Q3 2026 Mueller Water Products Inc Earnings Call

August 6, 2026

Operator: Good morning. Thank you for standing by. Your lines are on a listen-only mode until the question-and-answer session of today's conference. At that time, you may press star followed by 1 to ask a question. Please unmute your phone and state your name when prompted. 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.

Speaker #1: Good morning, and thank you for standing by. Your lines are on 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 1, to ask a question.

Speaker #1: Please unmute your phone and state your name when prompted. Today's conference is being recorded. If you have any objections, you may disconnect at this time.

Speaker #1: It is now my pleasure to turn the call over to Whit Kincaid.

Speaker #2: Good morning, everyone. Thank you for joining us for Mueller Water Products, Q4 conference call. Yesterday afternoon, we issued our press release reporting results of operations for the quarter ended June 30, 2026.

Whit Kincaid: Good morning, everyone. Thank you for joining us for Mueller Water Products' Q3 conference call. Yesterday afternoon, we issued our press release reporting results of operations for the quarter ended 30 June 2026. A copy of the press release is available on our website, muellerwaterproducts.com. I am joined this morning by Paul McAndrew, our President and Chief Executive Officer, and Melissa Rasmussen, our Chief Financial Officer. Following our prepared remarks, we will address questions related to the information covered on the call. As a reminder, please keep the 1 question and a follow-up, then return to the queue. This morning's 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. At this time, please refer to slide two.

Speaker #2: A copy of the press release is available on our website muellerwaterproducts.com. I am joined this morning by Paul McAndrew, our president and chief executive officer, and Melissa Rasmussen, our chief financial officer.

Speaker #2: 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.

Speaker #2: This morning's 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.

Speaker #2: At this time, please refer to slide 2. This slide identifies non-GAAP financial measures referenced in our press release, on our slides, and on this call.

Whit Kincaid: 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 these measures provide useful information to investors. Reconciliations between non-GAAP and GAAP financial measures are included in the supplemental information within our press release and on our website. Slide three addresses forward-looking statements made on this call. This slide includes cautionary information identifying important factors that could cause actual results to differ materially from those included in forward-looking statements. Please review slides two and three in their entirety. During this call, all references to a specific year or quarter, unless specified otherwise, refer to our fiscal year, which ends the 30 September. A replay of this morning's call will be available for 30 days at 1-866-386-1299.

Speaker #2: It discloses the reasons why we believe these measures provide useful information to investors. Reconciliations between non-GAAP and GAAP financial measures are included in the supplemental information within our press release and on our website.

Speaker #2: Slide 3 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 #2: Please review slides 2 and 3 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 of September.

Speaker #2: A replay of this morning's call will be available for 30 days at 1-866-386-1299. The archive webcast and corresponding slides will be available for at least 90 days on the investor relations section of our website.

Whit Kincaid: The archive webcast and corresponding slides will be available for at least 90 days on the investor relations section of our website. I'll now turn the call over to Paul.

Speaker #2: I'll now turn the call over to Paul.

Speaker #3: Thanks, Whit. Good morning, everyone. Thank you for joining our Q4 earnings call. Our outstanding Q4 results reflect strong execution, and continued progress against the operating priorities we outlined in the last quarter.

Paul McAndrew: Thanks, Whit. Good morning, everyone. Thank you for joining our Q3 earnings call. Our outstanding Q3 results reflect strong execution and continued progress against the operating priorities we outlined in the last quarter. We achieved quarterly records for net sales, adjusted EBITDA, and adjusted net income per diluted share. Net sales grew 4.1% in the quarter, supported by commercial execution, resilient municipal end market demand, and strong growth in project-related specialty valves. Adjusted EBITDA margin expanded 440 basis points year-over-year, reflecting our continued focus on operational excellence, productivity, and disciplined cost management. Free cash flow was strong this quarter, enabling us to continue funding capacity and efficiency investments, while returning approximately $21 million to shareholders through our quarterly dividend and share repurchases. I am proud of what our teams have accomplished and the continued commitment to serving our customers.

Speaker #3: We achieved quarterly records for net sales adjusted EBITDA and adjusted net income per diluted share, net sales grew 4.1% in the quarter, supported by commercial execution, resilient municipal and market demand, and strong growth in project-related specialty valves.

Speaker #3: Adjusted EBITDA margin expanded 440 basis points year over year, reflecting our continued focus on operational excellence, productivity, and disciplined cost management. Free cash flow was strong this quarter, enabling us to continue funding capacity and efficiency investments.

Speaker #3: While returning approximately 21 million dollars to shareholders through our quarterly dividend and share repurchases. I am proud of what our teams have accomplished, and they continued commitment to serving our customers.

Speaker #3: Last quarter, we introduced the Mueller Operating System, as the framework we are using to drive greater discipline execution and accountability across the company. Our results provide further evidence of the progress we are making in expanding margins, strengthening cash generation, and investing in growth and simplification.

Paul McAndrew: Last quarter, we introduced the Mueller Operating System as the framework we are using to drive greater discipline, execution, and accountability across the company. Our results provide further evidence of the progress we are making in expanding margins, strengthening cash generation, investing in growth, and simplification. Following our announcement from the last quarter, we completed the exit of the i2O pressure monitoring business outside of North America. This strategic move positions the company to further integrate and simplify the technology offering to better focus resources on its two distinct businesses going forward. During the quarter, we incurred one-time costs associated with this transaction, along with tax benefits, which lowered our income tax rate. We expect cost savings and tax benefits to support margin expansion and enhance free cash flow.

Speaker #3: Following our announcement from the last quarter, we completed the exit of the IPO prep 100 business study in North America. During quarter, we included one-time costs associated with the transaction.

Speaker #3: A lot of taxes, which lowered our income tax. We expect the cost savings and tax benefits to support margin expansion and enhance free cash flow.

