MWA Q1 Earnings Call: Pricing Actions, Tariff Impacts, and Operational Shifts Drive Outlook

Water infrastructure products manufacturer Mueller Water Products reported Q1 CY2025 results topping the market’s revenue expectations, with sales up 3.1% year on year to $364.3 million. The company’s full-year revenue guidance of $1.4 billion at the midpoint came in 1% above analysts’ estimates. Its non-GAAP profit of $0.34 per share was 10% above analysts’ consensus estimates.

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StockStory’s Take

Mueller Water Products’ first quarter results reflected a combination of resilient demand for municipal water infrastructure products and operational progress, particularly in repair and specialty valve segments. Management emphasized improved order activity and the benefit from customer service investments, while also noting that manufacturing inefficiencies related to foundry transitions temporarily offset gross margin gains. CEO Martie Zakas highlighted the company’s ability to adapt to external challenges, including supply chain adjustments and cost discipline, which contributed to the quarter’s performance.

Looking ahead, management raised full-year revenue guidance, attributing this to expectations for continued strength in municipal end markets and the impact of targeted price increases to address recently enacted tariffs. However, the company maintained its profitability outlook due to anticipated higher input costs. Zakas noted, “We are taking appropriate steps to mitigate the higher costs through pricing actions, supply chain mitigation plans, operational initiatives and cost discipline,” and cautioned about the lag between tariff impacts and price realization.

Key Insights from Management’s Remarks

Mueller Water Products’ leadership addressed how shifting operational strategies and external factors shaped first quarter results and set the tone for the rest of the year.

• Foundry Transition Progress: The transition to a new brass foundry is now complete, with all targeted products transferred and the legacy facility fully decommissioned. Management expects operational efficiencies and margin improvements to materialize in the second half of the year as the new foundry ramps up.
• Tariff Exposure and Mitigation: Newly enacted tariffs have increased costs for certain product lines, particularly those sourced from China and Israel. Management estimates 8–9% of cost of sales is impacted, with China accounting for about three-quarters of tariff exposure. The company has initiated targeted double-digit price increases on specialty valves and repair products, though benefits will be delayed due to backlog and project cycles.
• Demand Resiliency in Municipal Markets: Order activity remained healthy, supported by continued investment in aging North American water infrastructure. Around 60–65% of revenue is tied to municipal repair and replacement, which management views as a stable demand base.
• Cost Discipline and SG&A Reductions: Selling, general, and administrative (SG&A) expenses declined versus last year, driven by lower amortization, favorable currency movement, and cost management efforts. These savings helped offset manufacturing inefficiencies and contributed to improved adjusted operating income.
• Acquisition and Capital Deployment Strategy: With the bulk of capital investments for the foundry transition complete, management indicated increased activity in evaluating acquisition opportunities, aiming to expand the product portfolio and leverage existing distribution and customer relationships.

Drivers of Future Performance

Management’s outlook for the coming quarters centers on the interplay between tariff-driven cost pressures, pricing actions, and operational efficiency gains, especially as the new foundry’s benefits become more pronounced.

• Pricing to Offset Tariffs: Management expects targeted price increases on certain product lines will partially mitigate the impact of new tariffs. However, there will be a lag between incurring tariff costs and realizing pricing benefits, potentially affecting near-term margins.
• Operational Efficiency Ramps: As the new brass foundry achieves full operational efficiency, management anticipates sequential improvements in gross margin and reduced manufacturing inefficiencies, especially in the back half of the year.
• End Market Uncertainty: While municipal demand is expected to remain resilient, management highlighted potential uncertainty in residential construction markets and ongoing inflation concerns, which could influence order patterns and project timing.

Top Analyst Questions

• Deane Dray (RBC Capital Markets): Asked about potential pre-buying by distributors ahead of tariff implementation. Management responded that no unusual order patterns were observed, but the situation is being monitored.
• Nick Giovanni (Goldman Sachs): Sought clarification on capital expenditure needs now that the new foundry is operational. Management explained that future spending will focus on ongoing maintenance and operational improvements rather than major facility investments.
• Unidentified Analyst (Baird): Inquired about the effectiveness of pricing actions in fully offsetting tariff costs. Management clarified that price increases are intended to mitigate, but not fully cover, the incremental costs, with additional supply chain and operational initiatives underway.
• Walter Liptak (Seaport Research): Questioned whether double-digit price increases could disrupt municipal projects or delay orders. Management indicated that targeted products are typically fast-turn or not tied to large municipal projects, minimizing risk of disruption.
• Michael (TD Cowen): Asked for more detail regarding segment margins and the mix between repair/replacement and new construction. Management detailed that 60–65% of revenue is tied to municipal repair, with residential construction comprising 20–25%.

Catalysts in Upcoming Quarters

In the quarters ahead, the StockStory team will monitor (1) the timing and effectiveness of price increases in offsetting tariff-related costs, (2) the operational and margin improvements as the new brass foundry reaches full efficiency, and (3) sustained order activity from municipal customers as infrastructure spending continues. Additional attention will be paid to acquisition activity and any shifts in residential construction trends that could impact overall demand.

Mueller Water Products currently trades at a forward P/E ratio of 20.2×. In the wake of earnings, is it a buy or sell? Find out in our free research report.

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