to the gross margin improvement and yes, I would say that outsourcing is probably down somewhat.
Marty: Fully ramped up by the end of <unk>.
Marty: Our calendar 2020 for.
Marty: The new foundry will have higher <unk> than the old foundry as well as greater efficiencies in our own.
Let's say in the range of 50% to 60% Alright, that's really good news I'm glad you were able to size that for us.
Marty: With respect to our old foundry.
Marty: We'll remind you as well that.
Marty: The brass foundry not only supplies our service brand products, but it also is a source of supply.
<unk>.
Second question.
It was really interesting to hear about some of the Ramsey business stabilizing and Thats consistent with what we're seeing on.
Marty: Apologize for our Iron gate valves as well as our fire hydrants that was part of this I know we've talked about the outsourcing that we've done and as we are continuing to ramp up that foundry. It will also allow us to reduce some of the outsourcing.
Housing overall.
And you're more exposed to these larger neighborhood development projects and the supply it looks pretty good there. So the extent that you can kind of size for us where that stands.
Marty: Is that outsourcing reductions started just kind of is it.
Marty: Maybe a percent versus last year.
The timing is in terms of the development of those properties that youre seeing today.
Speaker Change: Yes, so absolutely the outsourcing is coming down it's one of the benefits that we have seen contributing to the gross margin improvement and yes, I would say that outsourcing is probably down.
So look overall in the guidance that we've given.
We think that.
Muni market has been fairly resilient.
Speaker Change: Somewhat met let's say in the range of 50% to 60% Alright, that's really good news I'm glad you were able to size that for us.
Question 2023 was a challenging year for the residential construction market.
As well as land development and that certainly is reflecting the increase in interest rates and consequentially the mortgage rates as well, which has contributed to that so we do think that after a challenging 2023, where you saw housing starts down about 9%.
Speaker Change: <unk>.
Speaker Change: Second question.
Speaker Change: It was really interesting to hear about some of the Ramsey business stabilizing and that's consistent with what we're seeing on <unk>.
Speaker Change: Housing overall.
Speaker Change: And you're more exposed to these larger neighborhood development projects and the supply it looks pretty good there. So the extent that you can kind of size for us where that stands.
Last 12 months.
Think we could start seeing some normalization.
The single family housing starts.
Speaker Change: The timing is in terms of the development.
Had been a little bit higher.
Over the last couple of quarters, we do think that some of the homebuilders are benefiting from the inventory of developed lots that you can talk about.
Speaker Change: Those properties that youre seeing today.
Speaker Change: So look overall the guidance that we've given.
Speaker Change: We think the muni market has been fairly resilient.
But as we looked at the land development, we think you could still be some lingering headwinds there.
Speaker Change: Question 2023 was a challenging year for the residential construction market.
As they are continuing to face the higher.
Speaker Change: As well as land development and that certainly is flat.
Interest rates as they consider their funding as.
Speaker Change: Collecting the increase in interest rates and consequentially, the mortgage rates as well, which have contributed to that so we do think that after a challenging 2023, where you saw housing starts down about 9%.
As well as permitting challenges as well.
Certainly looking at the residential construction as well looking across the U S. I would say certainly not all regions are equal.
We may see stronger activity and some as opposed to others.
Speaker Change: Last 12 months, we think we could start seeing some normalization.
But overall as we look to 2020 or we think.
Speaker Change: Single family housing starts.
Brad the construction will be a little bit more of a headwind for us that we could see some improving improvements as we look beyond 2025, but I think certainly where interest rates. Ultimately go will also be an influencing factor on that.
Speaker Change: Been a little bit higher.
Speaker Change: Over the last couple of quarters, we do think that some of the homebuilders are benefiting from the inventory of developed lots that you can talk about.
Speaker Change: But as we looked at our land development, we think you could still be some lingering headwinds there.
Terrific and it's not a question just to comment a shot out to Steve and the team that was.
Fabulous free cash flow generation this quarter. Thanks.
Certainly as they are continuing to face the higher.
Thank you.
Speaker Change: Interest rates as they consider their funding.