Paul McAndrew: Through increased fiscal 2026 adjusted EBITDA guidance, we remain on track to deliver another year of meaningful margin expansion while we continue to navigate slower new residential construction activity and broader external uncertainty. We remain focused on what we can control, executing our strategies, investing in growth, and proactively managing costs. Our commercial initiatives are focused on increasing market penetration for our leading products and expanding into adjacent markets for our specialty valves. We believe the disciplined execution embedded in the Mueller Operating System positions us well to build on this momentum and create long-term value for our customers and shareholders. I am proud of the progress our teams have achieved this year, reflecting a focus on serving customers, strengthening operations, and collaborating across the organization.

Speaker #3: With the increased fiscal 2026 adjusted EBITDA guidance, we remain on track to deliver another year of meaningful margin expansion, while we continue to navigate slower new residential construction activity and broader external uncertainty.

Speaker #3: We remain focused on what we can control: execute our strategies, invest in growth, and proactively managing costs. Our commercial initiatives are focused on increasing market penetration for our leading products and expanding into adjacent markets for our specialty valves.

Speaker #3: We believe the disciplined execution embedded in the Mueller Operating System positions us well to build on this momentum and create long-term value for our customers and shareholders.

Speaker #3: I am proud of the progress our teams have achieved this year. Reflecting the focus on serving customers, strengthening operations, and collaborating across the organization.

Speaker #3: We recently published our 2025 Sustainability Report. Highlighting our continued progress in advancing environmental stewardship, operational excellence, responsible business practices, employee well-being, and community impact.

Paul McAndrew: We recently published our 2025 sustainability report, highlighting our continued progress in advancing environmental stewardship, operational excellence, responsible business practices, employee well-being, and community impact. As cities and municipalities confront a growing range of challenges, critical infrastructure is under increasing strain. At the same time, aging systems continue to pose significant risks. Against this backdrop, Mueller's role as a provider of resilient, reliable water infrastructure solutions is more essential than ever. Notable 2025 achievements include reaching an outstanding milestone of the lowest total recordable incident rate in our history, reflective of our team's unwavering commitment to safety. We've also maintained strong momentum towards reducing our carbon footprint, cutting scope 1 and 2 emissions intensity by 13% year-over-year, bringing our total reduction to 35%. This moves us closer to our goal of reducing greenhouse gas emissions intensity by 50% by 2035.

Speaker #3: As cities and municipalities confront a growing range of challenges, critical infrastructure is under increasing strain. At the same time, aging systems continue to pose significant risks.

Speaker #3: Against this backdrop, Mueller's role as a provider of resilient, reliable water infrastructure solutions is more essential than ever. Notable 2025 achievements include reaching an outstanding milestone of the lowest total recordable incident rate in our history, reflective of our team's unwavering commitment to safety.

Speaker #3: We've also maintained strong momentum towards reducing our carbon footprint, cutting scope 1 and 2 emissions intensely by 13% year over year, bringing our total reduction to 35%.

Speaker #3: This moves us closer to our goal of reducing greenhouse gas emissions intensity by 50% by 2035. As for employee engagement, we reached our goal one year ahead of our schedule.

Paul McAndrew: As for employee engagement, we reached our goal one year ahead of our schedule, achieving an 80% employee engagement score in our annual employee survey. Our vision is to be the leader in water infrastructure solutions, solving challenges, enriching lives, and safeguarding the future. We will continue to drive progress through our innovative products and solutions that help utilities and municipalities strengthen system resilience, detect leaks faster and with greater precision, rehabilitate and maintain aging infrastructure, and provide life-saving fire protection. Our achievements of the past several years establish a new foundation for future progress and are the direct result of the hard work, focus, and collaboration demonstrated across our organization. With that, I'll turn it over to Melissa to take us through the financials.

Speaker #3: Achieving an 80% employee engagement score in our annual employee survey. Our vision is to be the leader in water infrastructure solutions. Solving challenges enriching lives and safeguarding the future.

Speaker #3: We will continue to drive progress through our innovative products and solutions, that help utilities and municipalities strengthen system resilience, detect leaks faster, and with greater precision.

Speaker #3: Rehabilitate and maintain aging infrastructure, and provide life-saving fire protection. Our achievements of the past several years, establishing new foundation for future progress, and are the direct result of the hard work, focus, and collaboration demonstrated across our organization.

Speaker #3: With that, I'll turn it over to Melissa to take us through the financials.

Speaker #4: Thanks, Paul. And good morning, everyone. We are pleased to deliver another record quarter, demonstrating the strength of our business, the resilience of our end markets, and the continued execution by our teams despite a dynamic external environment.

Melissa Rasmussen: Thanks, Paul, good morning, everyone. We are pleased to deliver another record quarter, demonstrating the strength of our business, the resilience of our end markets, and the continued execution by our teams despite a dynamic external environment. Consolidated net sales increased 4.1% to a new record of $395.9 million, driven primarily by higher pricing across most product lines, partially offset by slightly lower volumes. Gross profit increased 6.9% to a record $155.8 million, with gross margin expanding 110 basis points to 39.4%. The improvement reflects the benefits of pricing actions and tariff refunds, which more than offset inflationary pressures, performance, volume impacts, portfolio optimization costs, and product mix. During the quarter, we incurred $3.1 million of portfolio optimization costs associated with the strategic exit of the i2O pressure monitoring business outside of North America, impacting WMS cost of sales.

Speaker #4: Consolidated net sales increased 4.1% to a new record of 395.9 million dollars. Driven primarily by higher pricing across most product lines, partially offset by slightly lower volumes.

