Q4 2024 Mueller Water Products Inc Earnings Call
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Speaker Change: Good morning, and thank you for standing by your lines are in a listen only mode until the question and answer session of today's conference at that time, you May Press Star followed by the number one to ask a question. Please I meet your phones and state your firm.
Speaker Change: And last name Unprompted Today's conference is being recorded if you have any objections you may disconnect. At this time. It is now my pleasure to turn the call over to Whit Kincaid. Thank you you may begin.
Whit Kincaid: Good morning, everyone. Thank you for joining us on Mueller water products fourth quarter and fiscal 2024 conference call.
Whit Kincaid: Yesterday afternoon, we issued our press release reporting results of operations for the quarter and year ended September 32024.
Whit Kincaid: A copy of the press release is available at our website newer water products Dot com.
Whit Kincaid: I am joined this morning by Marty <unk>, our Chief Executive Officer, Paul Mcandrew, Our President and Chief operating Officer, and Steve <unk>, Our Chief Financial Officer, and Chief Legal Officer.
Whit Kincaid: Following our prepared remarks, we will address questions related to the information covered on this call.
Whit Kincaid: As a reminder, please keep to one question and a follow up and then return to the queue.
Whit Kincaid: 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.
Whit Kincaid: They also address forward looking statements and our non-GAAP disclosure requirements. At this time. Please refer to slide two this slide identifies non-GAAP financial measures referenced in our press release on our slides and on this call.
Whit Kincaid: It discloses the reasons why we believe that these measures provide useful information to investors reconciliations.
Whit Kincaid: Reconciliations between non-GAAP and GAAP financial measures are included in the supplemental information within our press release and on our website.
Whit Kincaid: Slide three addresses forward looking statements made on this call.
Whit Kincaid: This slide includes cautionary information identifying important factors that could cause actual results to differ materially from those included in forward looking statements.
Whit Kincaid: Please review slides two and three in their entirety.
Whit Kincaid: During this call all references to a specific year or quarter unless specified otherwise refer to our fiscal year, which ends on the 30th of September.
Whit Kincaid: A replay of this morning's call will be available for 30 days at 18663608712, the archived webcast and corresponding slides will be available for at least 90 days on the Investor Relations section of our website.
Speaker Change: Now I'll turn the call over to Marty.
Marty: Thanks, Good morning, everyone. Thank you for joining our quarterly earnings call I'll start with a brief overview of our fourth quarter and full year performance. We are pleased with our strong finish to a record year with our fourth quarter net sales and adjusted EBITDA exceeding expectations for the quarter, we delivered a double digit year over year increase.
Whit Kincaid: <unk> consolidated net sales with healthy order levels that were supported by steady end market demand and focused customer service.
Whit Kincaid: We increased our fourth quarter consolidated gross margin by 250 basis point, she every year due to higher volumes and improved operational execution.
Whit Kincaid: We also increased fourth quarter adjusted EBITDA by approximately $17 million year over year and improved adjusted EBITDA margin by 240 basis points in.
Whit Kincaid: In 2020 for despite a challenging external environment, we achieved record levels for net sales gross margin adjusted EBITDA adjusted net income per diluted share and free cash flow. Our outstanding performance. This year is a testament to our dedicated employees, who serve our customers and communities with tireless energy.
Whit Kincaid: And passion.
Whit Kincaid: Our consolidated net sales exceeded $1 $3 billion for the year driven by a return to normalized lead times improvements in customer service and resilient and market demand.
Whit Kincaid: We increased full year consolidated gross and adjusted EBITDA margins by more than 500 basis points year over year supported by improving manufacturing performance favorable price cost and discipline to SG&A spending.
Whit Kincaid: For the year, we delivered record adjusted net income per share of 96 cents, which increased around 52% year over year and generated $191 billion of free cash flow, an increase of $130 million versus the prior year.
Whit Kincaid: Our 2025 outlook, which Steve will address later in the call anticipates continued net sales growth and adjusted EBITDA margin improvement as we focus on executing key strategies, while managing external challenges.
Whit Kincaid: During the quarter, we published our fourth ESG report, which highlights our commitment and ongoing progress to becoming a more sustainable innovative and impactful organization.
Whit Kincaid: To help us achieve that goal, we are committed to providing products and solutions that help cities and municipalities repair and replace their aging infrastructure increase the resiliency of their distribution networks respond to water related climate impacts and ensure the health and safety of their communities.
Speaker Change: Neil as legacy is built on a foundation of innovative engineering excellence and a deep understanding of and passion to protect the environment in which we live our spirit of innovation is not just about creating new solutions. It is about solving real world problems that affect every individual living in our cities and communities and we can't do.
Speaker Change: This without the hard work and dedication of our employees around the world.