Thank you. Our next question comes from Mike Halloran with Baird. Your line is open hey.
Speaker Change: As well as permitting challenges as well.
Speaker Change: Certainly looking at the residential construction as well looking across the U S. I would say certainly not all regions are equal.
Good morning, everybody you have pads on for Mike.
I want to go back to the outsource brass.
Speaker Change: And we may see stronger activity and some as opposed to others.
Obviously healthy margin outperformance in the quarter can you maybe talk about how much of the reduction in <unk> was maybe a surprise.
Speaker Change: But overall as we look to 2020 or we think.
Speaker Change: Brad the construction will be a little bit more of a headwind for us that we could see some improving and improvements as we look beyond 2025, but I think certainly where interest rates. Ultimately go will also be an influencing factor on that.
How much of Thats tracking versus expectations I know you talked about the foundry timing being unchanged, but maybe it feels like a little bit of positive surprise in the quarter and maybe how youre thinking about that trending versus expectations, we talked about back in November.
Terrific: Terrific and it's not a question just to comment a shot out to Steve and the team that was.
Yes, So I think let me.
Let me see if I can overall hit that I would say.
Speaker Change: Fabulous free cash flow generation this quarter.
I wouldn't use the word surprise.
Terrific: Okay.
Speaker Change: Thank you.
In terms of looking at where we are I think as we have.
Speaker Change: Thank you. Our next question comes from Mike Halloran with Baird. Your line is open hey.
Identify the areas that we know that we can make improvements I think certainly as.
Mike Halloran: Good morning, everybody you have pads on for Mike.
The execution of the teams that we have on the supply chain side.
Mike Halloran: I want to go back to the outsource brass.
Mike Halloran: Obviously healthy margin outperformance in the quarter can you maybe talk about how much of the reduction in <unk> was maybe a surprise.
As well as we I'll say broadly they are certainly less disruptions in the supply chain than we've seen as we look over the last couple of years, but I think with respect to.
Mike Halloran: How much of that is tracking versus expectations. I know you talked about the boundary timing being unchanged, but maybe it feels like a little bit of positive surprise in the quarter and maybe how youre thinking about that trending versus expectations, we talked about back in November.
The benefit that we've had from a performance.
We have been just effective in improving our sourcing overall, which has contributed to that and over time. That's allowed us as we said to bring back some of the outsourcing that we've done going back in house, which has certainly helped as well I think the other piece certainly in looking at the margin improvement that we have had even though volumes were lower.
Speaker Change: Yes, So I think let me let.
Speaker Change: Let me see if I can overall hit that I would say.
I wouldn't use the word surprise.
In terms of looking at where we are I think as we have.
Overall, the manufacturing performance, we have continued to see improvements there and efficiencies that have also helped so I would say.
Speaker Change: Identify the areas that we know that we can make improvements I think certainly as.
Speaker Change: The execution of the teams that we have on the supply chain side.
A few things that we say certainly we had higher inflation, particularly with respect I'd say, particularly on the on the labor side, but I would say, it's largely due to performance improvements with the achievements we've had from our operations team as well in there.
Speaker Change: As well as we I'll say broadly there are certainly less disruptions in the supply chain than we seen if we look over.
Speaker Change: The last couple of years, but I think with respect to.
Speaker Change: The.
Speaker Change: Benefits that we've had from a performance.
<unk> changing.
Speaker Change: We have been just effective in improving our sourcing overall, which has contributed to that and over time. That's allowed us as we said to bring back some of the outsourcing that we've done going back in house, which has certainly helped as well I think the other piece certainly in looking at the margin improvements that we have had even though volumes were lower.
Supply chain team has done a really great job.
Managing that.
And we do think that the improvement in Ellsworth cost is one of our main reasons for gross margin improvement.
We expect that to continue.
Got it.
Got it that's helpful.
Switching gears here in the deck.
Speaker Change: Overall, the manufacturing performance, we have continued to see improvements there and efficiencies that have also helped so I would say.
You highlight capacity for M&A and obviously the balance sheet is in healthy shape.
Can you maybe talk about how you think about.
