Modernist Podcast - Promo

Q1 2024 Mueller Water Products Inc Earnings Call


Participants

Whit Kincaid; IR & Media Contact; Mueller Water Products, Inc.

Marietta Zakas; CEO; Mueller Water Products, Inc.

Steven Hinrichs; CFO & Chief Legal & Compliance Officer; Mueller Water Products, Inc.

Deane Dray; Analyst; RBC Capital Markets Wealth Management

Mike Halloran; Analyst; Robert W. Baird & Co. Incorporated.

Walt Liptak; Analyst; Seaport Global Securities LLC

Bryan Blair; Analyst; Oppenheimer & Co. Inc.

Presentation

Operator

Thanks. Good morning, And thank you for standing by. I would like to inform all participants that your lines have been placed on a listen-only mode. Until the question-and-answer session of today’s call. Today’s call is being recorded, and if anyone has any objections, you may disconnect at this time. I would now like to turn the call over to Whit Kincaid. Thank you. You may begin.

Whit Kincaid

Good morning, everyone. Thank you for joining us on Mueller Water Products’ First Quarter Conference Call. Yesterday afternoon, we issued our press release reporting results of operations for the quarter ended December 31, 2023.
A copy of the press release is available on our website, your water products.com. I’m joined this morning by Marietta Zakas, our Chief Executive Officer; and Steve Hinrichs, our Chief Financial Officer and Chief Legal Officer. Following our prepared remarks, we will address questions related to the information covered on the call. As a reminder, please keep to one question and a follow-up and then return to the queue.
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 2.
This slide identifies non-GAAP financial measures referenced in our press release on our slides and on this call and discloses the reasons why we believe that these measures provide useful information to investors reconciliations between non-GAAP and GAAP financial measures are included in the supplemental information within our press release and on our website.
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.
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 ended the September 30. A replay of this morning’s call will be available for 30 days at one eight eight eight five six six zero four one one. The archived 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 Marie.

Marietta Zakas

Thanks, and good morning, everyone. Thank you for joining our earnings call today. I’ll start with a brief overview of our first quarter performance. We delivered a solid start to the year as we expanded margins versus the prior year quarter.
Despite the expected decrease in net sales, first quarter net sales which exceeded the high end of our previously announced expectations were down year over year as we lapped strong sales in the prior year, which benefited from elevated backlogs, mainly for our gate valves and hydrants.
Additionally, we believe that channel and customer inventory levels were largely normalized by the end of our first quarter. Our municipal end market remains resilient and the new residential construction end market appears to be stabilizing relative to a challenging 2023.
Our operating and corporate teams work tirelessly to recover from the cybersecurity incident announced in October 2023. We believe that there was a small impact to net sales, mainly associated with the timing of shipments for some specialty valve products.
Our first quarter results have been adjusted for the costs we incurred relating to the incident going forward, we have made and expect to make further investments to strengthen our cybersecurity resources and processes, which are reflected in our annual SG&A guidance. I am grateful to our teams who worked tirelessly to support our customers and helped quickly return our business to normal operations.
I am also grateful to our customers and vendors who likewise supported us during the aftermath of the incident. Our ability to expand gross margins despite lower volumes and the challenges associated with the cybersecurity incident reflects our improved execution and agility. The team’s focus on customer service and driving operational and supply chain efficiencies led to a 410 basis point improvement in gross margin compared with the prior year.
During the first quarter, we benefited from labor and material efficiencies along with lower freight costs. We also benefited from price realization, which once again more than offset inflationary pressures we generated strong operating cash flow in our first quarter, reflecting our improved execution and some benefit from the timing of payables resulting from delays caused by the cybersecurity incident.
Our initial fiscal 2024 adjusted EBITDA guidance reflects higher margins despite a forecasted decrease in net sales versus the prior year. Our improving operational and commercial performance leads to our expectation that our consolidated gross margins will improve relative to the prior year, even though we face lower volumes resulting from lapping the elevated short-cycle backlogs, mainly for our gate valves and hydrants, we expect gross margin to continue to benefit from operational and supply chain efficiencies, which will help offset the headwinds from expected lower volumes with price increases recently announced for the majority of our iron specialty and gas products.
We anticipate that price realization will continue to more than cover ongoing inflationary pressures, including higher labor rates. Our teams remain focused on delivering the benefits from our strategic capital investments in specialty and large gate valves and service brass products. These products are poised to benefit from the increased federal infrastructure funding beyond fiscal 2024.
And I am proud of our brass foundry operations teams as they continue to sequentially improve operations in the new foundry, which utilizes state-of-the-art equipment and a new sustainable lead free alloys we continue to ramp up volumes at our new brass foundry as we look to return to normalized lead times for all of our service brass products. We continue to target to have it running full steam by the end of calendar 2024.
The external environment remains uncertain, especially considering the ongoing Israel home US war. As a reminder, we have operations in Israel through our cross repair products business, which accounts for less than 10% of our consolidated sales. This did not have a material impact on our first quarter results due to our strategic level of finished goods inventory for our cross repair products.
However, we expect to see higher manufacturing and freight costs resulting from the war starting in our second quarter we have made incremental operational investments at Kraus to help ensure we meet customer demand. These include labor and supply chain investments to return to normalized production levels.
These costs will be a headwind to our margins in fiscal 2024 as production levels ramp up, our team in Israel has done a remarkable job adapting to the impacts of the war and we will continue to support them in our business as the situation evolves.
Overall, I am very pleased with our start to the year, especially considering the headwinds our teams faced during the quarter, we are on track to improve our gross margin for a second consecutive year, despite expected lower overall volumes.
Our performance is a testament to the operational investments and improvements we’ve made over the past year as we look to deliver more consistent execution and further strengthen our customer service to drive future sales and margin growth.
With that, I’ll turn it over to Steve.

