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Mueller Water Products, Inc. (MWA)·Q2 2025 Earnings Summary

Executive Summary

  • Q2 2025 delivered record quarterly net sales ($364.3M), adjusted EBITDA ($84.5M), and adjusted EPS ($0.34), with broad-based pricing and volume strength; gross margin was 35.1% despite brass foundry transition inefficiencies .
  • Results beat Wall Street consensus on revenue (+$13.3M), EPS (+$0.03), and EBITDA (+$4.9M); guidance raised for FY2025 net sales to $1.39–$1.40B, while adjusted EBITDA was reaffirmed at $310–$315M due to anticipated tariff cost headwinds .
  • Management implemented targeted double-digit price increases for specialty valves and repair products to offset tariffs; benefits are expected to lag (Q4 realization) while costs begin in Q3, implying near-term margin pressure then back-half margin recovery (implied ~37% gross margin in H2) .
  • Balance sheet remains strong (net debt leverage 0.4x, no maturities until 2029); dividend declared at $0.067/share and $5M buyback executed .

What Went Well and What Went Wrong

  • What Went Well

    • Record quarterly net sales, adjusted EBITDA, and adjusted EPS, driven by healthy orders and resilient end-market demand: “we achieved quarterly records for our consolidated net sales, adjusted EBITDA and adjusted net income per share” — CEO Martie Zakas .
    • Operating leverage from lower SG&A (incl. amortization) and volumes: operating income +10.1% to $69.9M; adjusted operating margin +120 bps to 20.1% .
    • Segment execution: WFS net sales +5.1% to $216.2M with 25.9% adjusted operating margin; WMS adjusted EBITDA margin improved to 24.6% .

  • What Went Wrong

    • Manufacturing inefficiencies tied to brass foundry transition pressured gross profit (-1.8% y/y) and gross margin (-180 bps y/y to 35.1%), though brass closure benefits expected in H2 .
    • Tariff exposure: ~15% of cost of sales exposed; annualized tariff impact ~8–9% of cost of sales (≈75% from China), with pricing benefit lagging costs (costs start in Q3, price realization Q4) .
    • WFS adjusted EBITDA margin declined y/y to 28.8% (from 30.3%), reflecting lower volumes of service brass and inefficiencies; WMS faced lower volumes in natural gas distribution .

Financial Results

MetricQ4 2024Q1 2025Q2 2025
Revenue ($USD Millions)$348.2 $304.3 $364.3
GAAP Diluted EPS ($)$0.06 $0.22 $0.33
Adjusted Diluted EPS ($)$0.22 $0.25 $0.34
Adjusted EBITDA ($USD Millions)$72.5 $63.5 $84.5
Adjusted EBITDA Margin (%)20.8% 20.9% 23.2%
Gross Margin (%)31.8% 33.8% 35.1%

Segment breakdown (Q2 2025):

SegmentNet Sales ($M)Operating Income ($M)Operating Margin (%)Adjusted Operating Income ($M)Adjusted EBITDA ($M)Adjusted EBITDA Margin (%)
Water Flow Solutions$216.2 $54.1 25.0% $55.9 $62.2 28.8%
Water Management Solutions$148.1 $31.3 21.1% $31.4 $36.4 24.6%

Q2 2025 vs Wall Street consensus (S&P Global):

MetricConsensusActual
EPS ($)0.31*0.34
Revenue ($USD Millions)350.97*364.3
EBITDA ($USD Millions)80.57*84.5

Key KPIs (Q2 2025):

KPIValue
Cash and Cash Equivalents ($M)$329.2
Total Debt ($M)$450.5
Net Debt ($M)$121.3
Debt Leverage (TTM Adjusted EBITDA)1.5x
Net Debt Leverage (TTM Adjusted EBITDA)0.4x
Net Cash from Ops (6M) ($M)$68.4
Free Cash Flow (6M) ($M)$47.3
Capital Expenditures (6M) ($M)$21.1
Dividend Declared per Share ($)$0.067
Buybacks Executed ($M)$5.0

Guidance Changes

MetricPeriodPrevious Guidance (Feb 4, 2025)Current Guidance (May 5, 2025)Change
Consolidated Net Sales ($B)FY2025$1.370–$1.390 $1.390–$1.400 Raised
Adjusted EBITDA ($M)FY2025$310–$315 $310–$315 Maintained
Total SG&A ($M)FY2025$240–$244 $236–$240 Lowered
Net Interest Expense ($M)FY2025$10.5–$11.5 $9–$10 Lowered
Effective Tax Rate (%)FY202525–27 24–26 Lowered
Depreciation & Amortization ($M)FY2025$43–$45 $44–$45 Maintained
Capital Expenditures ($M)FY2025$45–$50 $45–$50 Maintained
Pension Benefit other than service ($M)FY2025~0.2 ~0.2 Maintained
Free Cash Flow as % of Adjusted Net IncomeFY2025>80% >80% Maintained