Speaker Change: I'll now turn it over to Paul to address some of our commercial and operational insights.
Paul Mcandrew: Thanks, Marty good morning, everyone, it's great to be with you. This morning.
Speaker Change: The face of external challenges I couldnt be more encouraged by I am pleased with the progress how teams have achieved this year, they discipline dedication and teamwork drove a significant improvement in gross margin.
Speaker Change: Exceeded our pre pandemic high.
Speaker Change: After dealing with record backlogs at a period of customer on child Destocking, We returned to normalized lead times, most notably for Iron gate valves and hydrants.
Speaker Change: Additionally, we experienced more typical seasonal order patterns. These.
Speaker Change: These more normalized conditions combined with our disciplined focus on serving our customers.
Speaker Change: And execution of manufacturing material and freight efficiencies.
Speaker Change: Led to the significant increase in margins.
Speaker Change: Our new brass foundry ramped up nicely due in the year and we remain on pace to close the legacy brass foundry by the end of calendar 2024.
Speaker Change: The closure of the legacy facility and the elimination of duplicative costs are expected to result in an 80 to 100 basis point annualized improvement in our consolidated gross margin.
Speaker Change: During the second half of fiscal 2025.
Speaker Change: Our team in Israel continues to deal with the impacts of the Israel Hamas rule, while working diligently to satisfy customer demand.
Speaker Change: Have made operational investments in our supply chain and production capabilities for crouse repair products. While these investments resulted in a sequential improvement in shipments in the fourth quarter. We expect to continue to experience headwinds this year, especially relative to the first half of fiscal 2024.
Speaker Change: In 2025, we will continue to make disciplined investments in our commercial and operational capabilities, which are expected to drive additional performance improvements as a result, we are forecasting further margin gains with our outlook for this year in play and nearly a 200 basis points year over year gross margin improvement at the midpoint.
Speaker Change: Our annual guidance, we are focused on improving operational excellence increase in supply chain efficiencies and developing advanced manufacturing capabilities to drive productivity across our facilities.
Speaker Change: Additionally, we are increasing our customer experience investments to further deepen our channel and end customer relationships and enhance how we engage with customers to promote our products and solutions with that I'll turn it over to Steve. So he can provide you with a deeper dive on the financials.
Steve: Thanks, Paul and good morning, everyone.
Steve: Now taking a closer look at our fourth quarter and full year results.
Steve: For the quarter, our consolidated net sales increased 15, 5% to $348 $2 million compared to the prior year. This increase was primarily due to higher volumes, mainly in iron gate valves, and hydrants as well as higher pricing across most of our product lines.
Speaker Change: For the full year, our consolidated net sales increased three 1% and exceeded $1 $3 billion. This increase.
Speaker Change: This was primarily driven by higher pricing, which was partially offset by lower volumes, mainly in hydrants applications and repair products.
Speaker Change: In the fourth quarter gross profit was $110 9 million, which was an increase of 25, 5% compared with the prior year.
Speaker Change: Gross margin of 31, 8% increased 250 basis points compared with the prior year.
Speaker Change: Benefits from higher volumes favorable price cost and improved manufacturing performance more than offset the impacts of the Israel Hamas War at water management solutions.
Speaker Change: For the full year gross margin was 34, 9% an increase of 520 basis points compared with the prior year, which is a record level from Europe.
Speaker Change: For the quarter SG&A expenses of $63 $1 million were $8 $9 million higher than the prior year.
Speaker Change: The increase compared with the prior year was primarily driven by higher incentive costs and inflationary pressures, which were partially offset by lower third party fees and personnel related cost reductions from our restructuring activities in the prior year.
Speaker Change: Operating income came in at $28 4 million, which was an increase of 14, 1% in the quarter compared with the prior year.
Speaker Change: Operating income includes strategic reorganization and other charges as well as a noncash goodwill impairment and warranty charge at water management solutions, which have been excluded from adjusted results.
Speaker Change: Turning now to our consolidated non-GAAP results for the quarter.
Speaker Change: Adjusted operating income was $56 $5 million, an increase of 41, 6% compared to the prior year.
Speaker Change: This increase was primarily a result of higher gross profit, which more than offset higher total SG&A expenses.
Speaker Change: Adjusted EBITDA came in at $72 $5 million, an increase of 39% in the quarter, which yielded an adjusted EBITDA margin of 28% compared with 18, 4% in the prior year.
Speaker Change: For the full year, adjusted EBITDA increased $82 $6 million or 49% to $284 $7 million, which is a record level for <unk>.
Speaker Change: Our adjusted EBITDA margin improved 590 basis points to 21, 7% for the year, which was also a record net interest expense in the fourth quarter decreased $300000 year over year with a $2 million year over year decrease for the full year.
