Water management company Advanced Drainage Systems (NYSE: WMS) reported Q3 CY2025 results beating Wall Street’s revenue expectations, with sales up 8.7% year on year to $850.4 million. The company expects the full year’s revenue to be around $2.95 billion, close to analysts’ estimates. Its non-GAAP profit of $1.97 per share was 19.8% above analysts’ consensus estimates.

Is now the time to buy WMS? Find out in our full research report (it’s free for active Edge members).

StockStory’s Take

Advanced Drainage’s third quarter was marked by margin expansion and robust execution, which led to outperformance relative to market expectations. Management pointed to strong growth in higher-margin Allied Products and Infiltrator segments, along with operational improvements and disciplined cost controls. CEO Scott Barbour highlighted the company’s ability to generate above-market growth despite a “challenging market environment,” citing successful material conversion strategies and the launch of new products as key contributors. Continued demand in nonresidential markets and resilient pricing also played a significant role in supporting results.

Looking ahead, Advanced Drainage’s updated outlook reflects a cautious approach to demand in the second half of the year, with management emphasizing risks tied to market volatility, seasonality, and potential government-related disruptions. CEO Scott Barbour stated that, while the company is not “seeing green shoots yet,” ongoing investments in capacity, product development, and the pending NDS acquisition are expected to strengthen future growth. CFO Scott Cottrill noted the focus on maintaining favorable price/cost dynamics and leveraging operational efficiencies to support margin expansion, even as visibility into end-market demand remains limited.

Key Insights from Management’s Remarks

Management attributed the quarter’s outperformance to a favorable product mix, operational initiatives, and resilience in core markets, while also noting the contribution from recent acquisitions.

• Allied Products Outperformance: Double-digit growth in Allied Products, especially StormTech chambers and Nyloplast catch basins, was driven by recent product launches and ongoing material conversion strategies. This segment benefited from increased demand in both nonresidential and multifamily residential projects, reflecting successful execution of growth initiatives.

• Infiltrator Segment Strength: The Infiltrator business, including Orenco, saw 25% revenue growth (7% organic), propelled by tank and advanced treatment products introduced in recent years. Integration efforts have exceeded expectations, with management citing improved operating margins and synergy realization.

• Nonresidential Market Gains: Broad-based nonresidential sales growth of 15% was attributed to geographic expansion and product portfolio enhancements. Management highlighted resilience in this segment despite broader market uncertainty, with inorganic growth contributing alongside organic drivers.

• Manufacturing and Cost Discipline: The company maintained stable pricing and benefited from favorable material costs, particularly in resin, while executing network realignments and logistics optimization. These efforts led to higher adjusted EBITDA margins and reinforced the business model’s resilience.

• Pending NDS Acquisition: The announced acquisition of NDS, a leading supplier of residential stormwater and irrigation products, is expected to broaden the Allied Product portfolio and create cross-selling opportunities. Management anticipates $25 million in annual cost synergies within three years and emphasized the strategic fit with ADS’s water management platform.

Drivers of Future Performance

Advanced Drainage’s near-term outlook is shaped by cautious demand expectations, continued investment in product innovation, and integration of recent acquisitions.

• Demand and Seasonality Risks: Management remains cautious about second-half demand, citing potential volatility from weather, government shutdowns, and the typical seasonality that affects construction activity in colder months. While no significant slowdowns are evident, the company is preparing for “tepid and uncertain” market conditions.

• Operational Efficiency and Price/Cost Stability: The company expects to sustain stable pricing and favorable material costs, with a focus on operational improvements, automation, and productivity initiatives. These factors are viewed as important to supporting margins if market demand softens.

• NDS Acquisition and Cross-Selling: The closing and integration of the NDS acquisition are seen as key growth levers, with management expecting strategic cross-selling in stormwater, irrigation, and waterworks channels. The acquisition is projected to enhance exposure to resilient residential and landscape markets and deliver cost and revenue synergies.

Catalysts in Upcoming Quarters

In coming quarters, our team will closely monitor (1) the pace and impact of the NDS acquisition and its associated synergy realization, (2) the sustainability of margin expansion through operational initiatives and pricing discipline, and (3) market demand trends across residential and nonresidential end markets as seasonality and macro volatility play out. Execution on new product rollouts and integration will be additional markers of progress.

Advanced Drainage currently trades at $146.56, up from $134.67 just before the earnings. At this price, is it a buy or sell? Find out in our full research report (it’s free for active Edge members).

Our Favorite Stocks Right Now

Trump’s April 2025 tariff bombshell triggered a massive market selloff, but stocks have since staged an impressive recovery, leaving those who panic sold on the sidelines.

Take advantage of the rebound by checking out our Top 5 Strong Momentum Stocks for this week. This is a curated list of our High Quality stocks that have generated a market-beating return of 183% over the last five years (as of March 31st 2025).

Stocks that made our list in 2020 include now familiar names such as Nvidia (+1,545% between March 2020 and March 2025) as well as under-the-radar businesses like the once-micro-cap company Kadant (+351% five-year return). Find your next big winner with StockStory today.

StockStory is growing and hiring equity analyst and marketing roles. Are you a 0 to 1 builder passionate about the markets and AI? See the open roles here.