Water infrastructure products manufacturer Mueller Water Products reported Q3 CY2024 results topping the market’s revenue expectations, with sales up 15.5% year on year to $348.2 million. The company expects the full year’s revenue to be around $1.35 billion, close to analysts’ estimates. Its non-GAAP profit of $0.22 per share was in line with analysts’ consensus estimates.
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Mueller Water Products (MWA) Q3 CY2024 Highlights:
- Revenue: $348.2 million vs analyst estimates of $326.9 million (6.5% beat)
- Adjusted EPS: $0.22 vs analyst expectations of $0.22 (in line)
- EBITDA: $51.7 million vs analyst estimates of $65.83 million (21.5% miss)
- Management’s revenue guidance for the upcoming financial year 2025 is $1.35 billion at the midpoint, in line with analyst expectations and implying 2.7% growth (vs 3.1% in FY2024)
- EBITDA guidance for the upcoming financial year 2025 is $302.5 million at the midpoint, above analyst estimates of $299.5 million
- Gross Margin (GAAP): 31.8%, up from 29.3% in the same quarter last year
- Operating Margin: 8.2%, in line with the same quarter last year
- EBITDA Margin: 14.8%, down from 18.4% in the same quarter last year
- Free Cash Flow Margin: 31.2%, up from 13.7% in the same quarter last year
- Market Capitalization: $3.54 billion
“We delivered a strong fourth quarter with healthy order levels supported by steady end market demand and focused customer service. We achieved record fourth quarter net sales and adjusted EBITDA, which exceeded our expectations and continued to expand margins through increased volumes, consistent operational execution and disciplined SG&A spending,” said Martie Edmunds Zakas, Chief Executive Officer of Mueller Water Products.
Company Overview
As one of the oldest companies in the water infrastructure industry, Mueller (NYSE:MWA) is a provider of water infrastructure products and flow control systems for various sectors.
Water Infrastructure
Trends towards conservation and reducing groundwater depletion are putting water infrastructure and treatment products front and center. Companies that can innovate and create solutions–especially automated or connected solutions–to address these thematic trends will create incremental demand and speed up replacement cycles. On the other hand, water infrastructure and treatment companies are at the whim of economic cycles. Consumer spending and interest rates, for example, can greatly impact the industrial production that drives demand for these companies’ offerings.
Sales Growth
A company’s long-term performance can indicate its business quality. Any business can put up a good quarter or two, but many enduring ones grow for years. Regrettably, Mueller Water Products’s sales grew at a mediocre 6.3% compounded annual growth rate over the last five years. This shows it couldn’t expand in any major way, a tough starting point for our analysis.
Long-term growth is the most important, but within industrials, a half-decade historical view may miss new industry trends or demand cycles. Mueller Water Products’s recent history shows its demand slowed as its annualized revenue growth of 2.7% over the last two years is below its five-year trend. 
This quarter, Mueller Water Products reported year-on-year revenue growth of 15.5%, and its $348.2 million of revenue exceeded Wall Street’s estimates by 6.5%.
Looking ahead, sell-side analysts expect revenue to grow 2.7% over the next 12 months, similar to its two-year rate. This projection is underwhelming and indicates the market thinks its newer products and services will not accelerate its top-line performance yet.
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Operating Margin
Mueller Water Products has managed its cost base well over the last five years. It demonstrated solid profitability for an industrials business, producing an average operating margin of 11.3%.
Looking at the trend in its profitability, Mueller Water Products’s annual operating margin rose by 1.7 percentage points over the last five years, showing its efficiency has improved.
In Q3, Mueller Water Products generated an operating profit margin of 8.2%, in line with the same quarter last year. This indicates the company’s cost structure has recently been stable.
Earnings Per Share
Analyzing revenue trends tells us about a company’s historical growth, but the long-term change in its earnings per share (EPS) points to the profitability of that growth – for example, a company could inflate its sales through excessive spending on advertising and promotions.
Mueller Water Products’s EPS grew at a decent 9.3% compounded annual growth rate over the last five years, higher than its 6.3% annualized revenue growth. This tells us the company became more profitable as it expanded.
We can take a deeper look into Mueller Water Products’s earnings quality to better understand the drivers of its performance. As we mentioned earlier, Mueller Water Products’s operating margin was flat this quarter but expanded by 1.7 percentage points over the last five years. This was the most relevant factor (aside from the revenue impact) behind its higher earnings; taxes and interest expenses can also affect EPS but don’t tell us as much about a company’s fundamentals.
Like with revenue, we analyze EPS over a more recent period because it can give insight into an emerging theme or development for the business.
For Mueller Water Products, its two-year annual EPS growth of 28.6% was higher than its five-year trend. This acceleration made it one of the faster-growing industrials companies in recent history.In Q3, Mueller Water Products reported EPS at $0.22, up from $0.19 in the same quarter last year. This print was close to analysts’ estimates. Over the next 12 months, Wall Street expects Mueller Water Products’s full-year EPS of $0.96 to grow by 10.6%.
Key Takeaways from Mueller Water Products’s Q3 Results
We were impressed by how significantly Mueller Water Products blew past analysts’ revenue expectations this quarter. On the other hand, its EBITDA missed. Zooming out, we think this was a decent quarter featuring some areas of strength but also some blemishes. The stock traded up 2.6% to $24.60 immediately following the results.
Should you buy the stock or not? What happened in the latest quarter matters, but not as much as longer-term business quality and valuation, when deciding whether to invest in this stock. We cover that in our actionable full research report which you can read here, it’s free.