Speaker Change: Both decreases were primarily as a result of higher interest income for the effective tax rate increased for the fourth quarter and full year, primarily as a result of certain nondeductible items, including the noncash goodwill impairment.
Speaker Change: And overall increase in our state income tax rate and lesser foreign tax rate benefits.
Speaker Change: For the full year, our effective tax rate was 29, 1% as compared with 21, 6% for the prior year if.
Speaker Change: If we excluded the noncash goodwill impairment our full year effective tax rate would have been 26, 4%.
Speaker Change: For the quarter, we increased adjusted net income per share by 15, 8% to 22 sets compared with the prior year.
Speaker Change: For the full year, we increased adjusted net income per share by 52, 4% to <unk> 96 per share compared with the prior year, which is a record level.
Speaker Change: Turning now to quarterly segment performance, starting with water flow solutions.
Speaker Change: Net sales increased 24% to $203 million compared with the prior year quarter, primarily due to higher volumes of iron gate valves and service brass products as well as higher pricing across most product lines.
Speaker Change: Similar to the prior two quarters the year over year net sales growth for Iron gate valves benefited from normalized lead times and healthy order levels as well as lapping low orders and shipments in the prior year quarter, which was mainly due to channel and customer inventory destocking in that period.
Speaker Change: Adjusted operating income increased 51, 3% to $41 $6 million in the quarter.
Speaker Change: The benefits from higher volumes favorable price cost and improved manufacturing performance more than offset higher SG&A expenses.
Speaker Change: Adjusted EBITDA increased to 41, 3% to $51 $7 million and adjusted EBITDA margin improved 310 basis points to 25, 8% compared with the prior year quarter.
Speaker Change: For the full year adjusted EBITDA margin improved by more than a 1000 basis points to 28, 8%, which is a record for the segment.
Speaker Change: Turning now to quarterly results for water management solutions.
Speaker Change: Net sales increased five 7% to $147 $9 million compared with the prior year quarter, primarily due to higher volumes of hydrous as well as higher pricing across most product lines.
Speaker Change: The iron gate valves, the year over year net sales growth for hydrants benefited from normalized lead times and healthy order levels as well as lapping low orders and shipments in the prior year quarter, which was mainly due to channel and customer inventory destocking.
Speaker Change: Adjusted operating income increased 36, 1% to $29 $8 million in the quarter due to benefits from higher volumes favorable price cost and lower SG&A expenses, which more than offset impacts of the Israel Hamas Award.
Speaker Change: Adjusted EBITDA for the quarter increased 26, 1% to $36 $7 million and adjusted EBITDA margin improved 400 basis points to 24, 8%.
Speaker Change: For the full year adjusted EBITDA margin improved 70 basis points to 23%, which is a record for the segment.
Speaker Change: Moving on to cash flow.
Speaker Change: Net cash provided by operating activities for the full year was $238 8 million, an increase of $129 $8 million compared with the prior year.
Speaker Change: The increase was primarily driven by improvements in working capital compared with the prior year and higher net income and.
Speaker Change: In the fourth quarter cash flow from operations benefited from the timing of liability accruals, including incentive compensation and benefits and other payments.
Speaker Change: During the year, we invested $47 4 million in capital expenditures compared with $47 $6 million in the prior year.
Speaker Change: Our free cash flow for the year increased $130 million to $191 $4 million compared with the prior year, primarily due to higher cash from operations.
Speaker Change: For the year, our free cash flow as a percent of adjusted net income was 127%, which exceeded our expectations at the end of the year. Our total debt outstanding was around $450 million and we had cash and cash equivalents of approximately $310 million, we have a strong and flexible balance sheet with our net debt.
Speaker Change: Leverage ratio of less than one no debt maturities until June 2029, and a fixed 4% interest rate on our $450 million senior notes, we did not have any borrowings under our ABL at quarter end, nor did we borrow any amounts under our ABL during the year with approximately $473 million of total liquidity at the end of the.
Speaker Change: Here, we continue to have ample liquidity capacity and flexibility to support our strategic priorities, including acquisitions.
Speaker Change: I'll now review our outlook for fiscal 2025.
Speaker Change: We expect consolidated net sales to be between 1234, and 1.3 dollars 6 billion.
Speaker Change: Which represents a year over year increase between one nine and three 4%.
Speaker Change: Consolidated net sales seasonality is anticipated to be normalized with quarterly consolidated net sales highest in the third quarter and lowest in the first quarter with a sequential increase in consolidated net sales in the second quarter as the construction season ramps up in the spring.
Speaker Change: We believe municipal and new residential construction end markets will continue to be resilient.
Speaker Change: We expect our adjusted EBITDA will range from $300 million to $305 million, reflecting year over year growth of five 4% to seven 1%.
Speaker Change: We expect total SG&A expenses to be between 236 and $240 million.
