The end of an earnings season can be a great time to discover new stocks and assess how companies are handling the current business environment. Let's take a look at how Mueller Water Products (NYSE:MWA) and the rest of the water infrastructure stocks fared in Q1.

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.

The 4 water infrastructure stocks we track reported an impressive Q1; on average, revenues beat analyst consensus estimates by 6.1%. Inflation progressed towards the Fed's 2% goal at the end of 2023, leading to strong stock market performance. The start of 2024 has been a bumpier ride, as the market switches between optimism and pessimism around rate cuts due to mixed inflation data, and water infrastructure stocks have held roughly steady amidst all this, with share prices up 4.2% on average since the previous earnings results.

Company Performance

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. Mueller Water Products reported revenues of $353.4 million, up 6.2% year on year, exceeding analysts' expectations by 18%. Overall, it was an incredible quarter for the company with an impressive beat of analysts' organic revenue and earnings estimates.

"We had a fantastic second quarter reflecting the progress our teams have made executing our operational and commercial initiatives to deliver long-term sustainable growth. We achieved record quarterly net sales with a strong sequential increase in volumes supported by our continued enhancements in customer experience. Our ongoing manufacturing and supply chain efficiencies drove significant improvement in margins, leading to our highest quarterly gross margin in more than seven years and record quarterly earnings," said Martie Edmunds Zakas, Chief Executive Officer of Mueller Water Products.

Mueller Water Products achieved the biggest analyst estimates beat of the whole group. The stock is up 23.2% since reporting and currently trades at $20.38.

Competitor Analysis

Founded in 1874, Watts Water (NYSE:WTS) specializes in manufacturing water products and systems for residential, commercial, and industrial applications globally. Watts Water Technologies reported revenues of $570.9 million, up 21% year on year, outperforming analysts' expectations by 4.6%. It was a stunning quarter for the company with an impressive beat of analysts' organic revenue estimates and a decent beat of analysts' earnings estimates. Although it had a great quarter compared its peers, the market seems unhappy with the results as the stock is down 4.8% since reporting. It currently trades at $202.

Formed through a spinoff, Xylem (NYSE:XYL) manufactures and services engineered products across a wide variety of applications primarily in the water sector. Xylem reported revenues of $2.03 billion, up 40.4% year on year, exceeding analysts' expectations by 1.8%. It was still a strong quarter for the company with a solid beat of analysts' organic revenue estimates and a decent beat of analysts' earnings estimates. Interestingly, the stock is up 4.7% since the results and currently trades at $137.13.

As the world's largest manufacturer of autonomous mobile robots, Tennant (NYSE:TNC) designs, manufactures, and sells cleaning products to various sectors. Tennant reported revenues of $311 million, up 1.7% year on year, in line with analysts' expectations. Revenue aside, it was a very strong quarter for the company with an impressive beat of analysts' earnings estimates. Tennant had the weakest performance against analyst estimates and slowest revenue growth among its peers. The stock is down 6.5% since reporting and currently trades at $108.22.

Financials

Mueller Water Products (NYSE:MWA) reported annual net income of $85.5 million, annual revenue of $1,275.7 million, annual operating cash flow of $109 million, and annual free cash flow of $61.4 million in its latest fiscal year. In the latest quarter, the company reported revenues of $353.4 million, up 6.2% year-over-year, exceeding analysts' expectations by 18%.

The company's Water Flow Solutions segment, which includes iron gate valves, specialty valves and service brass products, saw net sales increase 30.9% year-over-year to $205.8 million. This was driven by higher volumes and higher pricing across most product lines. Adjusted operating income for the segment surged 246.1% to $52.6 million.

The Water Management Solutions segment, which includes fire hydrants, repair and installation, natural gas, metering, leak detection, and pressure management and control products and solutions, saw net sales decline 16% year-over-year to $147.6 million due to lower volumes across most product lines, partially offset by higher pricing. Adjusted operating income for the segment decreased 9.1% to $29 million.

Gross margin expanded 750 basis points year-over-year to 36.9%, the highest level in over 7 years, driven by improved manufacturing performance and higher pricing. The company was able to more than offset inflationary pressures through its pricing actions. Adjusted EBITDA grew 70.9% to $82.2 million, with the adjusted EBITDA margin expanding 890 basis points to 23.3%.

Outlook

Looking ahead, Mueller Water Products has increased its fiscal 2024 guidance. The company now expects net sales to be flat to down 2% compared to the prior year, an improvement from its previous outlook. Adjusted EBITDA is expected to grow 23% to 27% year-over-year. The company cited continued healthy demand in the municipal repair and replacement market as well as stabilizing new residential construction activity as drivers of the improved outlook.

Liquidity

Mueller Water Products' balance sheet remains strong, with $179.2 million in cash and cash equivalents and $448.7 million in total debt outstanding as of the end of the latest quarter. The company's net debt leverage ratio stood at 1.1x. During the quarter, the company repurchased $10 million of its common stock.

Conclusion

Overall, Mueller Water Products delivered an impressive performance in the latest quarter, showcasing the strength of its diversified water infrastructure product portfolio and the success of its operational initiatives. The company's increased guidance reflects its confidence in the underlying demand trends and its ability to navigate the current macroeconomic environment. With a strong balance sheet and continued focus on innovation and customer service, Mueller Water Products appears well-positioned to capitalize on the long-term growth opportunities in the water infrastructure market.