Speaker #4: Gross profit increased 6.9% to a record 155.8 million dollars, with gross margin expanding 110 basis points to 39.4%. The improvement reflects the benefits of pricing actions and tariff refunds which more than offset inflationary pressures performance volume impacts portfolio optimization costs and product mix.

Speaker #4: During the quarter, we encouraged 3.1 million dollars of portfolio optimization costs associated with the strategic exit of the I2O pressure monitoring business outside of North America.

Speaker #4: Impacting WMS cost of sales. While we continue to experience elevated tariff costs, mainly attributable to Section 232 tariffs, along with ongoing inflationary pressures, the International Emergency Economic Powers Act tariff refunds received during the quarter helped offset a portion of those impacts.

Melissa Rasmussen: While we continue to experience elevated tariff costs, mainly attributable to Section 232 tariffs, along with ongoing inflationary pressures, the International Emergency Economic Powers Act tariff refunds received during the quarter helped offset a portion of those impacts. Excluding the impact of these prior period tariff refunds and the portfolio optimization costs, adjusted gross margin was approximately 30 basis points higher than the prior year's gross margin of 38.3%, demonstrating the underlying benefit of our pricing actions and operational execution, despite a challenging cost environment. Total SG&A expenses for the quarter of $64 million decreased $7 million year-over-year, reflecting reduced foreign currency headwinds and lower incentive compensation expense, partially offset by continued inflationary pressures. This performance underscores our disciplined approach to cost management while continuing to invest in the business. We incurred $11.2 million of strategic reorganization and other charges.

Speaker #4: Excluding the impact of these prior period tariff refunds and the portfolio optimization costs, adjusted gross margin was approximately 30 basis points higher than the prior year's gross margin of 38.3%.

Speaker #4: Demonstrating the underlying benefit of our pricing actions and operational execution, despite a challenging cost environment. Total SG&A expenses for the quarter of $64 million decreased $7 million year over year, reflecting reduced foreign currency headwinds and lower incentive compensation expense.

Speaker #4: Partially offset by continued inflationary pressures. This performance underscores our disciplined approach to cost management while continuing to invest in the business. We incurred 11.2 million dollars of strategic reorganization and other charges, these costs primarily relate to the I2O exit.

Melissa Rasmussen: These costs primarily relate to the i2O exit, including non-cash asset impairment charges, certain transaction-related expenses, severance, and costs associated with our leadership transition. Our adjusted results do not include strategic reorganization and other charges or the portfolio optimization costs reflected in the WMS segment. Adjusted EBITDA reached a record of $107.4 million, an increase of 24.3% compared to the prior year quarter. Adjusted EBITDA margin expanded 440 basis points year-over-year to a record 27.1%. This strong performance was primarily driven by pricing actions, tariff refunds, and favorable SG&A cost management, which more than offset inflationary pressures, performance, volume impacts, and product mix. On a trailing 12-month basis, adjusted EBITDA improved to $369 million, or 24.9% of net sales, representing an improvement of 290 basis points versus the prior 12-month period.

Speaker #4: Including non-cash asset impairment charges, certain transaction-related expenses, severance, and costs associated with our leadership transition. Our adjusted results do not include strategic reorganization and other charges or the portfolio optimization costs reflected in the WMS segment.

Speaker #4: Adjusted EBITDA reached a record of $107.4 million, an increase of 24.3% compared to the prior-year quarter. Adjusted EBITDA margin expanded 440 basis points year over year to a record 27.1%.

Speaker #4: This strong performance was primarily driven by pricing actions, tariff refunds, and favorable SG&A cost management, which more than offset inflationary pressures performance volume impacts and product mix.

Speaker #4: On a trailing 12-month basis, adjusted EBITDA improved to 369 million dollars, or 24.9% of net sales, representing an improvement of 290 basis points versus the prior 12-month period.

Speaker #4: Adjusted net income per diluted share increased 47.1% year over year to a record 50 cents per share, during the quarter we benefited from lower net interest expense driven by higher interest income.

Melissa Rasmussen: Adjusted net income per diluted share increased 47.1% year over year to a record $0.50 per share. During the quarter, we benefited from lower net interest expense driven by higher interest income. Our Q3 effective income tax rate was 15.7%, compared with 27.1% in the prior year quarter, reflecting a one-time tax benefit associated with the exit of the i2O business. This benefit contributed approximately $0.06 per diluted share during the quarter. Turning now to segment performance, starting with WFS. Net sales were $215.3 million, declining 0.6% year over year, as higher pricing across most product lines and volume growth in specialty valves largely offset lower iron gate valve and service brass volumes. Adjusted EBITDA increased 9.5% to a record $73.5 million.

Speaker #4: Our third quarter effective income tax rate was 15.7% compared with 27.1% in the prior year quarter, reflecting a one-time tax benefit associated with the exit of the I2O business.

Speaker #4: This benefit contributed approximately 6 cents per diluted share during the quarter. Turning now to segment performance, starting with WFS. Net sales were 215.3 million dollars, declining 0.6% year over year, as higher pricing across most product lines and volume growth in specialty valves largely offset lower iron gate valve and service brass volumes.

Speaker #4: Adjusted EBITDA increased 9.5% to a record 73.5 million dollars, adjusted EBITDA margin expanded 310 basis points to a record 34.1% compared to 31% in the prior year period.

Melissa Rasmussen: Adjusted EBITDA margin expanded 310 basis points to a record 34.1%, compared to 31% in the prior year period, reflecting the benefits of pricing, tariff refunds, and performance, which more than offset lower volumes, inflationary pressures, and product mix. Moving to WMS. Net sales increased 10.3% to $180.6 million, driven by strong volume growth in hydrants and natural gas distribution products, along with higher pricing across most product lines. Adjusted EBITDA increased 43.6% to a record $50.7 million, reflecting benefits from higher pricing, lower SG&A expenses, including reduced foreign currency headwinds, volume growth, and tariff refunds, which more than offset performance and inflationary pressures. Adjusted EBITDA margin expanded 650 basis points to a record 28.1%, compared with 21.6% in the prior year period. The continued improvement in profitability reflects the significant progress we have made in strengthening operating performance and driving leverage across the business. Turning to free cash flow.