Speaker Change: Our SG&A forecast is below the prior year due to the benefit from lower amortization expense and incentive compensation, partially offset by commercial and it investments as well as inflationary pressures.
Speaker Change: In 2025, our annual amortization expense will decrease by approximately $18 million as the customer relationship intangibles from 2005 will be fully amortized.
Speaker Change: We currently expect our second half 2025, adjusted EBITDA margin to be higher than the first half of the year.
Speaker Change: This expectation is primarily driven by the seasonality of net sales and continuing manufacturing performance improvements, including the anticipated benefits from the closure of our legacy brass foundry, along with operational and supply chain efficiencies.
Speaker Change: We expect free cash flow as a percentage of adjusted net income to be more than 80% in fiscal 2025.
Speaker Change: This outlook includes capital expenditures between 45, and $50 million and it takes into account the timing of liability accruals, which benefited our fourth quarter cash flow from operations.
Speaker Change: With that I'll turn it back to Marty for closing comments.
Speaker Change: Thanks, Steve.
Marty: We open it up for Q&A I wanted to share. Some final thoughts we delivered record results in 2024 and is with appreciation for the hard work dedication and commitment of our employees. Our teams are focused on executing our key strategic priorities and servicing our customers to drive continued net sales growth and future.
Marty: Margin improvements, which are supported by a purpose driven organization.
Marty: With these strategies, we are well positioned to capture the benefits from the investments needed to address the aging North American water infrastructure and the expected incremental spending associated with a federal infrastructure Bill, particularly with lead service line replacement projects, our strong flexible balance sheet continues to provide ample capacity to.
Marty: Support our strategic priorities, including capital investments and acquisitions as well as continuing to return cash to shareholders. This year, we allocated approximately $50 million to our shareholders.
Speaker Change: <unk> team members differentiate us in the market. Our team members are driven to be leaders in water infrastructure solutions solving challenges enriching lives and safeguarding the future to accomplish this we are connecting communities to water.
Speaker Change: Life's most essential resource with exceptional people solutions and products. We are focused on working collaboratively and seamlessly across the organization as one unified team what we internally call Mueller. One we are confident that the actions, we're taking to execute our strategy will further strengthen mueller for the long term.
Speaker Change: That concludes our comments operator, please open the call for questions.
Speaker Change: Thank you at this time, if you would like to ask a question you May Press Star one please mute your phones and state your first and last name and prompted to withdraw. Your question you May Press Star two one moment. Please.
Speaker Change: Deane Dray with RBC capital markets you May go ahead Sir.
Deane Dray: Thank you and good morning, everyone.
Speaker Change: You guys hear me.
Speaker Change: Yes can you hear us okay.
Speaker Change: Got it.
Speaker Change: Yes.
Speaker Change: Yes, so the timing of your call is.
Speaker Change: Opportunistic because we've got the election out of the way so we can't ask about election uncertainty, but now it's.
Speaker Change: Where does policy what might change can you just give us a sense of.
Speaker Change: How much stimulus spending has.
Speaker Change: Still to come through and is there any risk that any of it gets.
Speaker Change: Pulled back and just any other kind of policy considerations from where we sit today.
Speaker Change: Yes, So let me let me kick off with your question.
Speaker Change: And I think first of all with respect to the infrastructure Bill and timing in and around the infrastructure Bill I think our general expectation is that has that was a bill that was supported by both parties. So I would say overall that we do.
Speaker Change: Spec that they will continue to be support for the infrastructure del.
Speaker Change: Largely due to the ongoing challenges with the aging water infrastructure.
Speaker Change: In the U S.
Speaker Change: What I think has been happening that is just as we have said these things take time.
Speaker Change: Generally a lag between the.
Speaker Change: Bill and then as the funds begin to flow in a lot of that is due to the regulatory process as they go through when they determine exactly what the requirements are and those requirements are specifically to meet the domestic sourcing requirements for Baba or what's known as build America by America.
Speaker Change: Thus far I would say, we've seen limited debt activity.
Speaker Change: Or that.
Speaker Change: The documentation requirements in and around the <unk>.
Speaker Change: <unk> are certainly higher.
Speaker Change: Then they were for Aif, and we think Thats, partially the reason for the timing lag.
Speaker Change: I'll tell you in our outlook for 2025.
Speaker Change: We have.
Speaker Change: And that there will be minimal dollars flowing through.
Speaker Change: Going from Iga, So overall with the given the results of the election, we don't expect any differences the only thing that we could see could be possibly.
Speaker Change: Timing.
Speaker Change: Implementation requirements for things such as the service brass lines.
Speaker Change: Yeah.
Marty: That's a great recap there I appreciate that Marty and then as.
Speaker Change: My second question is and we've talked about this before but it came up multiple times in your prepared remarks as risk management at Crouse, So it's foreseeable that middle east conflict could escalate and.