Management bandwidth for acquisition integration can you touch on the state of the current pipeline.
Speaker Change: A few things that we see certainly we had higher inflation, particularly with respect I'd say, particularly on the on the labor side, but I would say, it's largely due to performance improvements with the achievements we've had from our operations team as well in there.
What I'm getting at is how.
Heavy handed or you're having to manage that the foundry transition at this point and how much free time do you have for the M&A pipeline at this point.
Yes, so look overall in it we certainly talked about M&A over the years and continuing to look for the opportunities where we can.
Speaker Change: Supply chain team.
Speaker Change: Supply chain team has done a really great job managing that.
<unk> or deepen our product lines specifically within.
Speaker Change: And we do think that the proven announcers cost is one of our main reasons for gross margin.
Water or <unk> gas <unk>.
Related.
Speaker Change: We expect that to continue.
Industry I would say, let me start with the balance sheet and our capacity there I think certainly the capital structure that we established a number of years ago.
Speaker Change: Sure.
Speaker Change: Got it that's helpful. Maybe switching gears here in the deck.
Speaker Change: You highlight capacity for M&A and obviously the balance sheet is in healthy shape.
Certainly gives us.
Speaker Change: Can you maybe talk about how you think about <unk>.
Flexibility as well as capacity.
Speaker Change: Management bandwidth for acquisition integration can you touch on the state of the current pipeline.
We talk about the overall capacity that we have not only with the cash that we have on hand, but as well as additional liquidity that we have resulting from our asset based lending agreement. So I think from that perspective.
Speaker Change: What I'm getting at is how.
Speaker Change: Heavy handed or you're having to manage that the foundry transition at this point and how much free time do you have for the M&A pipeline at this point.
Speaker Change: Yes, so look overall in it we've certainly talked about M&A over the years and continuing to look for the opportunities where we can.
We continue to believe that we are very well positioned.
And from a management perspective, we continue to look for the opportunities that we think are going to be the right value enhancing opportunities.
Speaker Change: Broaden or deepen our product lines specifically within.
Speaker Change: Water or <unk> gas <unk> related.
For our shareholders and I would say from a bandwidth perspective.
Speaker Change: Industry I would say, let me start with the balance sheet and our capacity there I had a certainly the capital structure that we established a number of years ago.
Management team does have the.
Capacity and interest and looking for and then ultimately when we find them delivering and delivering.
Delivering on those M&A opportunities.
Speaker Change: Certainly gives us.
Speaker Change: Flexibility as well as capacity.
Great. Thank you I appreciate it I'll pass it on.
Speaker Change: We talk about the overall capacity that we have not only with the cash that we have on hand, but as well as additional liquidity that we have resulting from our asset based lending agreement. So I think from that perspective.
Thank you. Our next question comes from Joe Giordano with TD Cowen Your line is open.
Hi, This is zane on for Joe Giordano.
Good morning.
Speaker Change: We continue to believe that we are very well positioned.
Just wanted to touch base on you mentioned youre expecting price benefits for 2024 could you compare that against what you are seeing for inflation and what the differential looks like and.
Speaker Change: I would add from a management perspective, we continue to look for the opportunities that we think are going to be the right value enhancing opportunities.
Speaker Change: For our shareholders and I would say from a bandwidth perspective.
Well, what you've been seeing translation recently as it has it stayed at relatively high levels or is it continuing to normalize.
Speaker Change: Management team does have the.
Speaker Change: Capacity and interest and looking for and then ultimately when we find them delivering and.
So.
We expect a more normalized seasonality of our business. This year is sort of inventory of our products.
Speaker Change: Delivering on those M&A opportunities.
Speaker Change: Great. Thank you I appreciate it I'll pass it on.
Annualized this normalized inflationary pricing environment.
Speaker Change: Thank you. Our next question comes from Joe Giordano with TD Cowen Your line is open.
Those price increases fragrances.
Historically average price realizations.
Speaker Change: Hi, This is zane on for Joe Giordano.
Low single digit range, and we're pleased with our price realizations.
Speaker Change: Sure.