Steven Hinrichs

Thanks, Maury, and good morning, everyone. For the quarter, our consolidated net sales were $256.4 million, a decrease of 18.6% compared with the prior year, although we exceeded our top line guidance, net sales primarily decreased due to lower volumes at both water flow solutions and water management solutions, which were partially offset by higher pricing across most product lines.
As a reminder, our iron gate valve and hydrant sales in the prior year quarter benefited from serving an elevated backlog backlog at quarter end for these products was down more than 80% versus the prior year. And the first quarter gross profit of $86.3 million decreased 7.4% compared with the prior year.
Gross margin of 33.7% increased 410 basis points compared with the prior year and reflects our highest quarterly gross margin in over two years, benefits from higher pricing and improved manufacturing performance more than offset lower volumes.
This includes improved labor, material and freight efficiencies. For the quarter, total SG&A expenses of $56.9 million were $6 million lower than the prior year compared with the prior year. The decrease was primarily driven by lower personnel-related and incentive costs and reduced third-party fees partially offset by inflationary pressures and unfavorable foreign exchange expense.
Operating income of $22.8 million decreased 32.9% in the quarter compared with the prior year operating income includes the strategic reorganization and other charges of $6.6 million in the quarter, which have been excluded from adjusted results. This includes approximately $1.5 million of nonrecurring expenses associated with the cybersecurity incident, which Marty referenced earlier. This amount includes the expected benefit of insurance recoveries.
Turning now to our consolidated non-GAAP results for the quarter, adjusted operating income of $29.4 million decreased 3% compared with the prior year. As the benefits from higher pricing, favorable manufacturing performance and lower SG&A expenses were more than offset by the decrease in volumes.
Our adjusted operating margin improved 190 basis points to 11.5% compared with the prior year. Despite the lower volumes, adjusted EBITDA of $44.8 million increased 1.4% in the quarter. Despite the expected lower volumes, our adjusted EBITDA margin improved 350 basis points to 17.5% for the last 12 months. Adjusted EBITDA was $202.7 million or 16.7% of net sales, a 190 basis point improvement compared with the prior 12 month period.
Net interest expense for the quarter declined $400,000 million to $3.3 million compared with the prior year, primarily as a result of higher interest income for the quarter, our effective tax rate was 15.4% as compared with 23.5% for the prior year.
The lower income tax rate in the quarter was primarily due to a $1.6 million income tax benefit associated with the expiration of an uncertain tax position that expired on December 31st, 2023. This tax benefit was offset by the release of a $1.6 million indemnification receivable in other expense for the quarter, adjusted net income per diluted share of $0.13 was flat compared with the prior year.
Turning now to quarterly segment performance, starting with water flow solutions. Net sales of $141.3 million decreased 14.7% compared with the prior year. Lower volumes, mainly for Iron Gate and specialty valves were partially offset by higher pricing across most of the segment’s product lines.
Net sales for iron gate valves were down double digits compared with the prior year, primarily due to normalized lead time. As a reminder, iron gate valve sales in the prior year quarter had benefited from serving an elevated backlog. Specialty valves were also down double digits compared with the prior year, primarily due to production challenges, which were mainly caused by disruptions and delays related to the cybersecurity incident.