Speaker Change: It just it seems that.
Marty: Love to hear about risk mitigation are you restricted at all about moving manufacturing out of Harm's way and it's used in the U S. Maybe manufacture more in the U S are you restricted in any way.
Marty: About your flexibility there because it's a fabulous business.
Marty: And it just it seems like.
Marty: <unk> risk from our perspective.
Paul Mcandrew: Hey, Good morning, Deane. This is Paul just as a reminder, the repair products is a relatively small portion of consolidated sales.
Paul Mcandrew: But the team there has done a really great job of increasing our flexibility in terms of production and strengthened our supply chain.
Marty: The increase in labor in terms of meeting our demand. So as we continue to evolve and then derisk certain elements of that production.
Marty: We are in a strong position going forward in terms of how we continue to supply the cloud products in the U S.
Marty: Okay.
Speaker Change: Thank you our next caller is Mike Halloran with Baird you May go ahead Sir.
Speaker Change: Hey, good morning, everybody. This is Pat on for Mike.
Speaker Change: Obviously.
Speaker Change: A lot of exciting turning points here as we as we move past the.
Speaker Change: Old foundry, but as we think about the balance sheet and the strength of.
Speaker Change: Your cash position, how should we think about capital allocation as we move forward, maybe we revisit the M&A pipeline.
Speaker Change: Then are there other chunkier organic investments that we should be thinking about.
Speaker Change: Beyond normal course of business product investment in R&D.
Speaker Change: Great Yeah. Thanks.
Speaker Change: Thanks for the question and yes, I think as we have been pleased with the as you point out the capital structure that we have.
Speaker Change: Because we do think it affords us.
Speaker Change: <unk> ability and capacity along with our cash generating capabilities.
Speaker Change: I'd say as we think about the capital allocation and capital allocation going forward I think we will we do expect to continue the component.
Speaker Change: <unk> is up.
Speaker Change: Put it in the bucket of returned to shareholders, that's largely through the dividend that we have as well as share repurchase and we had $80 million remaining in share repurchase authorization at the end of our fiscal year.
Speaker Change: The other piece I'm, just going to touch on capital expenditures, we are off that elevated level of capital expenditures that we've had as a result of the.
Speaker Change: Largely are really fully domestic investment that we have just had with the three large capital projects.
Speaker Change: Expectation is.
Speaker Change: Capital expenditures well.
Speaker Change: Generally be less than 4% on a go forward basis, but we will continue to look for opportunities to invest in our facility importantly, as we do have foundries from a maintenance perspective in terms of.
Speaker Change: Keeping them running efficiently and importantly, as well looking for opportunities where we can enhance.
Speaker Change: Efficiencies are where it supports product innovation.
Speaker Change: In and around acquisitions I would that also remains an important area of focus for us.
Speaker Change: There are certainly any number of acquisition opportunities that we think could be very attractive for us.
Speaker Change: Bolt ons that could help us leverage the distribution and customer relationships that we have certainly looking for synergies within our manufacturing facilities and importantly, looking for ways that we could either deepen or broaden our product lines. So I would say that also remains a important thing.
Speaker Change: We continue to look very closely at those acquisition opportunities.
Speaker Change: Thanks, Marty Thats Super helpful.
Speaker Change: Maybe maybe switching gears a little bit.
Speaker Change: It sounds like you're taking a prudent approach.
Speaker Change: When looking at the residential outlook specifically.
Speaker Change: Obviously, a lack of supply and affordability challenges kind of continue to stretch in the underlying market.
Speaker Change: And trading action would suggest that homebuilder sentiment is getting worse can we maybe take a step back and can you maybe talk about the high level discussions youre, having with customers today and versus 12 months ago.
Speaker Change: Yeah, Great question I think in terms of our.
Speaker Change: Our discussion with our customers, we still believe that residential construction is normalized.
Speaker Change: <unk> level.
Speaker Change: Demand for new homes has been resilient despite the elevated interest rates.
Speaker Change: We have low housing inventory on price inflation, we still in terms of our discussions with our customers homebuilders have strong balance sheets.
Speaker Change: Imagine a lot of investments and inventory levels at a disciplined pace. So.
Speaker Change: From our perspective, that's what we built into our.
Speaker Change: Guidance for FY, 'twenty five and below.
Speaker Change: Leave that the market is still strong.
Speaker Change: Thank you. Our next caller is Joe Giordano with TD Cowen you May go ahead Sir.
Joe Giordano: Hey, guys good morning.
Speaker Change: Hey, good morning.
Speaker Change: Just along those same comments right you've had a couple of years now where.
Speaker Change: We've had.
Speaker Change: Any healthy markets.