Zane: Good morning.
Zane: Just wanted to touch base on you mentioned youre expecting price benefits for 2024 could you compare that against what you are seeing for inflation and what the differential looks like and.
<unk> strength.
Good morning team.
Our customer relationships.
We think there is a more stable inflationary environment. This year with most of the inflationary pressures coming from.
Zane: Well, what you've been seeing for inflation recently as it has it stayed at relatively high levels or is it continuing to normalize.
Higher labor rates. So we expect our price realization for the 2024 youre in the low to mid single digit range.
And this includes our recently announced price increases.
Zane: So.
Zane: We expect a more normalized seasonality of our business. This year as we talked about inventory of our products.
Three of our <unk>.
Specialty gas products.
Carry over pricing drove from prior periods.
Zane: Normalized and in this normalized inflationary pricing.
As a reminder, we typically expect our price realization will continue to more than cover ongoing inflationary pressures.
Zane: Price increases fragrances.
Zane: Historically average price realizations.
Our leverage.
Zane: Low single digit range, and we're pleased with our price realizations.
Thank you that was very helpful.
Zane: Flex strike.
Just a separate question on capital projects.
Zane: <unk>.
Zane: Our customer relationships.
Could you talk about the sequential spend across the year.
Zane: There is a more stable inflationary environment this year.
We expect it to be more towards the back half.
Zane: Inflationary pressures coming through.
And when you're when you're thinking about ramping down and moving towards a more normalized free cash flow.
Zane: Labor rates, so we expect our price realization for the 2020 for your low to mid single digit range.
So one of the clear your first question I would just want to make sure. We heard it correctly you wanted to talk about sort of the.
And this includes our recently announced price increases.
Capital expenditures during the year explanation.
Zane: Three of our.
Zane: Specialty gas products.
<unk> heard it correctly.
Zane: Variable pricing drove from prior periods.
Okay.
Okay.
Zane: As a reminder, we typically expect our price realization will continue to more than cover ongoing inflationary pressures, including.
So I think first of all overall looking at our capital expenditures our guidance for the full year is $45 million to $50 million.
Zane: Sure.
We were certainly light in the first quarter and I think as we shared in some of our ethane comments lighter in the first quarter.
Speaker Change: Thank you that was very helpful.
Speaker Change: A separate question on capital projects.
Some of it is comparative relative to the brass foundry expenditures that we had last year. We also did experience probably some short term delays that related to the cyber security.
Speaker Change: Could you talk about the sequential spend across the year.
Speaker Change: Expect it to be more towards the back half.
Speaker Change: And when you're when you're thinking about ramping down and moving towards a more normalized free cash flow.
Yes.
That said, we're still looking.
Looking for our guidance in the 45 to 50 range.
Speaker Change: So one of the clear your first question I just want to make sure. We heard it correctly you wanted to talk about sort of the rate of capital expenditures through the year Iceland nature.
We had talked about overall level of capital expenditures. It has been at a higher level in recent years and that is because of the three large capital projects that have been underway as we said we are closing.
Speaker Change: <unk> heard it correctly.
Speaker Change: Yes.
Speaker Change: Okay.
Speaker Change: Okay Barry.
Speaker Change: So I think first of all overall looking at our capital expenditures our guidance for the full year is $45 million to $50 million.
The finish line in terms of those expenditures with Alas, a our brass foundry.
Our expectations going forward are that capital expenditures will be less than 4% of net sales that we do expect that we will continue to see the expenditure levels as a percent of our net sales to decline.
Speaker Change: We were certainly light in the first quarter and I think as we shared in some of our ethane comments lighter in the first quarter.
Speaker Change: Some of it is comparative relative to the brass foundry expenditures that we had last year. We also did experience probably some short term delays that related to the cyber security.
That said I will certainly remind you that we are by and large a vertically integrated manufacturing business.
Speaker Change: Right.
Speaker Change: That said, we're still looking.
We do have.
Speaker Change: Looking for our guidance in the 45 to 50 range we.
Three large foundries, because we are announcing the iron ore, our <unk> or our Val.
