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ADVANCED DRAINAGE SYSTEMS, INC. (WMS)·Q1 2026 Earnings Summary

Executive Summary

  • Q1 FY2026 delivered resilient profitability despite tepid demand: net sales $829.9M (+1.8% y/y), Adjusted EBITDA $278.2M (+1.0% y/y), Adjusted EBITDA margin 33.5% .
  • Versus S&P Global consensus, the company posted beats on revenue ($829.9M vs $796.3M*), Primary EPS ($1.95 vs $1.76*), and EBITDA ($264.0M vs $253.2M*), aided by favorable price/cost and mix; Adjusted EBITDA was $278.2M .
  • Guidance maintained for FY2026 net sales ($2.825B–$2.975B) and Adjusted EBITDA ($850M–$910M); capex outlook reduced to $200M–$225M (from ~$275M in May), and quarterly dividend raised to $0.18 (+13% y/y) .
  • Management emphasized higher-margin mix (Infiltrator + Allied) and execution on price, logistics, and operations; weather delays and elevated rates were headwinds, with demand described as “flattish and tepid” .

What Went Well and What Went Wrong

What Went Well

  • Mix shift and execution: Infiltrator sales +21.1% y/y to $178.4M (Orenco acquisition; organic +0.7%); Allied Products & Other +1.9% y/y; Adjusted EBITDA margin 33.5% despite market softness .
  • Price/cost favorable and stable pricing: Management cited stable sequential pricing and favorable material costs; logistics and transportation offset fixed cost absorption .
  • Cash generation and balance sheet: Free cash flow $222.4M (vs $125.7M y/y), net debt fell to $792.0M, liquidity $1,228.1M including $638.3M cash .

Management quotes:

  • “We generated strong results… delivering a resilient 33.5% adjusted EBITDA margin despite a challenging market environment.”
  • “Price cost was favorable… Manufacturing costs were unfavorable… offset a portion… with favorable transportation costs.”
  • “We ended the quarter with less than one turn of net leverage and over $1,200,000,000 in available liquidity.”

What Went Wrong

  • Demand softness and weather: Wet weather in May/June delayed installations; demand “flattish and tepid”; international sales -16.0% y/y .
  • SG&A up on acquisitions and investment: SG&A rose 10.5% y/y to $104.0M (12.5% of sales) primarily due to Orenco; gross profit -0.6% y/y on unfavorable fixed cost absorption/mix .
  • Pipe category decline: Domestic pipe sales -2.5% y/y to $415.5M; infrastructure segment variability on tough comps (airports) .

Financial Results

MetricQ3 FY2025Q4 FY2025Q1 FY2026
Revenue ($USD Millions)$690.5 $615.8 $829.9
Diluted EPS ($USD)$1.04 $0.99 $1.84
Adjusted EPS ($USD)$1.09 $1.03 $1.95
Adjusted EBITDA ($USD Millions)$191.5 $176.7 $278.2
Adjusted EBITDA Margin (%)27.7% 28.7% 33.5%
Gross Profit ($USD Millions)$241.6 $226.3 $330.4
Net Income ($USD Millions)$82.3 $76.8 $144.1

Segment sales – Q1 FY2026 (external customers):

SegmentNet Sales ($USD Millions)
Pipe$415.538
Infiltrator$178.353
Allied Products & Other$187.498
International (Total)$48.491
Total$829.880

Key KPIs – Q1 FY2026:

KPIValue
Net cash from operating activities ($MM)$274.977
Free cash flow ($MM)$222.379
Net debt ($MM)$792.0
Total liquidity ($MM)$1,228.1
Cash ($MM)$638.3
Capital expenditures ($MM)$52.598
SG&A as % of sales12.5%
Quarterly dividend per share$0.18
TTM leverage ratio0.9x

Guidance Changes

MetricPeriodPrevious GuidanceCurrent GuidanceChange
Net SalesFY2026$2.825B–$2.975B $2.825B–$2.975B Maintained
Adjusted EBITDAFY2026$850M–$910M $850M–$910M Maintained
Capital ExpendituresFY2026~$275M $200M–$225M Lowered
Quarterly Dividend per ShareCurrent$0.16 (prior quarter) $0.18 (+13% y/y) Raised