Speaker #4: Reflecting the benefits of pricing, tariff refunds, and performance, which more than offset lower volumes, inflationary pressures, and product mix. Moving to WMS. Net sales increased 10.3% to 180.6 million dollars, driven by strong volume growth in hydrants and natural gas distribution products, along with higher pricing across most product lines.

Speaker #4: Adjusted EBITDA increased 43.6% to a record 50.7 million dollars, reflecting benefits from higher pricing, lower SG&A expenses, including reduced foreign currency headwinds, volume growth, and tariff refunds, which more than offset performance and inflationary pressures.

Speaker #4: Adjusted EBITDA margin expanded 650 basis points to a record 28.1% compared with 21.6% in the prior year period. The continued improvement in profitability reflects the significant progress we have made in strengthening operating performance and driving leverage across the business.

Speaker #4: Turning to free cash flow. For the first nine months of the year, free cash flow increased 7.6 million dollars to 110.6 million dollars, and represented 59% of adjusted net income.

Melissa Rasmussen: For the first nine months of the year, free cash flow increased $7.6 million to $110.6 million and represented 59% of adjusted net income. The increase was driven by higher net cash provided by operating activities, partially offset by higher capital expenditures. Net cash provided by operating activities increased $18.4 million year over year, driven primarily by favorable non-cash adjustments and higher net income, partially offset by changes in working capital and other assets and liabilities. While working capital remains elevated due to inventory investments, inflation, and tariffs, these investments continue to support customer service levels and our long-term growth objectives. We invested $43.6 million in capital expenditures during the first nine months of the year, compared with $32.8 million in the prior year period, reflecting continued investments in our iron foundries that support future productivity, capacity, and operational excellence.

Speaker #4: The increase was driven by higher net cash provided by operating activities, partially offset by higher capital expenditures. Net cash provided by operating activities increased $18.4 million year over year, driven primarily by favorable non-cash adjustments and higher net income.

Speaker #4: Partially offset by changes in working capital and other assets and liabilities. While working capital remains elevated due to inventory investments, inflation and tariffs, these investments continue to support customer service levels and our long-term growth objectives.

Speaker #4: We invested 43.6 million dollars in capital expenditures during the first nine months of the year, compared with 32.8 million dollars in the prior year period.

Speaker #4: Reflecting continued investments in our iron foundries that support future productivity, capacity, and operational excellence. We ended the quarter with $495 million of cash and cash equivalents, and $453 million of total debt.

Melissa Rasmussen: We ended the quarter with $495 million of cash and cash equivalents and $453 million of total debt. Our balance sheet remains exceptionally strong, providing significant flexibility to support both organic investments and strategic growth opportunities. We have no debt maturities until June 2029 and $450 million of senior notes at a favorable 4% fixed interest rate and had no borrowings under our ABL facility. We ended the quarter with total liquidity of $659 million, including $164 million of available capacity under the ABL, positioning us well to execute our strategic priorities and pursue attractive acquisition opportunities. Turning now to our outlook for fiscal 2026. Given our strong year-to-date performance and outlook for the balance of the year, we are narrowing our consolidated net sales growth guidance to a range of 2.8% and 3.5% year over year, reflecting our current expectations for end market demand, volumes, and price realization.

Speaker #4: Our balance sheet remains exceptionally to support both organic investments and strategic growth opportunities. We have no debt maturities until June 2029, and 450 million dollars of senior notes at a favorable 4% fixed interest rate and had no borrowings under our ABL facility.

Speaker #4: We ended the quarter with total liquidity of 659 million dollars, including 164 million dollars of available capacity under the ABL, positioned as well to execute our strategic priorities and pursue attractive acquisition opportunities.

Speaker #4: Turning now to our outlook for fiscal 2026. Given our strong year-to-date performance and outlook for the balance of the year, we are narrowing our consolidated net sales growth guidance to a range of 2.8% to 3.5% year over year, reflecting our current expectations for end-market demand, volumes, and price realization.

Speaker #4: While we anticipate softer new residential construction activity during the fourth quarter, we continue to expect resilient municipal repair and replacement activity and strong growth in specialty valves.

Melissa Rasmussen: While we anticipate softer new residential construction activity during the Q4, we continue to expect resilient municipal repair and replacement activity and strong growth in specialty valves. Based on our record performance through the first 9 months of the year and confidence in our ability to execute for the rest of the year, we are raising our annual adjusted EBITDA guidance to a new range of $367 to 372 million. At the midpoint, our updated guidance range represents an adjusted EBITDA margin of 25.1%, which would represent another annual record for the company. We are also reducing our expectations for total SG&A expenses within this updated guidance to a new range of $241 to 245 million, reflecting ongoing discipline in managing costs while supporting strategic growth initiatives.

Speaker #4: Based on our record performance through the first nine months of the year and confidence in our ability to execute for the rest of the year, we are raising our annual adjusted EBITDA guidance to a new range of 367 to 372 million dollars.

Speaker #4: At the midpoint, our updated guidance range represents an adjusted EBITDA margin of 25.1%, which would represent another annual record for the company. We are also reducing our expectations for total SG&A expenses within this updated guidance to a new range of 241 to 245 million dollars, reflecting ongoing discipline in managing costs while supporting strategic growth initiatives.

Speaker #4: Additionally, we are lowering our effective tax rate guidance to between 21 and 23 percent, reflecting the one-time tax benefit recognized during the third quarter.