Speaker Change: Like from the municipal side from the from the builder side and I think we're still looking at kind of like pretty low organic and the guide kind of implies similar so I'm just kind of can you can you comment on how you are performing in an environment that I think an outsider when considered to be pretty healthy like do you consider that to be.
Speaker Change: Strong growth within that market.
Speaker Change: So yes, let me let me hit that in terms of the sales guidance that we have.
Speaker Change: Provided.
Speaker Change: Looking at a range, let's just call. It just under two times to three 4%. So we do think we'll continue to have some carryover pricing benefits as we look to two or 2025.
Speaker Change: In and around the municipal and new residential construction and Paul just commented on this as well, we we do think that it.
Speaker Change: Resilient and as I commented earlier.
Speaker Change: We're not assuming that there's going to be in the guidance that we have given much benefit coming in from the infrastructure Bill.
Speaker Change: In our in our 2025.
Speaker Change: I think as we look out we do feel that there is still some uncertainty in the external environment.
Speaker Change: I know we pressed.
Speaker Change: Presidential election at this point, but I think.
Speaker Change: What could be seen or where our current views are in and around mortgage rates as well as well as the ongoing global tensions that we've got in the in the Middle East region, as we think about what could be some additional impact.
Speaker Change: We.
Speaker Change: Have basically lapped now what we were experiencing with the Destocking.
Speaker Change: Longer lead times, and I think in a very pleased that.
Speaker Change: Particularly with our short cycle products, we have lapped through all of that in 2024, I will give the one reminder, that our service brass was the last what we characterize as short cycle product.
Speaker Change: They'll have the elevated backlog in 2024 and that elevated backlog largely being the result of some of the COVID-19 supply chain challenges et cetera. So we have as we said worked through that.
Speaker Change: Elevated backlog pretty much through 2024, and as a result in 2025, there could be some modest headwinds coming from that.
Speaker Change: Overall as we look at 2025, I think our first quarter.
Speaker Change: And the growth that we could see in our first quarter from a net sales perspective could benefit because we are lapping some of the destocking that we were still experiencing in the first quarter of last year.
Speaker Change: Got it okay.
Speaker Change: That makes sense and then can you talk about the.
Speaker Change: The impairment you took in the warranty charges like what were they and I apologize. If you said this right at the beginning of the call I jumped on a minute late but.
Speaker Change: What are those.
Speaker Change: Related to an.
Speaker Change: The businesses that are being impaired like what's the go forward plan.
Speaker Change: On some of these.
Speaker Change: Yes, I think we'll take that in two parts I think Marty will address a little bit of the go forward plan, but as you mentioned and so we did incur a $16 3 million.
Speaker Change: Noncash goodwill impairment charge, which has been adjusted from our reported results and our adjusted items.
Speaker Change: As you expect we test goodwill.
Speaker Change: Indefinite lived assets intangible assets for impairment and we were or as needed circumstantially.
Speaker Change: This particular impairment was related to lower forecasted revenues and associated profits within our applications product lines.
Speaker Change: And those are mainly related to our technology related products which include meters.
Speaker Change: We are strategically focusing our commercial resources on a more streamline approach, perhaps more you would like to.
Speaker Change: To talk a little bit about that yeah, that's it I.
Speaker Change: I think just generally.
Speaker Change: In and around.
Speaker Change: Our our metering business I'd say, we're going to look to be very targeted from a.
Speaker Change: Our perspective of approaching that that business and that was.
Speaker Change: Somewhat reflected in what Steve talked through from a from a goodwill perspective.
Speaker Change: And I think the second question, Steve If you want to hit us in and around the warranties.
Speaker Change: Quarter.
Speaker Change: Thank you for the reminder, Marty the charge in the fourth quarter related to warranty was associated with our metering products within our water management solutions.
Speaker Change: Segment.
Speaker Change: As you've covered us for a while that we monitor and analyze our warranty obligations periodically and revise our accruals as necessary to reflect that analysis.
Speaker Change: In this instance, we did increase our warranty accrual due to historical warranty experience of some of our products as well as our forecast or product replacement costs, which do utilize information and data.
Speaker Change: That.
Speaker Change: As provided for provided to us by certain third party studies.
Speaker Change: And you are familiar with our business, but as a reminder, for those who might not be as familiar with it the water meter industry hasnt exceptionally long warranty periods and so.
Speaker Change: Warranty obligation for us is a relatively volatile.
Speaker Change: Okay.
Speaker Change: Thank you our next caller is Brian Lee with Goldman Sachs.
Speaker Change: Hey, everyone. Good morning, Thanks for taking the questions good morning, Brian.
Speaker Change: And then I guess just following up on a few of the prior questions just.
Speaker Change: I suppose.
Speaker Change: The punch line is folks might have expected a little bit more growth scale and muni spending trends in your own momentum here exiting fiscal 'twenty four so if we kind of try to breakdown the two to three 4%.