Speaker Change: We had talked about overall level of capital expenditures. It has been at a higher level in recent years and that is because of the three large capital projects that have been underway as we said we are closing.
Our iron valve as well as for our surface brass products and so certainly we will always have a certain level of maintenance expenditures that we need to make as.
Speaker Change: The finish line in terms of those expenditures with a laugh a our brass foundry.
As a result of the manufacturing processes and being vertically integrated.
Speaker Change: Our expectations going forward are that capital expenditures will be less than 4% of net sales that we do expect that we will continue to see the expenditure levels as a percent of our net sales to decline.
And as it relates to cash.
We're obviously pleased with our strong first quarter operating cash flow.
It's obviously significantly higher.
The prior period.
This improvement was really due mostly to improvements in working capital management, a smaller increase of inventories.
Speaker Change: That said I will certainly remind you that we are by and large a vertically integrated manufacturing business.
Our receivables collections.
Speaker Change: We do have.
An increase in payables.
Speaker Change: Three large foundries, because we are announcing the IR for our <unk> or our Val.
As you heard in our prepared remarks, just a reminder, here that there was a benefit in the first quarter from payables as a result of delays caused cyber security incident, which affected some of our systems.
But those benefits to reverse our second quarter.
Payable systems processes available for us.
So so we're pleased with the <unk>.
Broadcast performance.
I look forward to continuing that.
Great. Thank you so much that was helpful.
Thank you as a reminder, if you would like to ask a question. Please press star one. Our next question comes from Walter Liptak with Seaport Research. Your line is open.
Hi, good morning, guys.
Good morning.
Good morning.
Ask a follow up to Dan's question about the outsourcing.
And want to make sure I heard this right that the outsourcing.
<unk> reduced sort of their parallel cost.
I think you said, 60% to 80% is that right.
I said, probably let's say around 50, maybe 50% to 60%, but I think it's.
Right.
We have.
As we look to the margin improvement that we've seen I think certainly one of the reasons for that and we talked about it I think last quarter talking about again this quarter.
Is as we have been able to reduce our outsourcing expenditures, which are contributing to the margin improvement.
Okay.
And it sounds like some of the backlogs are down like 80%. So we've gotten through most of that past due backlog do we see more of these outsourcing costs come out next quarter or we wait until year end for that to wind down.
So.
First of all I'll take a important question that you are.
Our comment that you've made in and around backlog so with respect to our short cycle backlog of the products that have a short cycle backlog. It's typically our iron gate valves, our fire hydrants, and our service brass products and when we look at our Iron Gate valves, and we look at our fire hydrants.
Those two products, we would say when we look at lead times, we are really pretty much back to normal and the elevated levels of backlog.
Essentially are limited at this point, we still do have a.
Higher than normal backlog level for our service brass products.
Reduce that somewhat in the first quarter and we are working to continue to reduce those backlog levels to get to sort of the normalized short cycle back.
Backlogs as we work through the balance of our of our 2024 and we did.
Make a meaningful improvement in that in our first quarter as well.
The corollary question that you're asking in and around that.
The outsourcing costs I know in past calls we have commented that that has been one of the contributing factors to the higher cost levels that we have and I think as we are.
Improving the production levels at our new brass foundry.
As well as with the less disruptions on the supply chain and importantly.
The work of our supply chain team, we are continuing to see improvements.
With the outsourcing costs that we have had.
Seen some meaningful improvements there and I think we can continue to see more generally moving forward.
Okay that sounds good.
Thank you for that.
Just wanted to back up to.
The SG&A cost reduction that you.
That's been going on for the last couple of quarters, where are we done with the actions taken in the are we seeing full benefits now from the SG&A cost cuts.
Okay.
With the less disruptions on the supply chain and importantly.
Good question Levered during the third quarter of last year as you know, we restructured our sales organization and streamline other.
The work of our supply chain team, we are continuing to see improvements.
Areas of our organization of radar our business teams closer to our customers.
With our outsourcing costs that we have had.
We took additional actions to streamline our other G&A expenses, including corporate.