Earnings Call Themes & Trends

TopicPrevious Mentions (Q4 2024)Previous Mentions (Q1 2025)Current Period (Q2 2025)Trend
Tariffs & MacroNo realized tariff impact embedded; BABA/IIJA process lags; municipal resilient Tariffs announced; guidance excludes tariff costs; mitigation via sourcing/pricing 15% of cost of sales exposed; annual impact ~8–9% of CoS (75% China); targeted double-digit pricing; costs hit Q3, pricing benefit Q4 Near-term headwind, mid-term mitigated
Supply Chain & OperationsNormalized lead times; margin gains via manufacturing/material/freight efficiencies; brass foundry closure planned by end CY2024 Legacy brass foundry ceased melting/casting; closure expected to add 80–100 bps to gross margin in H2 FY2025 New brass foundry fully operational; residual impairments; H2 gross margin implied ~37% Improving
Pricing StrategyPrice/cost tailwinds supporting margins Low-to-mid single-digit price realization embedded in guidance Double-digit targeted increases for specialty valves and repair to offset tariffs; lag expected Increasing intensity
Segment Performance (WFS/WMS)WFS margins expanding; WMS faced Israel-related headwinds but improved y/y WFS volumes strong; WMS repair backlog elevated; hydrants demand resilient WFS margin slightly compressed y/y; WMS margin improved; sequential repair orders increased Mixed
Municipal vs ResidentialMunicipal resilient; residential normalized demand Municipal resilient; modest residential growth assumed Municipal resilience continues; some uncertainty in residential outlook into Q4 Stable-to-mixed
IIJA/BABA (Infrastructure)Bipartisan support; limited bids; minimal FY2025 impact assumed Monitoring; not meaningful yet; positioned as domestic supplier Ongoing qualification process; not embedded meaningfully in FY2025 guidance Gradual progress
Technology/Meters & WarrantyMetering warranty charge and goodwill impairment; long-tail warranty obligations Streamlined metering approach No new tech initiatives; continued warranty tail commentary Stable

Management Commentary

  • “We delivered a solid performance in our second quarter… we achieved quarterly records for our consolidated net sales, adjusted EBITDA and adjusted net income per share.” — CEO Martie Zakas .
  • “We expect that the recently enacted tariffs will increase costs… we are taking appropriate steps to mitigate… through pricing actions, supply chain mitigation plans, operational initiatives and cost discipline.” — CEO Martie Zakas .
  • “From a cost of sales perspective, approximately 15% of our total cost of sales is exposed to newly enacted tariffs… annualized impact… approximately 8% to 9% of our cost of sales, with China-related tariffs accounting for approximately 75%.” — President/COO Paul McAndrew .
  • “Gross margin of 35.1% decreased 180 bps year-over-year… excluding $0.8M asset write-downs, our gross margin was 35.4%.” — CFO Melissa Rasmussen .
  • “We are increasing our guidance for consolidated net sales… maintaining adjusted EBITDA guidance… due to increased costs related to the newly enacted tariffs.” — CFO Melissa Rasmussen .

Q&A Highlights

  • Prebuy behavior and order cadence: No evidence of tariff-related prebuy; Q2 is seasonally strong with price increase timing .
  • Brass foundry status: New foundry fully operational; legacy foundry impairment of ~$0.8M; further decommission costs possible but unknown .
  • Capex trajectory: Maintained at ~3%–4% of sales; focus on foundry efficiency and operational improvements .
  • Pricing/tariff offset: Double-digit targeted increases for specialty valves/repair; not expected to fully offset tariffs; pricing lag vs costs (tariffs in Q3, price benefits in Q4) .
  • Gross margin outlook: Implied ~37% for the back half; Q3 more challenged than Q4 due to tariff timing and price realization lag .
  • End-market demand: Municipal demand resilient; residential uncertainty rising into Q4; monitoring customer project timing .

Estimates Context

  • Q2 2025 beat across the board: Revenue $364.3M vs $350.97M consensus (+$13.3M); Adjusted EPS $0.34 vs $0.31 consensus (+$0.03); Adjusted EBITDA $84.5M vs $80.57M consensus (+$4.9M). Bold beats signify positive estimate revisions risk for H2, offset by tariff cost timing .
  • With net sales guidance raised and EBITDA maintained due to tariffs, Street models may lift FY2025 revenues while holding margins near updated framework until tariff price mitigation is visible in Q4 .

Note: Values marked with an asterisk (*) were retrieved from S&P Global.

Key Takeaways for Investors

  • Near-term: Expect Q3 gross margin headwind from tariff costs before pricing benefits arrive in Q4; watch for sequential margin progression toward implied ~37% H2 gross margin .
  • Pricing power: Double-digit targeted increases in specialty valves/repair underscore pricing capability; monitor elasticity and order timing in those lines .
  • Operational catalysts: Full benefit from legacy brass foundry closure and continued supply chain productivity should support margin recovery in H2 .
  • Demand backdrop: Municipal remains resilient; residential pockets of uncertainty into Q4; IIJA/BABA funding tailwinds remain prospective beyond FY2025 .
  • Balance sheet strength: Low net leverage (0.4x), no maturities until 2029, ongoing shareholder returns (dividend $0.067, buybacks) provide downside support .
  • Segment watch: WFS margins compressed y/y due to service brass volumes and inefficiencies; WMS margins improved; monitor repair backlog normalization and Israel-related supply chain stability .
  • Guidance mechanics: Revenue raised; EBITDA held due to tariffs — an explicit signal of margin caution short-term but confidence in mitigation actions longer term .

S&P Global disclaimer: Consensus estimates (marked with *) were retrieved from S&P Global.