Despite lower net sales, adjusted operating income of $27.4 million increased 13.2% in the quarter. The benefits from higher pricing, favorable manufacturing performance and lower SG&A expenses more than offset lower volumes.
Adjusted EBITDA of $36.7 million increased 15% and adjusted EBITDA margin also improved 670 basis points to 26% during the quarterly results for water management solutions, net sales of $115.1 million decreased 22.9% compared with the prior year. Lower volumes, mainly in hydrants and water applications were partially offset by higher pricing across most of the segment’s product lines.
Net sales for hydrants were down double digits compared with the prior year, primarily due to normalized lead times, which, as a reminder, had benefited from serving an elevated backlog in the prior year quarter. Adjusted operating income of $15.1 million decreased 23% in the quarter.
Benefits from higher pricing, favorable manufacturing performance and lower SG&A expenses were more than offset by the lower volumes. Adjusted EBITDA of $22.1 million decreased 16.9%. However, adjusted EBITDA margin improved 140 basis points to 19.2%.
Moving on to cash flow, net cash provided by operating activities for the quarter was $67.9 million, an increase of $74.4 million compared with the prior year. This was primarily due to improvements in working capital compared with the prior year. This included a smaller increase in inventories, higher receivables collections and an increase in payables largely related to delays caused by the cybersecurity incident.
We expect the benefits from the increase in payables to reverse in the second quarter as those processes have normalized during the quarter, we invested $5.7 million in capital expenditures, which is $4.2 million lower than the prior year quarter. The decrease was primarily due to the timing of spending on our new brass foundry in the prior year and some short-term delays related to the cybersecurity incident.
Our free cash flow for the quarter increased $78.6 million to $62.2 million compared with the prior year, driven by higher cash from operations and lower capital spending. At the end of the first quarter, our total debt outstanding was $447.4 million, and we had cash and cash equivalents of $216.7 million. Our net debt leverage ratio was 1.1 times at quarter end.
As a reminder, we currently have no debt financing maturities before June 2029. We did not have any borrowings under our ABL agreement at quarter end, nor did we borrow any amounts under our ABL during the quarter.
I will now review our outlook for fiscal 2024. We’re slightly improving our expectations for consolidated net sales, we now anticipate net sales to decrease between 2% and 6% in fiscal 2024 as compared with the prior year. This takes into account our first quarter performance and recent pricing actions.
As a reminder, we still expect year-over-year volume headwinds related to lapping the elevated short-cycle backlog, mainly for iron gate valves and hydrants, which decreased by nearly 90% in fiscal 2023.
In addition to updating our net sales growth expectations, we are now providing initial guidance for fiscal 2024 adjusted EBITDA despite lower forecasted volumes. We anticipate that our adjusted EBITDA will increase between 3% and 7% compared with the prior year. Additionally, we expect our free cash flow as a percentage of adjusted net income to be more than 65% for fiscal 2024 as compared with 62.7% in fiscal 2023.
With that, I’ll turn it back to Mariett for closing comments.