Seen some meaningful improvements there and I think we can continue to see more generally moving forward.
So the support function halls.
And we are tracking to achieve a $25 million.
Okay that sounds good.
And SG&A savings.
Thank you for that.
Just wanted to back up to.
So we highlighted previously.
The SG&A cost reduction that you.
<unk>.
Chunk of those inventory phase III.
That's been going on for the last couple of quarters, where are we done with the actions taken in the are we seeing full benefits now from the SG&A cost cuts.
As a reminder, we do see inflation and SG&A going forward.
We're going to be in the range of around 5%. So when you when you start to compare to prior periods. So please realize that there is.
Okay.
Good question Levered during the third quarter of last year as you know, we restructured our sales and marketing organization streamline other.
Inflation.
Okay.
Okay. Thanks for that and then.
Areas of our organization of radar business teams closer to our customers.
Last one is just on the leadership transition is there anything that you can tell us.
We took additional actions to streamline or other G&A expenses, including corporate.
Any timing as the search is still going on or things wrapped up.
Which includes the support function roles.
So yes, so that we do not have any updates to share at this time.
We are tracking to achieve the $25 million in SG&A savings.
Our board is focused both on the board refreshment piece as well as the CEO search process.
That we highlighted previously and achieved.
As they as they said they are.
A big chunk of those in 2023.
We have retained an executive search firm, they're considering both internal and external candidates, but they have not announced a timeline for this process.
As a reminder, we do see inflation and SG&A going forward.
It's probably going to be in the range of around 5%. So when you when you start to compare to prior periods.
Okay, great. Thank you.
Please realize that there is.
Thank you our last question comes from Bryan Blair with Oppenheimer. Your line is open.
Inflation and SG&A.
Okay.
Okay. Thanks for that and then.
Thank you good morning, everyone.
Last one is just on the leadership transition is there anything that you can tell us.
Hey, good morning.
To drill down a little more on price cost trends and favorable for a bit you have momentum there.
Any timing as the search still going on or things wrapped up.
So yes, so that we do not have any updates to share at this time.
Are you willing to parse out the price cost impact from fiscal <unk>.
Our board is focused both on the board refreshment piece as well as the CEO search process.
<unk> and what is directly contemplated in guidance as of now.
As they as they said they would.
Retained an executive search firm, they're considering both internal and external candidates, but they have not announced a timeline for this process.
Yes, let me let me try that.
Hit on here on your question. So let me talk on price first.
And if some of this I think goes back over the cycle that we have Jeff.
Okay, great. Thank you.
Thank you our last question comes from Bryan Blair with Oppenheimer. Your line is open.
Led through and I think I've gotten on the other side.
With the extraordinary.
Thank you good morning, everyone.
Levels of inflation that we experienced largely starting in 2002 and.
Hey, good morning.
To drill down a little more on price cost trends and favorable for bad you have momentum there.
'twenty three the supply chain disruptions all of that I know that we've talked for a while and I'm going I'm going back a few years now I think to give you the context, but we were for awhile upside down with respect to the price inflationary costs and we implemented certainly a series of <unk>.
Are you willing to parse out the price cost impact from.
Fiscal <unk>.
<unk> and what is directly contemplated in guidance as of now.
Rice increases and as we stated throughout that time period, the objective was to.
Yes, let me let me try that.
Hit on here on your question. So let me talk on price first.
Recover if you will sort of.
And if some of this I think goes back over the cycle that we have just lapped.
The inflationary cost get on the other side of that and then ultimately continue.
<unk> grew and I think I've gotten on the other side.
With the extraordinary.
So half the pricing more than covering.
Levels of inflation that we experienced largely starting in 'twenty two.
Inflationary cost that we're experiencing.
I think now we are in a more normalized inflationary and pricing environment that we're sort of at this point were beyond what we experience. We did announce that we just put in a price increase.
'twenty three the supply chain disruptions all of that I know that we talked for a while and I'm going I'm going back a few years now I think to give you the context, but we were for awhile upside down with respect to the our price inflationary costs and we implemented certainly a series of price.
Our higher specialty.