Melissa Rasmussen: Additionally, we are lowering our effective tax rate guidance to between 21% and 23%, reflecting the one-time tax benefit recognized during the Q3. Finally, we are reaffirming our capital expenditure outlook of $60 to 65 million and continue to expect our free cash flow conversion to exceed 70% of adjusted net income for the full year. Overall, our performance year to date demonstrates the strength of our business model, the resilience of our end markets, and the effectiveness of our pricing, operational, and cost management initiatives. We remain confident in our ability to deliver another record year while continuing to invest for long-term growth and value creation. With that, I'll turn it back to Paul for closing comments.

Speaker #4: Finally, we are reaffirming our capital expenditure outlook of 60 to 65 million dollars and continue to expect our free cash flow conversion to exceed 70% of adjusted net income for the full year.

Speaker #4: Overall, our performance year to date demonstrates the strength of our business model and the resilience of our end markets, and the effectiveness of our pricing, operational, and cost management initiatives.

Speaker #4: We remain confident in our ability to deliver another record year while continuing to invest for long-term growth and value creation. With that, I'll turn it back to Paul for closing comments.

Speaker #1: Thanks, Melissa. I want to provide a few closing comments before opening it up for Q&A. Overall, I am extremely proud of our team’s outstanding performance this quarter and pleased that, for the third consecutive quarter, we are raising our annual adjusted EBITDA guidance.

Paul McAndrew: Thanks, Melissa. I want to provide a few closing comments before opening it up for Q&A. Overall, I am extremely proud of our team's outstanding performance this quarter. I'm pleased for the third consecutive quarter, we are raising our annual adjusted EBITDA guidance. We delivered strong results in an uncertain operating environment by staying focused on serving customers, executing with discipline, and investing in capabilities that support long-term value creation. Our priorities remain clear: drive above-market sales growth, continued expanding margins, and maintain disciplined capital allocation. The Mueller Operating System is the execution engine behind those priorities, providing the tools, processes, and management disciplines to improve execution, accountability, and continuous improvement across the company. This quarter provides further evidence that the system is taking hold. At the center of our success are our employees.

Speaker #1: We delivered strong results in an uncertain operating environment by staying focused on serving customers and executing with discipline and investing in capabilities that support long-term value creation.

Speaker #1: Our priorities remain clear: drive above-market sales growth, continued expanding margins, and maintain discipline in capital allocation. The Mueller Operating System is the execution engine behind those priorities.

Speaker #1: Providing the tools, processes, and management disciplines to improve execution, accountability, and continuous improvement across the company. This quarter provides further evidence that the system is taking hold.

Speaker #1: At the center of our success are our employees, their commitment, collaboration, and safety-first mindset enable us to serve customers well, strengthen operations, and sustain our momentum.

Paul McAndrew: Their commitment, collaboration, and safety-first mindset enable us to serve customers well, strengthen operations, and sustain our momentum. Through the disciplined execution embedded in the Mueller Operating System, we will continue to reduce complexity, improve business processes, expand margins, and generate cash to fund growth investments, including capacity, efficiency, digital tools, innovation, and specialty valve capabilities. Finally, we will remain disciplined in allocating capital across organic investments, targeted acquisitions, and cash return to shareholders. Mueller is becoming a stronger, more focused, and more resilient company, and we remain committed to creating sustainable long-term value for our shareholders. I want to thank our employees worldwide for their extraordinary commitment to our customers and communities. They are the reason for our success and why Mueller has been a trusted partner for more than a century. That concludes our comments. Operator, please open the line up for questions.

Speaker #1: Through the disciplined execution, embedded in the Mueller Operating System, we will continue to reduce complexity, improve business processes, expand margins, and generate cash to fund growth investments.

Speaker #1: Including capacity, efficiency, digital tools, innovation, and specialty valve capabilities. Finally, we will remain disciplined in allocating capital across organic investments targeted at acquisitions and cash return to shareholders.

Speaker #1: Mueller is becoming a stronger, more focused, and more resilient company. And we remain committed to creating sustainable, long-term value for our shareholders. I want to thank our employees, worldwide, for their extraordinary commitment to our customers and communities.

Speaker #1: They are the reason for our success. And why Mueller has been a trusted partner for more than a century. That concludes our comments. Operator, please open the line up for questions.

Speaker #2: Thank you, sir. At this time, if you would like to ask a question, you may press star one. Please unmute your phones and state your first and last name when prompted.

Operator: Thank you, sir. At this time, if you would like to ask a question, you may press star one. Please unmute your phones and state your first and last name when prompted. To withdraw your question, you may press star two. One moment, please. Bryan Blair with Oppenheimer, your line is open, sir.

Speaker #2: To withdraw your question, you may press star two. One moment, please. Brian Blair with Oppenheimer, your line is open, sir.

Speaker #3: Thank you. Morning, everyone. Morning, Brian.

Bryan Blair: Thank you. Morning, everyone.

Melissa Rasmussen: Morning, Bryan.

Melissa Rasmussen: Morning.

Speaker #4: Morning.

Bryan Blair: Updated guidance implies top line down slightly year on year against a pretty healthy stacked comp and I think about 1% EBITDA growth, again, against solid Q4 2025 performance. How should we think about segment contribution to that? The year has progressed a little differently than we expected, still very strong overall. I'm just curious how we should think about the Q4 dynamics by segment.

Speaker #3: Updated guidance implies the top line is down slightly year over year against a pretty healthy stacked comp, and I think about 1% EBITDA growth—again, against solid Q4 '25 performance.

Speaker #3: How should we think about segment contribution to that? The year has progressed a little differently than we expected, still very strong overall. Just curious how we should think about the Q4 dynamics by segment.