Marietta Zakas

Thanks, Steve. Want to highlight a few key items before opening it up for Q&A. Mueller plays a critical role in helping our customers deliver clean safe drinking water to hundreds of millions of people. We wouldn’t be where we are today without our dedicated team members, customers and suppliers.
Despite the external challenges we have faced, we remain focused on delivering value to our customers while also driving further efficiencies in our operations and supply chain. We continue to ramp up the new brass foundry and are committed to meeting our goal of having it running full steam by the end of calendar 2024.
Mueller has been a trusted partner for water utilities for over a century. Our broad portfolio of products and solutions allows us to play a critical role in addressing the challenges and opportunities facing the water infrastructure industry. The municipal water end market is poised to benefit from increased attention and investment towards addressing the aging water infrastructure.
Our products, solutions and large capital projects position us to benefit from the infrastructure bill once funds begin to flow with a solid start to the year. We are at an inflection point with our strategic investments and operational improvements that will expand margins. I am confident that the actions we are taking to execute our strategy will position us to deliver long-term sustainable organic growth and margin improvements. That concludes my comments.
Operator, please open this call for questions.

Question and Answer Session

Operator

Thank you. We will now begin our question and answer session. If you would like to ask a question, please press star one. Please unmute your phone and record your name slowly. And clearly when prompted Your name is required to introduce your question. Again, that is star one, if you would like to ask a question.
Deane Dray with RBC Capital Markets.

Deane Dray

Thank you and good morning, everyone. That’s a strong start to your fiscal year.

Marietta Zakas

Hey, good morning, Deane.

Deane Dray

Marty, you mentioned the new foundry are progressing nicely. I’d love to get some more details there on the certification process and how many shifts are you running now and the expectation through the year? And what does that mean for outsourcing that you had to do while this ramp-up was happening. So give us a sense there. Thank you.

Marietta Zakas

Yes. So overall, I think in terms of looking at where we are with respect to the new brass foundry. We are pleased with the continued ramp up that we are seeing there. I think importantly, I want to hit the point that we have on we’re continuing to run steel brass foundry.
And just as a quick reminder, part of the reason for that as we want to continue to bring down the backlog that we have with the service brass products that we have that we have and will continue to meet the customer demands. But with respect to do a new foundry, we are continuing to make improvements with the production?
Well, we do have a couple of shifts that are running. And with that in that facility right now on, we have some additional pouring equipments are part of the capital expenditures that we will still need to complete this year as well. And as we said, we expect to have that fully ramped up by the end of our calendar 2024. And the new foundry will have higher capacity than the old foundry as well as greater efficiencies than our old.
With respect to our own foundry on, we’ll remind you as well that on brass foundry, not only supplies our service brass products, but it also is a source of supplying components for our gate valves as well as our fire hydrants that was part of this. I know we’ve talked about the outsourcing that we’ve done and as we are continuing to ramp up that foundry, it will also allow us to reduce some of the outsourcing that we do.

Deane Dray

As that outsourcing reductions started to scale, is it down maybe a percent versus last year?

Marietta Zakas

Yes. So absolutely. The outsourcing is coming down it’s one of the benefits that we have seen contributing to the gross margin improvement. And yes, I’d say that outsourcing is probably down over summer, but let’s say in the range of 50% to 60%.

Deane Dray

And that’s really good news, and I’m glad you were able to size that for us. And second question, it was really interesting to hear about some of the resi business stabilizing. And that’s consistent with what we’re seeing on housing overall.
And you’re more exposed to these larger neighborhood development projects and the supply looks pretty good there. So the extent that you can kind of size for us where that stands, what the timing is in terms of the development of those properties that you’re seeing today?