Speaker Change: Growth from you for 25 like how much is price how much is volume and I know youre, saying there is no.
Speaker Change: Sure.
Speaker Change: Restructure spending tailwind that are playing into that view would you anticipate that you.
Speaker Change: But at least in the order of backlog.
Speaker Change: By the end of fiscal 'twenty, five like I would assume theyre more in the long lead time type curve.
Speaker Change: Volume that you'd see at some point, but maybe just breaking down the two to three 4% for the year and then also what what you think in terms of timing around when you might see some infrastructure.
Speaker Change: <unk> start to emerge in.
Speaker Change: Some other kpis.
Speaker Change: Alright, alright, so, yes, just to dimension that a little bit more so.
Speaker Change: Ill hit pricing first and I will tell you in the.
Speaker Change: Guidance that we have given we do assume that benefits from carryover pricing.
Speaker Change: And I think as.
Speaker Change: With respect to additional pricing we are always very clearly said that.
Speaker Change: With respect to any price increases those will always be shared with our customers first so we've got the assumption of carryover pricing in the guidance that we've given the.
Speaker Change: The other piece of the growth.
Speaker Change: Are the sales guidance does come from some expected volume growth.
Speaker Change: We do think that we could see it both from the municipal and residential end markets.
Speaker Change: As part of that.
Speaker Change: <unk>.
Speaker Change: I think that we talked about the elevated service backlog, we did bring down our service breadth backlog throughout our fiscal 'twenty four and as a result, if you think of it sort of the same way we describe the impacts from hydrants that impacted.
Speaker Change: Through the first three quarters.
Speaker Change: As we're looking at having serviced some of the backlog.
Speaker Change: In the prior year that impacted the volume in the current year. So we do think that we could see some modest headwinds coming from the service breadth backlog.
Speaker Change: To hit directly your question in and around spending coming in from II, JA and how we're seeing yet so.
Speaker Change: Very much.
Speaker Change: I would say focus certainly for us and certainly for our customers.
Speaker Change: Really a process now of <unk>.
Speaker Change: Boeing through and understanding what the specifications are.
Speaker Change: To get the funding for those particular projects as they come through.
Speaker Change: And what they're seeking funding will need to validate to ensure that they are authorized for the infrastructure spending.
Speaker Change: I would expect that we could see it probably more in from an orders capacity from our specialty valves just to go back to what we have really where we generally see our backlog it's in our specialty valve business and thats largely because that is a more theyre more.
Speaker Change: Can be more customized engineered products for portions of it so that could be an area, where we could see some of the.
Speaker Change: Initial backlog, if you will for potential infrastructure spending.
Speaker Change: And I think we will just also see it as we continue to work with our customers and help them with the.
Speaker Change: We're acquirements that they need to provide to qualify for the spending but at this point as I said, we have we have not assumed that there would be any meaningful impact in the guidance that we have provided.
Speaker Change: Okay Fair enough. That's helpful. And then just one more question on the guidance I know you had made some prepared remarks about <unk>.
Speaker Change: Second half trends on EBITDA being stronger than the first half I don't think thats, a huge surprise, but.
Speaker Change: You do have tougher comps given the excellent performance in the second half of the fiscal 2004 period. So if we kind of think about cadence.
Speaker Change: It is EBIT sort of flat to maybe even down in the first half of fiscal 'twenty five before you see a much more significant increase in growth in the back half and if that is the cadence what.
Speaker Change: Is that mix related is that cost then.
Speaker Change: Prior to activity timing.
Speaker Change: Differentials between the first and second half just trying to understand maybe the cadence of EBITDA given your comments. Thanks.
Speaker Change: Yes, let me, let me start off with that I'm going to say in and around the cadence I would say we have not given specific guidance.
Speaker Change: On a quarterly or first half second half basis relative to the prior year first of all importantly, we do expect to see.
Speaker Change: EBITDA growth in the full year, we do expect to see an improvement in our EBITDA margin on a year over year basis as well so when looking at what some of those impacts are going to be as we said, we do think the second half is going to be.
Speaker Change: Stronger than the first half some of it as you point out is due directly to the seasonality of net sales.
Speaker Change: As well as the ongoing manufacturing performance improvements and very specifically.
Speaker Change: We still are planning to close.
Speaker Change:
Speaker Change: Our old or the legacy brass foundry.
Speaker Change: At the end of calendar 2024, as we said, we expect about 80% to 100.
Speaker Change: 80 to 100 basis points.
Speaker Change: Benefit from that on an annualized basis.
Speaker Change: And we'd expect that to start to hit in the.
Speaker Change: Second half of our fiscal year, the other area that I want to call out and it's within water management solutions and I know Paul address the question earlier.