Earnings Call Themes & Trends

TopicPrevious Mentions (Q-2: Q3 FY2025; Q-1: Q4 FY2025)Current Period (Q1 FY2026)Trend
Pricing & price/costIn line with expectations; unfavorable pricing/material costs in Q3 ; sequential pricing consistent in Q4 Pricing stable sequentially; price/cost favorable y/y Improving stability
Product innovation (water quality)Orenco acquisition, expanding advanced treatment Launch of Arcadia Hydrodynamics Separator; EcoStream biofiltration; engineering center (90k gallon lab) Accelerating
Mix shift to higher marginInfiltrator outperformed in Q3; Allied growth Infiltrator +21.1% y/y; Allied +1.9% y/y; focus on attach rates Positive
Supply chain/logisticsFavorable manufacturing/transportation costs in Q4 Transportation/logistics offsets under-absorption; refreshed fleet Operational tailwind
Macro: weather/interest ratesQ4 impacted by unfavorable winter weather; uncertain demand Wet May/June delays; demand “flattish and tepid”; elevated rates headwind Persistent headwind
Infrastructure activityQ3: demand-driven; variable by geography Variability; tough airport comps; DOT slower; local projects increasing Mixed
CompetitionNot highlightedPricing consistent for 4-5 quarters; resilient margins despite competition Managed
Capex & capital allocationFY2026 capex initially ~$275M Capex trimmed to $200–$225M; flexibility for buybacks/M&A evaluation More disciplined

Management Commentary

  • “We operate in highly attractive water segments supported by secular tailwinds… driving long-term demand.”
  • “Water quality remains a key growth area… this category has grown at high teens CAGR over the last three years.”
  • “Excluding Orenco, the consolidated margin would have been 34.1%… price cost was favorable.”
  • “We recently began to wind down operations at a distribution yard and a small pipe manufacturing operation… eliminate inefficient production while improving customer service.”

Q&A Highlights

  • Weather and comps: ~$15–$20M favorable impact pulled into prior Q4 from Q1 last year; current quarter saw multi-week project delays, but demand remains tepid overall .
  • Price/cost outlook: Full-year price/cost still expected ~neutral; Q2 laps last year’s pricing decline; sequential pricing stable .
  • Capex reduction: Cut to $200–$225M is timing-related; maintains capacity to meet demand; preserves optionality for buybacks/M&A .
  • Margin cadence: Q1 margins strong; Q2 typically similar; caution centered on demand absorption, not price/materials .
  • Mix and competition: Focus on higher attach rates for Allied; resilient margins with consistent pricing; refreshed logistics assets .
  • Infrastructure: Tough comps (airports); DOT activity mixed; local projects gaining; contract counts down, values up .

Estimates Context

Metric (Q1 FY2026)Consensus*Actual
Revenue ($USD)$796.3M*$829.9M
Primary EPS ($USD)$1.76*$1.95 (Adjusted EPS)
EBITDA ($USD)$253.2M*$264.0M (EBITDA)
  • Number of estimates: Revenue (7), EPS (6)*.
  • The quarter beat consensus on revenue, EPS and EBITDA; Adjusted EBITDA ($278.2M) exceeded the EBITDA consensus as non-GAAP adds back restructuring/other items .
  • Values retrieved from S&P Global.*

Key Takeaways for Investors

  • Strong execution drove a 33.5% Adjusted EBITDA margin and consensus beats across revenue/EPS/EBITDA despite “tepid” demand and weather delays, underscoring pricing discipline and logistics efficiencies .
  • Mix shift toward Infiltrator and Allied supports margin resilience; Orenco integration and new water quality products expand higher-margin opportunities .
  • Guidance intact (sales/EBITDA) while capex trimmed to $200–$225M—creates free cash flow headroom for capital returns (dividend raised) and optionality for buybacks/M&A .
  • Watch near-term demand absorption risk: sequential pricing stable, but under-absorption can re-emerge if volumes soften; management remains focused on self-help levers .
  • Infrastructure trajectory mixed (DOT slower, local projects up) with tough comps; long-term IIJA tailwinds remain, but quarterly variability likely .
  • Tactical implication: With margins resilient and mix improving, the stock’s narrative hinges on sustained execution plus visibility on demand recovery; capex reduction and dividend increase are supportive near-term catalysts .
  • Medium-term: Continued product innovation (Arcadia, EcoStream) and engineering capabilities should drive share gains in water quality and decentralized wastewater, extending ADS’s margin profile .