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Small Caps Are Crushing the S&P 500—3 Stocks Still Worth BuyingMueller Water Products NYSE: MWA reported record third-quarter results for the fiscal quarter ended June 30, 2026, as pricing actions, tariff refunds, cost management and demand in municipal infrastructure and specialty valves supported sales and profitability.Net sales increased 4.1% year over year to a quarterly record of $395.9 million. Adjusted EBITDA rose 24.3% to a record $107.4 million, while adjusted EBITDA margin expanded 440 basis points to 27.1%. Adjusted diluted earnings per share increased 47.1% from the prior-year quarter to a record $0.50.
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Russell 2000 Stocks: Too Early or Finally Interesting?President and CEO Paul McAndrew said the quarter reflected commercial execution, resilient municipal end-market demand and strong project-related specialty-valve growth. He also said the company generated strong free cash flow while continuing to invest in capacity and efficiency initiatives and returning about $21 million to shareholders through dividends and share repurchases.
Margins Benefit From Pricing, Tariff Refunds and Cost Controls Gross profit rose 6.9% to $155.8 million, and gross margin increased 110 basis points to 39.4%. Chief Financial Officer Melissa Rasmussen said pricing actions and refunds related to International Emergency Economic Powers Act tariffs more than offset inflation, operational-performance effects, volume impacts, portfolio optimization costs and product mix.
Burry Just Sold Amazon, Replaced it With Alibaba, is He Right?The company incurred $3.1 million of portfolio optimization costs in cost of sales associated with its exit from the i2O pressure-monitoring business outside North America. Excluding tariff refunds and those portfolio optimization costs, adjusted gross margin was about 30 basis points above the prior-year gross margin of 38.3%, Rasmussen said.
SG&A expense declined $7 million year over year to $64 million, reflecting reduced foreign-exchange headwinds and lower incentive compensation expense, partially offset by inflation. The company also recorded $11.2 million of strategic reorganization and other charges, mainly tied to the i2O exit, including non-cash asset impairments, transaction expenses and severance, as well as costs related to its leadership transition.
The quarter’s effective tax rate was 15.7%, compared with 27.1% a year earlier. Rasmussen said a one-time tax benefit connected with the i2O exit contributed approximately $0.06 per diluted share.
Segment Results Water Flow Solutions: Net sales declined 0.6% to $215.3 million. Higher pricing and specialty-valve volume growth largely offset lower iron gate-valve and service-brass volumes. Adjusted EBITDA increased 9.5% to a record $73.5 million, and margin rose 310 basis points to 34.1%. Water Management Solutions: Net sales increased 10.3% to $180.6 million, driven by hydrant and natural-gas distribution-product volume growth and higher pricing. Adjusted EBITDA rose 43.6% to a record $50.7 million, while margin expanded 650 basis points to 28.1%. During the question-and-answer session, Rasmussen said third-quarter tariff refunds provided a 150-basis-point benefit to consolidated results, split roughly evenly between the two segments. The benefit was 140 basis points in Water Flow Solutions and 170 basis points in Water Management Solutions, she said.
The company expects no additional tariff refunds. Rasmussen said Section 232 tariffs continue to create elevated costs, including impacts on the Krausz business line, while the company expects its pricing actions to remain price-cost positive entering the fourth quarter.
Cash Flow, Investments and Balance Sheet For the first nine months of fiscal 2026, free cash flow increased $7.6 million from the prior-year period to $110.6 million, representing 59% of adjusted net income. Cash provided by operating activities increased $18.4 million, though the company said working capital remains elevated because of inventory investments, inflation and tariffs.
Capital expenditures were $43.6 million during the first nine months, compared with $32.8 million a year earlier, primarily reflecting investments in iron foundries intended to support productivity, capacity and operations.
Mueller ended the quarter with $495 million of cash and equivalents, $453 million of total debt and $659 million of total liquidity. The company had no borrowings under its asset-based lending facility and no debt maturities until June 2029, according to Rasmussen.
Guidance Raised as Fourth-Quarter Conditions Vary by Segment Mueller narrowed its fiscal 2026 net-sales growth forecast to 2.8% to 3.5% year over year and raised adjusted EBITDA guidance to $367 million to $372 million. At the midpoint, the outlook implies an adjusted EBITDA margin of 25.1%, which would be an annual record for the company.
The company reduced its expected SG&A expense range to $241 million to $245 million and lowered effective tax-rate guidance to 21% to 23%, reflecting the third-quarter tax benefit. It reaffirmed capital spending of $60 million to $65 million and expects free-cash-flow conversion to exceed 70% of adjusted net income.
Management expects slower new residential construction activity to weigh more heavily on fourth-quarter results, particularly in Water Management Solutions as hydrant backlog normalizes. In Water Flow Solutions, the company expects adjusted EBITDA to remain above the prior year, though it anticipates a sequential decline due partly to normal seasonality, short-cycle volume pressure and product mix.
McAndrew said municipal repair-and-replacement demand remains resilient and specialty valves continue to be the company’s fastest-growing category. He said specialty-valve opportunities include potable water, wastewater, industrial water and data-center-related projects, though the data-center business remains relatively small for Mueller.
McAndrew also said federal funding represents less than 5% of total municipal investment, with most spending coming from state and local governments. While some federal stimulus is sunsetting, he said the company does not expect a meaningful effect from that funding over the next one to three years because projects supported by appropriated funds still need to be executed.
About Mueller Water Products (NYSE:MWA)Mueller Water Products, Inc is a leading provider of water infrastructure and flow control products and services designed to help water utilities and municipalities manage, control and measure their water distribution systems. The company's portfolio includes a comprehensive range of products such as fire hydrants, valves, pipe repair systems, fittings and couplings, along with advanced metering and monitoring solutions. By combining traditional mechanical components with digital technologies, Mueller Water Products addresses the critical need for reliable and sustainable water distribution across North America.
The company's operations are organized around two primary business segments.
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