Gas products.
From an inflation perspective.
Increases and as we stated throughout that time period, the objective was to.
We are probably seeing the most display inflation with respect to labor costs.
And recover if you will sort of.
As we look at that as a as a factor going off but with more stability.
Whit Kincaid: The inflationary cost yet on the other side of that and and then ultimately continue.
And the inflationary environment.
Whit Kincaid: So half the pricing more than covering the inflationary cost that we're experiencing.
We think that we could have.
Is that as we look ahead at this point, we feel that the pricing that we are forecasting will more than cover what we could see with respect to inflation and importantly preserve margin and that is in our sales and EBITDA.
Whit Kincaid: I think now we are in a more normalized inflationary and pricing environment. So we're sort of at this point were beyond what we experience. We did announce that we just put in a price increase.
Guidance.
Whit Kincaid: Our higher specialty and gas products.
Thank you.
Yes.
Australia is the pricing.
Whit Kincaid:
Whit Kincaid: From an inflation perspective.
These are the inflation of mortgages to preferred to offset lower volumes and we're also going to do so.
Whit Kincaid: We are probably seeing the most display.
Whit Kincaid: <unk> with respect to labor costs.
Hopefully that's helpful.
Whit Kincaid: As we look at that as a as a factor going off but with more stability.
Yes, I appreciate the color as a follow up you've called out that over time.
Speaker Change: In the inflationary environment.
<unk> spending should be a catalyst for your business.
Speaker Change: We think that we could have.
Speaker Change: Is that as we look ahead at this point, we feel that the pricing.
And there are a few areas in which that that's identifiable.
Fiscal 'twenty five and then beyond that then that's understood. There are some areas of spending front end kind of workwear.
Speaker Change: That we are forecasting will more than cover what we could see with respect to inflation and importantly preserve margin and that is kind.
I suspect you are participating to some extent what sticks out to me as ecological with the.
Speaker Change: Many of our sales and EBITDA guidance.
Pipe condition assessment.
Speaker Change: Thank you Carsten.
Work that you can do now to help with <unk> mapping and.
Speaker Change: Sure.
Carsten: It's true that it has a pricing.
Planning has that been a catalyst for <unk> to date or is that it.
Carsten: Vis vis inflation of mortgages to preferred to offset lower volumes that we're also guiding to do so.
Expect it to ramp.
That front end work in first class.
Speaker Change: Thats helpful.
Speaker Change: Yes.
Okay.
Speaker Change: Yes, I appreciate the color.
Yes, I would say specifically with respect to ecological we can't I can't tell you that we haven't seen the infrastructure bill be a catalyst for <unk> and as we said, we really don't feel that from what we're seeing we don't expect to see much impact from the infrastructure Bill in 2024.
As a follow up you've called out that over time.
Speaker Change: <unk> spending should be a catalyst for your business.
Speaker Change: There are a few areas in which that that's identifiable but likely fiscal 'twenty five and then beyond that and that's understood. There are some areas of <unk>.
Speaker Change: Spending front and kind of work wear.
And look I think part of this is just appreciating that sometimes the devil is in the details on these items.
Speaker Change: I suspect you are participating to some extent what.
What sticks out to me is that <unk> with the.
Speaker Change: Pipe condition assessment.
And certainly we are very positive on the Dell long term, we love the.
Speaker Change: Work that you can do now to help with <unk> mapping.
Speaker Change: Mapping and.
Certainly the focus that you see.
Speaker Change: And planning has that been a catalyst for echo audits to date or is that expected to ramp as.
The dollars that will be allocated to water infrastructure, but currently what is going through is just sort of the governmental process as you.
Speaker Change: That front end work intense client.
Okay.
Speaker Change: Yeah, I would say specifically with respect to ecological we can't I can't tell you that we haven't seen the infrastructure bill be a catalyst for <unk> as we said, we really don't feel that from what we're seeing we don't expect to see much impact from the infrastructure Bill in 2024.
Have to work through various government agencies, which not only include the EPA. They can include.
Let's say.
Hard and others just to.