Marietta Zakas

Look, overall the guidance that we’ve given on. We think the muni market has been fairly resilient. No question 2023 was a challenging year for the residential construction market as well as land development. And that certainly is reflecting the increase in interest rates and consequentially the mortgage rates as well, which have contributed to that.
So we do think that after a challenging 2023, where you saw housing starts down about 9% in the last 12 months. We think we could start seeing some normalization on the single-family housing starts had been a little bit higher on over the last couple of quarters. We do think that some of the homebuilders are benefiting from the inventories of developed lots as you talk about, but as we looked at the land development, we think there could still be some lingering headwinds there.
Certainly as they are continuing to face the higher interest rates as they consider their funding as well as permitting challenges as well on P&L, certainly looking at the residential construction as well. Looking across the U.S., I would say certainly not all regions are equal and we may see stronger activity in some as opposed to others.
But overall, as we look to 2024, we say go read the construction will be a little bit more of it headwind for us, but we could see some improving improvements as we look beyond 2025. But I think certainly where interest rates ultimately go will also be an influencing factor on that.

Deane Dray

Terrific. And it’s not a question, just a comment, a shout out to Steve and the team that was a fabulous free cash flow generation this quarter. Thanks.

Steven Hinrichs

thank you

Operator

Thank you. Our next question comes from Mike Halloran with Baird. Your line is open.

Mike Halloran

Hey, good morning, everybody and pass on for Mike. I want to go back to the outsource brass, obviously healthy margin outperformance in the quarter. Can you maybe talk about how much of the reduction in source brass was maybe a surprise then how much that’s tracking versus expectations.
I know you talked about the foundry timing being unchanged, but maybe it feels like a little bit of positive surprise in the quarter and maybe how you’re thinking about that trending versus expectations we talked about back in November.

Marietta Zakas

Yes. So I think let me let me see if I kind of overall hit that. I would say I wouldn’t use the word surprised in terms of looking at where we are. I think as we have on identified the areas that we know that we can make improvements, I think certainly as the execution and the teams that we have on the supply chain side on as well as we I’ll say broadly, there’s certainly less disruptions in the supply chain than we’ve seen if we look over the last couple of years, but I think with respect to on the benefits that we’ve had from a performance on a we have been just effective in improving our sourcing overall, which has contributed to that.
And over time, it’s allowed us, as we said, to bring back some of the outsourcing that we’ve done going back in-house, which has certainly helped us well. I think the other piece, certainly in looking at the margin improvements that we have had, even though volumes were lower on overall the manufacturing performance, we have continued to see improvements there and efficiencies that have also helped.
So I would say I would say to that a few things that we say, certainly we’ve had higher inflation particularly with respect, I think particularly on the on the labor side, but I would say it’s largely due to performance improvements with the achievements we’ve had from our operations team as well as our supply chain team

Steven Hinrichs

And the supply chain team has done a really great job of managing that and reducing that. And we do think that the improvement in outsourcing costs is one of the main reasons for our gross margin improvement, and we expect that to continue to be ongoing.

Mike Halloran

Got it. That’s helpful. And maybe switching gears here in the deck, you know, you highlight capacity for M&A and obviously the balance sheet is in healthy shape. And can you maybe talk about how you think about management bandwidth for acquisition integration.
Can you touch on the state of the current pipeline? Really what I’m getting at is how heavy-handed Are you having to manage that be the foundry transition at this point? And how much free time do you have for the M&A pipeline at this point?

Marietta Zakas

Yes. So look, overall, and we’ve certainly talked about M&A over the years, and we are continuing to look for the opportunities where we can broaden or deepen our product line specifically within on water or and or gas and or on related industries, I would say let me start with the balance sheet and our capacity there.
I think certainly the capital structure that we established a number of years ago certainly gives us flexibility as well as capacity on we talk about the overall capacity that we have, not only with the cash that we have on hand, but as well as additional liquidity that we have resulting from our asset-based lending agreement. So I think from that perspective, we continue to believe that we are very well positioned.
And I would add from a management perspective, we continue to look for the opportunities that we think are going to be the right value-enhancing opportunities for our shareholders. And I would say from a bandwidth perspective, the management team does have the capacity and interest and I’m looking for and then ultimately when we find them delivering and those are delivering on those M&A opportunities.