Speaker #1: Yeah, I'll give the overall first, Brian, and then I'll let Melissa talk by segment. You are correct. We narrowed our net sales range and I guess that's based on our current expectations around orders and shipments, mainly around the slower residential construction activity.

Paul McAndrew: Yeah, I'll give the overall first, Brian, and then I'll let Melissa talk by segment. You are correct. We narrowed our net sales range. I guess that's based on our current expectations around orders and shipments, mainly around the slower residential construction activity. We'd also lap in tariff price actions from Q4 implementation of last year. Again, though, we really, overall, really pleased where we are as a company, Brian. Pleased to be growing net sales and expanding margins for the third consecutive year. It's really where we are reflective of where we see the slower residential construction and the uncertainty in macro environments as we move into Q4. As for segments, I'll pass over to Melissa.

Speaker #1: We're also lapping tariff price actions from Q4, implementation of last year. Again, though, we really overall really pleased where we are as a company, Brian.

Speaker #1: Pleased to be growing net sales and expanding margins for the third consecutive year. It's really where we are—reflective of what we see with the slower residential construction and the uncertainty in macro environments as we move into Q4.

Speaker #1: As for segments, I'll pass it over to Melissa.

Speaker #2: Sure. Good morning, Brian. For the WFS segment, we are expecting adjusted EBITDA to be above prior year, due to gross margin improvements, operational efficiencies, and then price realization.

Melissa Rasmussen: Sure. Good morning, Brian. For the WFS segment, we are expecting adjusted EBITDA to be above prior year due to gross margin improvements, operational efficiencies, and price realization. We're expecting to see a sequential decline from third to Q4, which part of that is due to the typical seasonality decline sequentially, and we expect volumes and product mix to be a driver of that as well. Volume will be impacting our short cycle product, so iron gate valves and service brass, and we'll expect to see a shift toward specialty valves because we have continued to see strength in specialty valves throughout the year. For WMS, we're expecting to see lower margins versus the prior year and sequentially, and that's going to be due to lower hydrant volume. We have benefited from a backlog in hydrants throughout Q1, Q2, and Q3.

Speaker #2: We're expecting to see a sequential decline from third to fourth quarter, which part of that is due to the typical seasonality decline sequentially. And we expect volumes and product mix to be a driver of that as well.

Speaker #2: Volume will be impacting our short cycle product, so iron gate valves and service brass, and we'll expect to see a shift toward specialty valves because we have continued to see strength in specialty valves throughout the year.

Speaker #2: For WMS, we're expecting to see lower margins versus the prior year and sequentially. And that's going to be due to lower hydrant volume. We have benefited from a backlog in hydrants throughout the first three quarters.

Speaker #2: We expect that that backlog will be normalized as we enter fourth quarter. So the residential slowdown will impact WMS more than it has so far this year.

Melissa Rasmussen: We expect that that backlog will be normalized as we enter Q4. The residential slowdown will impact WMS more than it has so far this year. We do expect to see that we'll be lapping our tariff pricing that was put in place and began to benefit the Q4 of last year, and we'll continue to see higher inflationary pressures and ongoing tariff expense. While we have had the relief from the IEPA tariff, that has been replaced by higher Section 232 tariffs impacting our Krausz business line. We do not expect to have any further tariff refunds.

Speaker #2: We do expect to see that we’ll be lapping our tariff pricing that was put in place and began to benefit the fourth quarter of last year.

Speaker #2: And we'll continue to see higher inflationary pressures and While we have had the relief from the IEPA tariffs, that has been replaced by higher section 232 tariffs impacting our Krauss business line.

Speaker #2: And we do not expect to have any further tariff refunds.

Speaker #3: Okay, very helpful details. Thank you. You mentioned tariff refunds there. I think you gave us the math that we can back into consolidated benefit for fiscal Q3.

Bryan Blair: Okay. Very helpful detail. Thank you. You mentioned tariff refunds there. I think you gave us the math that we can back into consolidated benefit for fiscal Q3. What were tariff refunds on a segment level?

Speaker #3: What were tariff refunds on a segment level?

Speaker #2: Yes. So as I mentioned in the prepared remarks, we had 150 basis point benefit overall for the tariff refunds in the quarter. For the segments, that's split about 50/50.

Melissa Rasmussen: Yes. As I mentioned in the prepared remarks, we had 150 basis point benefit overall for the tariff refunds in the quarter. For the segments, that split about 50/50. You would see 140 basis point impact in WFS and 170 basis point impact in WMS.

Speaker #2: So you would see 140 basis point impact in WFS and 170 basis point impact in WMS.

Speaker #3: Understood. Thank you again.

Bryan Blair: Understood. Thank you again.

Speaker #2: Thank you. Our next caller is Walt Liebig from Seaport Research. Your line is open, sir.

Operator: Thank you. Our next caller is Walt Liptak from Seaport Research. Your line is open, sir.

Speaker #5: Hi, thanks. I'm thanks for the guidance for fourth quarter. I wanted to ask about the specialty valves. Do you call those out a couple of times because of projects?

Walt Liptak: Hi. Thanks. Thanks for the guidance for Q4. I wanted to ask about the specialty valves. You called those out a couple of times because of projects, and it sounds like the demand was strong. I wonder if you could provide some more detail about the demand levels in Q3 and what the visibility's like in Q4.

Speaker #5: And it sounds like the demand was strong. I wonder if you could provide some more detail about the demand levels in third quarter and what the visibility is like in the fourth quarter.

Speaker #1: Yeah, sure. Walt, good morning. Specialty valve is slightly different in terms of how we view the sales cycle in comparison to our short-cycle business.

Paul McAndrew: Yeah, sure, Walt. Good morning. specialty valve is slightly different in terms of how the sales cycle in comparison to our short cycle business. specialty valve makes up the majority of our backlog then. It's been the fastest growing category for us over the past few years, and we are really leveraging our operational investments in the consolidation of locations into Kimball, along with our engineering investments. I think you know there's many different types of valves within a specialty valve then that impact not just potable water, but wastewater and industrial water.