Speaker Change: In and around our our Crouse facility.
Speaker Change: I'll just remind everybody that we really did not have much of a higher cost and other impact.
Speaker Change: From that in our first quarter of last year and that was largely due to the level of inventory that we carry with our craft products. So there was really.
Speaker Change: Very little impact in the first half of the year and more in the second half of the year and as we move into our fiscal 'twenty. Five we would expect we do expect to have more of a headwind from the higher cost associated with our repair products.
Speaker Change: Thank you once again, if you would like to ask a question you May Press Star one our next caller is Walt Liptak Seaport Research you May go ahead Sir.
Walt Liptak: Alright. Thanks.
Walt Liptak: Good morning, everyone.
Speaker Change: Good morning, Walt on the turnaround.
Speaker Change: So I wanted to ask one about profit improvement programs you guys have talked about.
Speaker Change: ULA one marni.
Speaker Change: And I.
Speaker Change: I don't recall that we have.
Speaker Change: Heard too much about that in the past I'm wondering if you could tell us what that means are there profit improvement programs behind it are there kind of longer term power grid targets or margin improvement that you want to get out of the business.
Speaker Change: So let me I'm going to hit your first question and describe to you sort of what what Neil There. One is and then I'm going to turn it over to Paul.
Paul Mcandrew: To talk about.
Paul Mcandrew: What some of the opportunities have been for profit improvement.
Paul Mcandrew:
Paul Mcandrew: And what we can see going forward. So neither one is really what it is.
Paul Mcandrew: Internal.
Paul Mcandrew: Logo or call to action that we have and it really is.
Paul Mcandrew: To help the whole team across the company across all of our facilities to really think as one company and to really encourage I think as we laid out on one of our pages. How we are going to work to collaboratively and seamlessly and really have sort of a singular.
Speaker Change: Alignment across the organization and so thats, what we mean by when we use that internally. It's Neil are won and it's just you get every <unk>.
Speaker Change: Floyd continuing to think about the importance of working together and how that.
Speaker Change: Is making us better.
Speaker Change: As a company.
Speaker Change: For our customers and for the communities that we serve and importantly, a better experience for all of the employees that we have in the organization.
Speaker Change: Yeah. Thanks, Marty good morning, Walt I think for us as we've internally realigned the organization really focusing on operating as one company.
Walt Liptak: That's where we've seen some of the benefits in fiscal year 'twenty four as we operate as one team across the whole organization.
Speaker Change: However, it and all those profit improvement operational excellence material and freight productivity initiatives and also how we kind of focus.
Speaker Change: Commercial activities with our customers and end users.
Speaker Change: So that will continue as part of our guidance as we move forward into FY 'twenty five so it's really an evolution of how we've realigned the organization to really focus as one team moving forward.
Speaker Change: Okay makes sense.
Speaker Change: Are there any profit improvement targets or anything like that.
Speaker Change: Hang our hat on.
Speaker Change: But like I said, you'll see the benefits in the fiscal year 'twenty four.
Speaker Change: Guidance of 25 reflects.
Speaker Change: The projects that we are working on right now.
Speaker Change: Okay.
Speaker Change: As we think out.
Speaker Change: As we think out longer term when we look at the strategies that we've put in place when we look at the areas, where we think we can continue to reinforce.
Speaker Change: And have the opportunities for growth we've had a long history I think if you look over a longer time period, we've had net sales in sort of a.
Speaker Change: Mid single.
Speaker Change: Digital growth rate I think there is certainly a lot of consistency and resiliency.
Speaker Change: In our end markets, we do see more volatility in and around the residential construction, but generally I think we see more consistency.
Speaker Change: In and around the municipal side, we have very strong brands.
Speaker Change: And we have been successful in terms of managing price realization of really managing that price cost as we say over the full cycle.
Speaker Change: We have been making investments and have called out that we expect to continue to make investments in our customer experience and product innovation, we think thats going to help us with with the net sales growth I think we certainly we will.
Speaker Change: Really would call 2024, four per Mueller, a real turning point I think you saw a step change in terms of the gross margin improvement that we saw over the year.
Speaker Change: As well as the EBITDA margin improvement over the year and I think as Paul did a great job.
Speaker Change: With the leadership, there and with the strength that we've had with the team members that we have as well as additional talent that has come into the organization I think we have been able to identify and execute.
Speaker Change: On improvements.
Speaker Change: That have helped with our efficiencies and the team remains focused on operational excellence and ways to continue to drive our gross margin improvement over time.
Speaker Change: Thank you and at this time I am showing no further questions.
Speaker Change: Very good well, thanks to everybody for the call today and.
Speaker Change: We are look forward to continuing discussions with you all.
Speaker Change: Thank you. This concludes today's conference call you May go ahead and disconnect at this time.