Mike Halloran

Great. Thank you. I appreciate it. I’ll pass it on. Thank you.

Operator

Our next question comes from Joe Giordano, TD Cowen. Your line is open.

And this is Dane on for Joe Giordano. Good morning

Steven Hinrichs

Good morning

And just wanted to touch base on you mentioned you’re expecting price benefits for 2024. Could you compare that against what you’re seeing for inflation? And what’s the differential looks like and what you’ve been seeing transition recently as it has, is it relatively high levels or is it continuing to normalize?

Steven Hinrichs

So we expect a more normalized seasonality for our business. This year’s lead times for the majority of our products normalized in this normalized inflationary pricing environment and the announced price increases in spring. As we have done historically, average price realization has been about low single digit range and we’re pleased with our price realization to this point, which reflects the strength of our commercial team and our customer relationships.
We think there’s a more stable inflationary environment this year with most of the inflationary pressures coming from of higher labor rates. So we expect our price realization for the 2024 year to be in the low to mid single digit range. And this includes our recently announced price increases on the majority of our specialty gas products and some carryover pricing from from prior periods. And as a reminder, we typically expect our price realization will continue to more than cover ongoing, but inflationary pressures, including our limits.

Thank you. That was very helpful. And just a separate question on your capital projects. Could you talk about the sequential spend across the year? Or is it expected to be more towards the back half? And when you’re when you’re thinking about them ramping down and moving towards a more normalized free cash flow.

Marietta Zakas

Want to be clear. Your first question, I just want to make sure we heard it correctly. You wanted to talk about sort of the rate of capital expenditures through the year. I want to make sure I heard it correctly.

Yes, I guess that’s sort of.

Marietta Zakas

Okay. Okay, very good. I think first of all, overall, looking at our capital expenditures, our guidance for the full year is [$45 million to $50 million]. We were certainly light in the first quarter and I think as we shared at some of our closing comments later in the first quarter on some of it is comparative relative to the breadth of expenditures that we had last year.
We also did yes, experienced probably some short-term delays that related to the cybersecurity incident. That said, we’re still looking on looking for our guidance in the 45 to 50 range. We had talked about overall level of capital expenditures.
It has been at a higher level in recent years, and that is because of the three large capital projects that have been underway as we said we are on closing to the finish line in terms of those expenditures with the lab being our brass foundry, our expectations going forward, our that capital expenditures will be less than 4% of net sales.
So we do expect that we will continue to see the expenditure levels as a percent of our net sales to decline. That said, I will certainly remind you that we are by and large a vertically integrated manufacturing business. And we do have on three large foundries because we are melting a iron for our hydrants for our valves on iron valves as well as for our service fresh products.
And so certainly we will always have a certain level of maintenance expenditures that we need to make as a result of the manufacturing processes and being vertically integrated.

Steven Hinrichs

As it relates to cash, we’re obviously pleased with our strong first quarter operating cash flow, and it’s obviously significantly higher than the prior period of this improvement was really due mostly to improvements in working capital management, a smaller increase of inventories, higher receivables collections and an increase in payables.
As you heard in our prepared remarks. Just a reminder here that there was a benefit in the first quarter from payables as a result of delays caused by several security incident, which affected some of our systems, and we expect those benefits to reverse in our second quarter as our payable systems processes are now normalized. So so we’re pleased with the strong cash performance and I look forward to continuing the work of both.

Great. Thank you so much. That was helpful.

Operator

Thank you. As a reminder, if you would like to ask a question, please press star one.
Our next question comes from Walt Liptak with Seaport Research. Your line is open.

Walt Liptak

Hi, guys.
Good morning, guys.

Marietta Zakas

Good morning

Steven Hinrichs

good morning.

Walt Liptak

I wanted to ask a follow-up to Deane’s question about the outsourcing and I want to make sure I heard this right that the outsourcing you’ve reduced sort of that parallel costs by I think you said 60% to 80%, is that right?