Speaker #1: So specialty valve makes up the majority of our backlog then. And it's been the fastest growing category for us over the past few years.

Speaker #1: And we are really leveraging our operational investments in the consolidation of locations into Kimball, along with our engineering investments. I think you know there's many different types of valves within specialty valve then that impact not just potable water, but wastewater and industrial water.

Speaker #1: And industrial water although a small category for us has been one of our fastest growing categories, as we kind of not just think about the potable water or the infrastructure water around data centers, we're also seeing a stepped increase then of our ability to get specialty valves into industrial water for data centers as well.

Paul McAndrew: Industrial water, although a small category for us, has been one of our fastest growing categories, as we kind of not just think about the potable water or the infrastructure water around data centers, we're also seeing a step increase then of our ability to get the specialty valves into industrial water for data centers as well.

Speaker #5: Okay, great. And I wonder, the data center opportunity, are you are these being sold through distribution or are you getting specced in to the data centers?

Walt Liptak: Okay, great. I wonder, the data center opportunity, are these being sold through distribution, or are you getting spec'd into the data centers?

Speaker #1: It's a combination. We sell through distribution. We've also made commercial investments in our teams to gain access for approved manufacturing list as well. So it's one of our commercial initiatives going forward.

Paul McAndrew: It's a combination. We sell through distribution. We've also made commercial investments in our teams to gain access for Approved Materials List as well. It's one of our commercial initiatives going forward, and we're starting to see traction right now.

Speaker #1: And we're starting to see traction right now.

Speaker #5: Okay. Okay, thanks very much.

Walt Liptak: Okay. Thanks very much.

Speaker #2: Thank you. Our next caller is Jeffrey with RBC Capital Markets. Your line is open, sir.

Operator: Thank you. Our next caller is Jeffrey with RBC Capital Markets. Your line is open, sir.

Speaker #4: Thanks. Good morning. Maybe just following up on that data center question. Could you size how big that business is for you today?

[Analyst] (RBC Capital Markets): Thanks. Good morning. Maybe just following up on that data center question, could you size how big that business is for you today?

Paul McAndrew: It's relatively small in the overall size of the business for us, Jeff. Industrial water within specialty valves is a piece of that where we are seeing probably our fastest growth, and it is one of our highest commercial initiatives then to really work with these engineering firms around the AMLs. In terms of size, right now, relatively small.

Speaker #1: It's relatively small in the overall size of the business for us, Jeff. And industrial water within specialty valves is a piece of that where we are seeing probably our fastest growth.

Speaker #1: And it is one of our highest commercial initiatives then to really work with these engineering firms around the AMLs but in terms of size right now, relatively small.

Speaker #4: Got it. Appreciate that. And maybe just a higher level question, kind of the meaning repair and replacement market seems to be resilient, but I think some federal stimulus seems to be sunsetting just like as you look over the next year or two, I mean, how much visibility do you have into the spending outlook?

[Analyst] (RBC Capital Markets): Got it. Appreciate that. Maybe just a higher level question, the muni repair and replacement market seems to be resilient, but I think some federal stimulus seems to be sunsetting. Just like, as you look over the next year or two, how much visibility do you have into the spending outlook?

Speaker #1: Yeah, if you think about the federal sunset, federal investment is less than 5% of the total investment into municipalities, with the rest coming from state and local governments.

Paul McAndrew: Yeah, you think about the federal sunset and federal investment is less than 5% of the total investment into municipalities, the rest coming from state and local governments. I know we are seeing the sunset, and it's going to take multiple years to see that impact because a lot of those funds have already been appropriated then, and they just need to be executed into projects. The next one to three years, we don't see any meaningful change then from the federal funding impact.

Speaker #1: I know we are seeing the sunset and it's going to take multiple years to see that impact because a lot of those funds have already been appropriated then.

Speaker #1: And they just need to be executed in the projects. So over the next one to three years, we don't see any meaningful change then from the federal funding impact.

Speaker #4: Got it. And maybe if I could just sneak in one more, I think at ACE this year, you guys were showcasing your hydrant renewal system.

[Analyst] (RBC Capital Markets): Got it. Maybe if I could just sneak in one more. I think at ACE this year, you guys are showcasing your Hydrant Renewal Solution. I think it's a really great opportunity. Can you just update us on where the commercialization stands today, any early customer feedback, and how you're thinking about revenue contribution as this scales?

Speaker #4: I think it's a really great opportunity. Can you just update us on where the commercialization stands today? Any earlier customer feedback and how you're thinking about revenue contribution as this scales?

Speaker #1: Yeah, so we have launched hydrant renewal. We continue to get very positive customer feedback from customer trials. And just as a reminder for everyone, this will be replacing aged hydrants without having to dig up the part of the hydrant which is below the ground.

Paul McAndrew: Yeah. We have launched Hydrant Renewal. We continue to get very positive customer feedback from customer trials. Just as a reminder for everyone, this will be replacing aged hydrants without having to dig up the part of the hydrant which is below the ground. It gives a much more efficient solution for our customers. We're also pleased how much positive feedback we've had, Jeff, on the leak testing capabilities integrated into that solution as well.

Speaker #1: So it gives a much more efficient solution for our customers. And we're also pleased how much positive feedback we've had, Jeff, on the leak testing capabilities integrated into that solution as well.

Speaker #4: Great. Thanks.

[Analyst] (RBC Capital Markets): Great. Thanks.

Speaker #2: Thank you. Again, if anyone would like to ask a question, please press star one our next caller is Brian Lee with Goldman Sachs. Your line is open, sir.

