Mueller Water focusing on debt reduction and new markets, says CEO

By Lisa Kerner

Charlotte, N.C., March 20 - Mueller Water Products, Inc. is focusing on opportunities to leverage its brand in new areas, including smart metering and leak detection, as the housing market continues to improve, according to chairman, president and chief executive officer Greg Hyland.

The greatest growth and demand is in water infrastructure, said Hyland during a presentation Wednesday at BB&T Capital Markets' 7th Annual Commercial and Industrial Conference in Coral Gable, Fla.

Hyland said Mueller was affected by the fall-off in residential construction. However, the company is well positioned for the long term and posted sales of $1.1 billion for the 12 months ended Dec. 31.

Mueller has focused on three main objections for the past few years, the first of which is to reduce costs and improve operating leverage, said Hyland.

"We closed six plants, we divested noncore assets, we divested our U.S. pipe business just about a year ago, we implemented Lean Six Sigma throughout all our manufacturing facilities, and we're in between our third and fourth year of that implementation," Hyland said.

Debt and leverage

Mueller's second objective is to manage working capital and capital expenditures to generate free cash flow.

"We generated cash flow last year of $45 million, up from $29 million in fiscal year 2011, (and) reduced our debt by $473 million from 2008 through December of 2012," said Hyland.

In February, Mueller redeemed $22.5 million of 8¾% senior unsecured notes.

"Our leverage at the end of December was 4.3 times," Hyland said.

According to Hyland, the company has "spent a lot of time and a lot of effort" to reduce its debt, and over the next 12 months it is "reasonable for us to expect to get our leverage down below three, which has been our target for a long time."

At Dec. 31, Mueller's debt structure included a renegotiated $225 million ABL agreement that expires 2017, $420 million of 7 3/8% senior subordinated notes due 2017 and $202.5 million of 8¾% senior unsecured notes due 2020.

Looking ahead

Of the third objective, to pursue strategic growth opportunities, Hyland said the company "acquired and invested in newer technology that we think has some pretty strong long-term demand."

Mueller's long-term targets include achieving base business organic growth of 5% to 10% or more and adjusted EBITDA margins of 20% or more in normalized end-market conditions.

Hyland said the company also wants its free cash flow to be greater than its net income.

According to Hyland, Mueller would add bolt-on acquisitions if the properties were the right ones. International expansion is also a possibility.

For the first quarter of fiscal 2013, Mueller's consolidated net sales were up almost 14%, and operating income was up about 21%, year over year.

While the first quarter is typically the company's lowest, "We expect to see improvement throughout the year," Hyland said.

Mueller Water is an Atlanta-based manufacturer and marketer of drinking water transmission, distribution and treatment facilities.

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