Marietta Zakas

I’d probably, let’s say, around 50, maybe 50% to 60%. But I think it’s, you know, with some we have as we look to the margin improvement that we’ve seen. I think certainly one of the reasons for that, and we talked about it. I think last quarter talking about again this quarter is as we have been able to reduce our outsourcing expenditures, which are contributing to the margin improvement.

Walt Liptak

Okay. And with it sounds like some of the backlogs are down like 80%, so you’ve gotten through most of that past due backlog. Do we see more of these outsourcing costs come out next quarter and we wait until year end for that to wind down?

Marietta Zakas

So on a first of all, I’ll take an important question that you’ve on or comment that you made in and around backlog. So with respect to our short-cycle backlog for the products that have a short-cycle backlog typically are our gate valves, our fire hydrants and our service brass products. And when we look at our iron gate valve and we look at our fire hydrants are those two products.
We would say when we look at lead times, we are really pretty much back to normal. And the elevated levels of backlog on are essentially are eliminated at this point, we still do have a pump higher than normal backlog level for our service Breast Products. We reduced that somewhat in the first quarter and we are working to continue to reduce those backlog levels to get to sort of the normalized short-cycle backlogs as we work through the balance of our other 2024. And we did make a meaningful improvement in that in our first quarter as well.
On the corollary question that you’re asking in and around the outsourcing costs, I know in past calls we have commented that that has been one of the contributing factors to the higher cost levels that we have. And I think as we are improving the production levels at our new brass foundry on as well as with the on less disruptions on the supply chain and importantly, the work of our supply chain team, we are continuing to see improvements and with the outsourcing costs that we have had. We’ve seen some meaningful improvements there, and I think we can continue to see more generally moving forward.

Walt Liptak

Okay. That sounds good. Thank you for that. I just wanted to back up to the SG&A cost reduction that you that that’s been going on for the last couple of quarters. Where are we done with the actions taken in there. Are we seeing full benefits now from the SG&A cost cuts?

Steven Hinrichs

As there is a good question, Bert. During the third quarter of last years, as you know, we restructured our sales and marketing organization and streamline other areas of our organization to bring our business teams closer to our customers on.
We took additional actions to streamline our other G&A expenses, including at corporate Coach consult the support function roles, and we are tracking to achieve the $25 million in SG&A savings that we’ve highlighted previously and achieved a big chunk of those in 2023.
As a reminder, we do see inflation in SG&A going forward, and it’s probably going to be in the range of around 5%. So when you when you start to compare prior periods. So please realize that there is by inflation in SG&A.

Walt Liptak

Okay. Okay. Thanks for that. And then last one is just on the leadership transition. Is there. Anything that you can tell us any timing? Is the search still going on or Thanks.

Marietta Zakas

Yes, so that we do not have any updates to share at this time. On our Board is focused both on the Board refreshment piece as well as the CEO search process as they as they said, they are owned and retained an executive search firm they are considering both internal and external candidates, but they have not announced a time line for this process footprint.

Walt Liptak

Thank you. Bryan Blair Oppenheimer & Co. Inc. – Analyst

Operator

Thank you. Our last question comes from Bryan Blair with Oppenheimer. Your line is open.

Bryan Blair

Thank you. Good morning, Marie.

Marietta Zakas

Good morning.

Bryan Blair

I wanted to drill down a little more on price. Cost trends have been favorable for a bit of momentum there? And are you willing to parse out the price-cost impact from fiscal 1Q and what is directly contemplated and guidance as of now on?