Operator: Thank you. Again, if anyone would like to ask a question, please press star one. Our next caller is Brian Lee with Goldman Sachs. Your line is open, sir.

Speaker #6: Hey, guys, this is Keisha Choudhary on for Brian Lee. Thank you for taking my question. So pricing has been a contributor for your growth in recent quarters.

Keshav Chaudhary: Hey, guys. This is Keshav Chaudhary on for Brian Lee. Thank you for taking my question. Pricing has been a contributor for your growth in recent quarters. Can you maybe discuss the sustainability of the pricing realization going forward, particularly as the tariff-related price increases began to lap up in the H2, and whether you're seeing any change in sort of customer acceptance as these increases work through the market? Thank you.

Speaker #6: Can you maybe discuss the sustainability of the pricing realization going forward, particularly as the tariff-related price increases began to lap up in the second half and whether you're seeing any change in sort of customer acceptance as these increases work through the market?

Speaker #6: Thank you.

Speaker #2: Good morning. We have historically been successful at taking pricing actions to offset inflationary impacts. We have typically ranged in the mid and low single-digit range of price realization.

Melissa Rasmussen: Good morning. We have historically been successful at taking pricing actions to offset inflationary impacts. We have typically ranged in the mid and low single-digit range of price realization, and we continue to expect to see that opportunity into the future. We have been price cost positive and continue to expect that that will be the same as we move into Q4. With the price realization, we will expect to see a little bit lower price realization in Q4 because we'll be lapping the tariff benefits that we started to see in Q4 of last year.

Speaker #2: And we continue to expect to see that opportunity into the future. We have been price-cost positive and continue to expect that that will be the same as we move into fourth quarter.

Speaker #2: With the price realization, we will expect to see a little bit lower price realization in fourth quarter. Because we'll be lapping the tariffs benefits that we started to see in fourth quarter of last year.

Speaker #1: Yeah, just a reminder, we have very strong brands and very good pricing power. So we feel comfortable whatever inflation or tariff impacts we may see, we have the pricing ability to offset that cost.

Paul McAndrew: Yeah. Just a reminder, we have very strong brands and very good pricing power. We feel comfortable whatever inflation or tariff impacts we may see, we have the pricing ability to offset that cost.

Speaker #6: Okay. Thank you. That helps. Just maybe one more. So as you look towards fiscal 27, the residential demand has been slow. And if the residential construction continues to remain soft, can the municipal repair and replacement activities, and the specialty wall project, continue to support growth, or do you see limits to how much of these markets can offset the residue weakness and residue will need to come back at some point to help with the growth?

Keshav Chaudhary: Okay. Thank you. That helps. Just maybe one more. As you look towards fiscal 2027, the residential demand has been slow and if the residential construction continues to remain soft, can the municipal repair and replacement activity and the specialty valve project continue to support growth or do you see limits to how much of these markets can offset the resi weakness and resi will need to come back at some point to help with the growth?

Speaker #1: Yeah, we don't give our guidance for 2027 until the next earnings call. We continue to look at all those market indicators that you referenced then and we know that we're going to be seeing continued or leveled out where slowdown in residential construction.

Paul McAndrew: Yeah. We don't give our guidance for 2027 until the next earnings call. We continue to look at all those market indicators as you referenced then. We know that we're going to be seeing continued or leveled out slowdown in residential construction. We believe from a municipal perspective, and our commercial and strategic initiatives, that they can really offset where we can see that kind of depressed residential construction right now. I'd like to add, residential construction cannot stay depressed forever. There is a pent-up demand of housing. We know that it will bounce back, and that will be a tailwind for us as well when that bounce back comes.

Speaker #1: We believe from a municipal perspective, and our commercial and strategic initiatives, that they cannot really offset where we can see that kind of depressed residential construction right now.

Speaker #1: But I like to add, residential construction cannot stay depressed forever. There is a pent-up demand of housing and we know that there will bounce back and we will see that will be a tailwind for us as well when that bounce back comes.

Speaker #6: Okay. Thank you. That helps us around.

Keshav Chaudhary: Okay. Thank you. That helps us a lot.

Speaker #2: Thank you. I will now turn the call back over to Paul for any closing comments.

Operator: Thank you. I will now turn the call back over to Paul for any closing comments.

Speaker #1: Thank you, operator. Thanks to everyone who joined us on our call today. Overall, we're excited about the quarter. Our results provide further evidence of the progress we are making in expanding margins strengthening cash generation investing in growth and simplification.

Paul McAndrew: Thank you, operator. Thanks to everyone who joined us on our call today. Overall, we are excited about the quarter. Our results provide further evidence of the progress we are making in expanding margins, strengthening cash generation, investing in growth and simplification. Our increased annual guidance for adjusted EBITDA reflects the confidence we have in our commercial and operational capabilities. We remain vigilant in an increasingly uncertain external operating environment as it relates to demand, tariffs, and inflationary pressures. We will stay focused on what we can control and take action if needed. I want to once again thank our dedicated team members. We look forward to speaking with you again on our Q4 results when they are announced in early November. With that, operator, please conclude the call.

Speaker #1: Our increased annual guidance for adjusted EBITDA reflects a confidence we have in our commercial and operational capabilities. We remain vigilant in increasingly uncertain we remain vigilant in an increasingly uncertain external operating environment as it relates to demand, tariffs, and inflationary pressures.

Speaker #1: We'll stay focused on what we can control and take action if needed. I want to once again thank our dedicated team members we look forward to speaking with you again on our fourth quarter results when they're announced in early November.

Speaker #1: And with that, operator, please conclude the call.

Operator: Thank you, sir. This concludes today's conference. You may disconnect at this time, have a great rest of your day.

Q3 2026 Mueller Water Products Inc Earnings Call

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