Mueller Water Products Q2 Earnings Call Highlights

Key Points

• Mueller Water Products posted record Q2 results, with net sales up 5.5% to $384.4 million and adjusted EBITDA rising 15% to $97.2 million. Margin expansion was driven by pricing gains and manufacturing efficiencies, which helped offset tariffs and inflation.
• The company raised its full-year adjusted EBITDA guidance to $360 million to $365 million, citing strong first-half execution and resilient demand in municipal repair and replacement markets. It still expects slower new residential construction to weigh on demand later in the year.
• Free cash flow expectations were trimmed after higher inventory and capital spending, with first-half free cash flow down sharply year over year. Mueller now expects free cash flow to exceed 70% of adjusted net income for fiscal 2026, versus a prior target of 85%.

Mueller Water Products NYSE: MWA reported record fiscal second-quarter results and raised its full-year adjusted EBITDA outlook, citing pricing gains, manufacturing efficiencies and resilient demand in municipal repair and replacement markets.

President and Chief Executive Officer Paul McAndrew said the company set new quarterly records for net sales, adjusted EBITDA and adjusted net income per share in the quarter ended March 31, 2026. Consolidated net sales rose 5.5% year over year to $384.4 million, while adjusted EBITDA increased 15% to $97.2 million. Adjusted EBITDA margin expanded 210 basis points to 25.3%.

“We delivered net sales growth of 5.5% in the quarter, demonstrating the strength of our brands and resilient end market demand,” McAndrew said. He said manufacturing efficiencies more than offset higher tariffs and inflationary pressures, contributing to year-over-year gross margin expansion.

Chief Financial Officer Melissa Rasmussen said gross profit increased 12.9% to $144.5 million, with gross margin expanding 250 basis points to 37.6%. She attributed the improvement primarily to favorable pricing, improved manufacturing efficiencies and higher volumes. Those benefits were partially offset by higher tariffs and ongoing inflationary cost pressures.

Company Raises Adjusted EBITDA Outlook

Based on first-half performance, Mueller raised its fiscal 2026 adjusted EBITDA guidance to a range of $360 million to $365 million, up $5 million at the midpoint. Rasmussen said the updated range reflects first-half results and revised expectations for volumes, price realization, inflationary pressures, tariffs and manufacturing efficiencies.

At the midpoint, the company expects an adjusted EBITDA margin of more than 24.5%, representing a year-over-year improvement of 170 basis points. Mueller reiterated its full-year consolidated net sales growth outlook of 2.8% to 4.2%.

McAndrew said the company expects healthy municipal repair and replacement activity and growth in project-related specialty valve work to help offset slower new residential construction activity. He also said the external environment remains uncertain, including changes in demand, tariffs and inflationary pressures.

“We remain vigilant as our end markets evolve in this increasingly uncertain external operating environment,” McAndrew said. “We expect the municipal repair and replacement market to remain resilient. We are closely watching the anticipated slowdown in new residential construction activity.”

Segment Results Show Margin Expansion in WFS

In the Water Flow Solutions segment, net sales increased 1% to $218.3 million. Rasmussen said the increase reflected higher pricing across most product lines and higher specialty valve volumes, partially offset by lower service brass volumes. Adjusted EBITDA in the segment grew 16.4% to $72.4 million, and adjusted EBITDA margin expanded 440 basis points to a record 33.2%.

In the Water Management Solutions segment, net sales rose 12.2% to $166.1 million. The increase was driven by higher pricing across most product lines and volume growth in hydrants and repair products, partially offset by lower volumes in applications and natural gas distribution products. Adjusted EBITDA increased 11.5% to $40.6 million, while adjusted EBITDA margin contracted 20 basis points to 24.4%.

During the question-and-answer session, Rasmussen said WMS growth was stronger in the first half and is expected to normalize as the year progresses. She said hydrant shipments benefited from an elevated backlog at the start of the year despite lower volumes tied to residential construction activity.

Free Cash Flow Outlook Reduced

Mueller reported free cash flow of $16.5 million for the first six months of the fiscal year, down $30.8 million from the prior-year period. Rasmussen said the decline was driven by lower operating cash flow and higher capital expenditures.

Operating cash flow declined $20 million year over year in the first half, primarily due to changes in working capital and other assets and liabilities, partially offset by higher net income and non-cash adjustments. Rasmussen said higher working capital was largely tied to increased inventory levels reflecting tariffs, inflationary pressures and strategic investments.

The company invested $31.9 million in capital expenditures during the first six months, up from $21.1 million a year earlier, reflecting continued investments in its iron foundries. Mueller reaffirmed its full-year capital expenditure outlook of $60 million to $65 million.

Rasmussen said the company now expects free cash flow to exceed 70% of adjusted net income for the full year, down from a prior expectation of 85%, due to higher inventory balances and increased capital expenditures.

Strategic Updates and Operating System

McAndrew introduced the company’s “Mueller operating system,” described as a formalized system of tools and processes aimed at driving discipline, execution and operational excellence. He said the effort focuses on employee engagement, customer experience, margin expansion and growth through innovation, market expansion and acquisitions.

As part of its margin expansion efforts, Mueller said it decided to exit the i2O pressure monitoring business outside North America, affecting operations and employees in the United Kingdom, Malaysia and Colombia, as well as customers outside the U.S. and Canada. McAndrew said pressure management remains a strategic priority in North America, where demand for pressure monitoring continues to grow and is increasingly specified alongside hydrants and valves.

“We expect the cost savings and tax benefits to more than offset the revenue loss and support margin expansion and enhance free cash flow beyond 2026,” McAndrew said.

Balance Sheet and Market Conditions

Mueller ended the quarter with $452 million of total debt and $421 million of cash and cash equivalents. Rasmussen said the company had no borrowings under its asset-based lending facility and ended the quarter with $585 million of total liquidity, including $164 million of availability under the facility. The company has no debt maturities until June 2029 and has $450 million of senior notes at a 4% fixed interest rate.

In response to an analyst question about acquisitions, McAndrew said Mueller has increased its activity in looking for deals to expand its portfolio. He said the company is seeking opportunities that can improve sales and profitability and offer cost synergies, though he noted the challenge is “unlocking some of those acquisitions.”

On residential construction, McAndrew said the company believes that market is down in the high-single-digit to low-double-digit range, based on public homebuilder data and land development indicators. He said Mueller sees continued pent-up demand for residential construction but is focused on managing near-term uncertainty.

“We will pivot as an organization and manage this closely,” McAndrew said.

About Mueller Water Products NYSE: MWA

Mueller Water Products, Inc is a leading provider of water infrastructure and flow control products and services designed to help water utilities and municipalities manage, control and measure their water distribution systems. The company's portfolio includes a comprehensive range of products such as fire hydrants, valves, pipe repair systems, fittings and couplings, along with advanced metering and monitoring solutions. By combining traditional mechanical components with digital technologies, Mueller Water Products addresses the critical need for reliable and sustainable water distribution across North America.

The company's operations are organized around two primary business segments.

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