Marietta Zakas

Yes, let me let me trying to hit on your on your question. So let’s let me talk on price first on some of this, I think goes back over the cycle that we have just lived through and I think I’ve gotten on the other side of with the extraordinary levels of inflation that we experienced largely starting at ’22 at ’23, the supply chain disruptions, all of that.
I know that we talked for a while, and I’m going I’m going back a few years now I think to give you the context, but we were for a while upside down with respect to this a price inflationary costs and we implemented certainly a series of price increases.
And as we stated throughout that time period, the objective was to and recover, if you will, sort of the inflationary costs get on the other side of that and then ultimately continue to have the pricing more than covering the inflationary costs that we are experiencing.
I think now we are in a more normalized inflationary and pricing environment, and we’re sort of likely going to at this point where beyond what we experienced, we did announce that we just put in a price increase for our higher specialty and gas products.
On a from an inflation perspective, we are probably seeing the most slightly inflation with respect to labor costs. And as we look at that as a factor going off, but with more stability on in the inflationary environment, we think that we could have some is that as we look ahead at this point, we feel that the pricing that we are forecasting will more than cover what we could see with respect to inflation and importantly, preserve margin.

Steven Hinrichs

And that is our sales and EBITDA guidance. And we do expect that the improved manufacturing performance demonstrated that have the pricing of these are the inflation that Mark just referred to offset lower volumes that we’re also guiding to.

Bryan Blair

So. Okay, that’s helpful Yes. Appreciate the color. As a follow-up. You’ve called out that over time, new IGA spending should be a catalyst for your business. And there are a few areas in which that that’s identifiable, but likely fiscal ’25 and beyond that, then that’s understood.
There are some areas of spending front-end kind of workwear. I suspect you are participating to some extent or what sticks out to me as eco projects with the pipe condition assessment work that you can do to help with new Atlas of mapping and planning. Has that been a catalyst for Echologics to date? Or is that expected to ramp as on that front end work intensifies?

Marietta Zakas

So yes, I would say specifically with respect to AgriLogic, I we can I can’t tell you that we haven’t seen the infrastructure bill be a catalyst for AgriLogic. And as we said, we really don’t feel that problem what we’re saying. We don’t expect to see much impact from the infrastructure bill in 2024. And look, I think part of this is just appreciating that sometimes the devil is in the details on these items.
And, you know, certainly we are very positive on the bill long term. We love the certainly the focus that you see with the dollars that will be allocated to water infrastructure. But currently what is going through is just sort of the governmental process as you have to work through various US government agencies, which not only include the EPA, they can include, I’d say, to the I’d say five and others just to put specification around the provisions that have to be met for the projects that then received the funding.
So look, overall, we think it is going to be beneficial to us, but we just don’t expect to see any meaningful impact in our in our fiscal ’24. I will highlight that in the near term focus that the administration has certainly put on on the leading comparable and lead service line replacement fit of one of the products that we sell. The service brass products are generally needed in conjunction with the lead service line replaced.

Steven Hinrichs

As part of the infrastructure bill, nearly [12 billion] was deployed to that to that program. And the inventory that disabilities are required to complete is due at the well, really the start of our fiscal 2025 at the end of calendar ’24. So those those benefits will start coming in where those plants are getting reports.

Marietta Zakas

[Yes, it’s exactly $15 billion. I think that was the lead service line replacement 12 in other areas of water infrastructure, 10,000 from organizational]

Steven Hinrichs

[$15 phone industries is always]

Bryan Blair

Understood Appreciate the detail there. Thank you.

Operator

Thank you. And at this time, we have no further questions.

Marietta Zakas

Very good. Well, thank you all again for joining us today. While we are very pleased with our first quarter, it’s early in the year and there does remain a great deal of uncertainty in the external environment, but our team members have done exceptional work, overcoming overcoming some of the recent external challenges. And I am really confident that we are better equipped to navigate any outside of our control.
We are at an inflection point. We have made meaningful strategic investments and operational improvements. To date. We are well positioned as we just discussed to benefit from the tailwinds for the increased investment in water infrastructure, and we have the capabilities to help municipalities address their accelerating challenges.
We are on a path to continue increasing our margins, improving our operational performance and enhancing the position that we have with our customers, suppliers and employees. We thank you for your continued interest in Mueller Operator, with that, we can conclude the call. Thank you.

Operator

That concludes today’s conference. Thank you for participating. You may disconnect at this time.



Source link

About The Author

Scroll to Top