Put specification around the provisions that have to be met for the projects that then receive the findings. So look overall we.
Speaker Change: And look I think part of this is just appreciating that sometimes the devil is in the details on these items and certainly we are very positive on the bill long term, we love the.
Thanks.
It is going to be beneficial to us, but we just don't expect to see any meaningful impact in our in our fiscal 'twenty four I will highlight that.
Speaker Change: Certainly the focus that you see with the dollars that will be allocated to water infrastructure, but currently what is going through its just sort of the governmental process as you.
Given the near term focus that the administration has certainly put on the led and comparable and lead service line replacement that one of the products that we sell the service brass products are <unk>.
Marty: Have to work through various government agencies, which not only include the EPA. They can include.
Generally needed in conjunction with the lead service line replacement.
As part of an infrastructure Bill.
Marty: Let's say.
$12 million was deployed for that for.
Marty: A hard and others just to.
For that program.
Marty: With specification around the provisions that have to be met for the projects that then received the funding so look overall.
Inventory.
<unk> are required to complete as.
Well really the start of our fiscal 2020.
Speaker Change: Thank you.
That's calendar.
Speaker Change: It is going to be beneficial to us, but we just don't expect to see any meaningful impact in our in our fiscal 'twenty four I will highlight that given.
So those those benefits refer.
Coming.
Gross slash are getting worse.
Yes exactly.
$15 billion I think it was the lead service line replacement and 12 in other areas of water infrastructure.
Marty: Given the nearer term focus that the administration has certainly put it on the letting comparable and lead service line replacement that one of the products that we sell the service brass products.
That's correct, yes, 55 organ in the industry.
As always.
Understood I appreciate the detail there.
Marty: Our <unk>.
Marty: Generally needed in conjunction with the lead service line replacement.
Marty: As part of sort of infrastructure, Bill nearly $12 million, which is proportionate to that program and the inventory.
Thank you and at this time, we have no further questions.
Very good well. Thank you all again for joining us today, while we are very pleased with our first quarter. It's early in a year and there does remain a great deal of uncertainty in the external environment, but our team members have done exceptional work overcoming overcoming some of the recent external challenges and I am really confident that we are.
Marty: <unk> are required to complete as well.
Marty: Really the start of our fiscal 2020.
Speaker Change: Sure. So so those those setup is restored.
Speaker Change: First of all historically.
Marty: Yeah. In fact, it's actually 15 billion I think it was the lead service line replacement and 12 in other areas of water infrastructure without that's correct, yeah, there's 55 going into the industry.
We're equipped to navigate any outside of our control.
Dealers at an inflection point, we have made meaningful strategic investments and operational improvements to date, we are well positioned as we just discussed to benefit from the tailwind for the increased investment in water infrastructure and we have the capability to help municipalities addressed they're accelerating challenges.
Speaker Change: As always.
Speaker Change: I understood I appreciate the detail there.
Speaker Change: Thank you and at this time, we have no further questions.
We are on a path to continue increasing our margins improving our operational performance and enhancing the position that we have with our customers suppliers and employees.
Speaker Change: Very good well. Thank you all again for joining us today, while we are very pleased with our first quarter. It's early in a year and there does remain.
Great deal of uncertainty in the external environment, but our team members have done exceptional work overcoming overcoming some of the recent external challenges and I am really confident that we are better equipped to navigate any outside of our control.
We thank you for your continued interest in <unk>.
Operator with that we can conclude the call.
Thank you that concludes today's conference. Thank you for participating you may disconnect at this time.
Marty: <unk> is at an inflection point, we have made meaningful strategic investments and operational improvements to date, we are well positioned as we just discussed the benefit from the tailwind for the increased investment in water infrastructure and we have the capability to help municipalities addressed they're accelerating challenges.
Marty: We are on a path to continue increasing our margins improving our operational performance and enhancing the position that we have with our customers suppliers and employees.
Marty: We thank you for your continued interest in Mueller.
Speaker Change: Operator with that we can conclude the call.
Speaker Change: Thank you that concludes today's conference. Thank you for participating you may disconnect at this time.
Marty: [music].