Water infrastructure products manufacturer Mueller Water Products announced better-than-expected revenue in Q4 CY2024, with sales up 18.7% year on year to $304.3 million. The company’s full-year revenue guidance of $1.38 billion at the midpoint came in 1.8% above analysts’ estimates. Its non-GAAP profit of $0.25 per share was 29.3% above analysts’ consensus estimates.

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“We are pleased with the strong start to our fiscal year, with net sales growth exceeding our expectations as we experienced healthy order levels supported by resilient end-market demand and our focus on delivering outstanding customer service. Our disciplined execution on higher volumes led to a record first quarter adjusted EBITDA and more than a 300 basis point year-over-year improvement in our adjusted EBITDA margin,” 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 sales performance signals its overall quality. Even a bad business can shine for one or two quarters, but a top-tier one grows for years. Regrettably, Mueller Water Products’s sales grew at a mediocre 6.6% compounded annual growth rate over the last five years. This was below our standard for the industrials sector and is 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 2.8% over the last two years is below its five-year trend.

This quarter, Mueller Water Products reported year-on-year revenue growth of 18.7%, and its $304.3 million of revenue exceeded Wall Street’s estimates by 5.4%.

Looking ahead, sell-side analysts expect revenue to remain flat over the next 12 months, a slight deceleration versus the last two years. This projection doesn't excite us and suggests its products and services will face some demand challenges.

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Adjusted Operating Margin

Operating margin is a key measure of profitability. Think of it as net income - the bottom line - excluding the impact of taxes and interest on debt, which are less connected to business fundamentals.

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 11.6%.

Analyzing the trend in its profitability, Mueller Water Products’s operating margin rose by 2.6 percentage points over the last five years, showing its efficiency has improved.

In Q4, Mueller Water Products generated an operating profit margin of 15.6%, up 6.7 percentage points year on year. The increase was solid, and since its operating margin rose more than its gross margin, we can infer it was recently more efficient with expenses such as marketing, R&D, and administrative overhead.

Earnings Per Share

We track the long-term change in earnings per share (EPS) for the same reason as long-term revenue growth. Compared to revenue, however, EPS highlights whether a company’s growth is profitable.

Mueller Water Products’s EPS grew at a solid 11.7% compounded annual growth rate over the last five years, higher than its 6.6% annualized revenue growth. This tells us the company became more profitable on a per-share basis 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 expanded by 2.6 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 provide insight into an emerging theme or development for the business.

For Mueller Water Products, its two-year annual EPS growth of 37.3% was higher than its five-year trend. We love it when earnings growth accelerates, especially when it accelerates off an already high base.

In Q4, Mueller Water Products reported EPS at $0.25, up from $0.13 in the same quarter last year. This print easily cleared analysts’ estimates, and shareholders should be content with the results. Over the next 12 months, Wall Street expects Mueller Water Products’s full-year EPS of $1.08 to grow 9.9%.

Key Takeaways from Mueller Water Products’s Q4 Results

We were impressed by how significantly Mueller Water Products blew past analysts’ revenue and EBITDA expectations this quarter. We were also excited it raised its full-year guidance for both metrics. Zooming out, we think this was a solid "beat-and-raise". The stock traded up 2.8% to $23.74 immediately following the results.

Mueller Water Products put up rock-solid earnings, but one quarter doesn’t necessarily make the stock a buy. Let’s see if this is a good investment. If you’re making that decision, you should consider the bigger picture of valuation, business qualities, as well as the latest earnings. We cover that in our actionable full research report which you can read here, it’s free.