Mueller Water Products Management Discusses Q3 2012 Results - Earnings Call Transcript

Mueller Water Products (MWA)

Q3 2012 Earnings Call

August 01, 2012 9:00 am ET

Executives

Marietta Edmunds Zakas - Senior Vice President of Strategy, Corporate Development and Communications

Gregory E. Hyland - Executive Chairman, Chief Executive Officer, President, Chairman of Executive Committee and Member of Proxy Committee

Evan L. Hart - Chief Financial Officer, Senior Vice President and Member of Proxy Committee

Analysts

L. Todd Vencil - Sterne Agee & Leach Inc., Research Division

Jerry Revich - Goldman Sachs Group Inc., Research Division

Timothy Feron - Janney Montgomery Scott LLC, Research Division

Michael E. Gaugler - Brean Murray, Carret & Co., LLC, Research Division

Seth Weber - RBC Capital Markets, LLC, Research Division

Brent Thielman - D.A. Davidson & Co., Research Division

Presentation

Operator

Welcome, and thank you all for patiently holding. [Operator Instructions] I will now turn the call over to Ms. Martie Zakas. Ma'am, you may begin.

Marietta Edmunds Zakas

Very good. Thank you, and good morning, everyone. Welcome to Mueller Water Products Fiscal 2012 Third Quarter Conference Call. We issued our press release reporting results of operations for the quarter ended June 30, 2012, yesterday afternoon. A copy of it is available on our website, muellerwaterproducts.com. Mueller Water Products had approximately 156.8 million shares outstanding at June 30, 2012.

Discussing the third quarter's results this morning are Greg Hyland, our Chairman, President and CEO; and Evan Hart, our CFO. This morning's call is being recorded and webcast live on the Internet. We have also posted slides on our website, which are available to help illustrate the quarter's results, as well as to address our Safe Harbor disclosure statement and our non-GAAP disclosure requirements.

At this time, please refer to Slide 2. This slide identifies certain non-GAAP financial measures that we 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. As required by Regulation G, reconciliations between non-GAAP and GAAP financial measures are included in the supplemental information within our press release and on our website.

Slide 3 is our Safe Harbor disclosure statement addressing forward-looking statements. This slide includes cautionary statements identifying important factors that could cause actual results to differ materially from those included in the forward-looking statements, as well as specific examples of forward-looking statements. Please take note of Slides 2 and 3 in their entirety.

During this call, all references to a specific year or quarter refer to our fiscal year, which ends on September 30, unless specified otherwise. As previously announced, we sold U.S. Pipe effective April 1, 2012. U.S. Pipe's operating results have been reclassified as discontinued operations, and its assets and liabilities have been reclassified as held-for-sale for all periods presented. The archived webcast and the corresponding slides will be available for at least 90 days in the Investor Relations section of our website. In addition, we will furnish a copy of our prepared remarks on Form 8-K later this morning. After the prepared remarks, we will open the call to questions.

I'll now turn the call over to Greg.

Gregory E. Hyland

Thanks, Martie. We appreciate you joining us today as we discuss our results for the 2012 third quarter. I'll begin with a brief overview of the quarter, followed by Evan's detailed financial report, which covers key drivers affecting our businesses. After that, I will follow with additional comments on our recent results and our end markets, as well as our outlook for the fourth quarter.

Third quarter results yielded increases in net sales, adjusted operating income and adjusted EBITDA on a year-over-year basis. The data on the residential construction market is trending positive, and we believe we saw some pockets of growth from this market segment during the third quarter.

At Mueller Co. base business in the third quarter, net sales increased 6.9%, and adjusted operating income grew 14%, driven by increased domestic shipments of valves, hydrants and brass products.

We also had a number of wins at both Mueller Systems and Echologics. Mueller Systems announced a supply agreement with American Water, the largest publicly traded U.S. water and wastewater utility company for water meters and automated meter reading systems, and also a $6.6 million agreement for our meters and AMI systems with Bentonville, Arkansas.

Echologics also recently extended its contract with the City of New Orleans, which is expected to generate approximately $5 million in revenue over the next 2 years. It is encouraging to see the traction both businesses are gaining in the marketplace.

Anvil, again, delivered solid results in the third quarter. We saw some softness in certain markets. While net sales were essentially flat, adjusted operating income increased year-over-year. We continue to believe that we are well-positioned for future profitable growth, as end market demand improves, and we are able to increase capacity utilization.

I'll now turn the call over to Evan, who will provide more details on our third quarter financial results.

Evan L. Hart

Thanks, Greg, and good morning, everyone. I'll first review the consolidated results, and then discuss segment performance. Consolidated net sales for the 2012 third quarter of $275.9 million increased $16.3 million or 6.3% from the 2011 third quarter net sales of $259.6 million. Net sales increased due to higher shipment volumes and higher prices.

Consolidated gross profit of $79.6 million for the 2012 third quarter improved from $73.1 million for the 2011 third quarter. Gross profit margin for the 2012 third quarter improved 70 basis points to 28.9%, and was positively impacted, primarily, by higher sales prices at both Mueller Co. and Anvil, as well as higher shipment volumes at Mueller Co.

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