Mueller Water Products (MWA) Gregory E. Hyland on Q3 2016 Results - Earnings Call Transcript

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Mueller Water Products, Inc. (NYSE:MWA)

Q3 2016 Earnings Call

August 04, 2016 9:00 am ET

Executives

Marietta Edmunds Zakas - SVP, Strategy, Corporate Development and Communications

Gregory E. Hyland - Chairman, President & Chief Executive Officer

Evan L. Hart - Chief Financial Officer & Senior Vice President

Analysts

Seth Weber - RBC Capital Markets LLC

Walter Scott Liptak - Seaport Global Securities LLC

Ryan Michael Connors - Boenning & Scattergood, Inc. (Broker)

Operator

Welcome and thank you all for standing by. At this time, all participants are in a listen-only mode until the question-and-answer session of today's conference begins. Today's conference is being recorded. If you have any objections, you may disconnect at this time.

Now, I'd like to introduce, Mrs. Martie Zakas, you may begin.

Marietta Edmunds Zakas - SVP, Strategy, Corporate Development and Communications

Good morning, everyone. Welcome to Mueller Water Products' 2016 Third Quarter Conference Call. We issued our press release reporting results of operations for the quarter ended June 30, 2016 yesterday afternoon. A copy of it is available on our website, muellerwaterproducts.com. Discussing the third quarter's results this morning are Greg Hyland, our Chairman, President and CEO; and Evan Hart, our CFO. This morning's call is being recorded and webcast live on the Internet. We have also posted slides on our website to help illustrate the quarter's results, as well as to address forward-looking statements and our non-GAAP disclosure requirement.

At this time, please refer to Slide 2. This slide identifies certain non-GAAP financial measures referenced in our press release, on our slides and on this call, and discloses the reasons why we believe that these measures provide useful information to investors. Reconciliations between GAAP and non-GAAP financial measures are included in the supplemental information within our press release and on our website.

Slide 3 addresses forward-looking statements made on this call. This slide includes cautionary information identifying important factors that could cause actual results to differ materially from those included in forward-looking statements, as well as specific examples of forward-looking statements. Please review Slides 2 and 3 in their entirety. During this call, all references to a specific year or quarter, unless specified otherwise, refer to our fiscal year. Our fiscal year ends on September 30.

A replay of this morning's call will be available for 30 days after the call at 1-866-439-3740. The archived webcast and corresponding slides will be available for at least 90 days in the Investor Relations section of our website. In addition, we will furnish a copy of our prepared remarks on Form 8-K later this morning. After the prepared remarks, we will open the call to questions.

I'll now turn the call over to Greg.

Gregory E. Hyland - Chairman, President & Chief Executive Officer

Thanks, Martie. Thanks for joining us today as we discuss our results for the 2016 third quarter. I'll begin with a brief overview, followed by Evan's more detailed financial report. I will then provide additional color on the quarter's results and developments in our end markets, as well as our outlook for the 2016 fourth quarter.

We were very pleased with the third quarter's results. Adjusted operating income increased 18.2%, with all three business segments contributing to the improvement on a year-over-year basis. Mueller Company's domestic net sales of valves, hydrants and brass products increased 9% in the quarter, which helped to drive the solid increase in adjusted operating income. Mueller Company continued to benefit from growth in its key end markets of residential construction and municipal spending to repair and replace water infrastructure.

Anvil's third quarter net sales were down 4.3%, primarily due to lower shipment volumes into the oil and gas market, although we did have strong sales of our fire protection product. Net sales of Mueller Technologies increased 8.3% in the quarter year-over-year. Shipments of AMI products represented more than 50% of Mueller Systems net sales in the quarter. As a result, Mueller Systems was slightly profitable this quarter and Mueller Technologies operating performance improved by $2 million.

Adjusted net income per share for the quarter was up 20% to $0.18 versus $0.15 a year ago. For Mueller Water Products as a whole, we continue to expect demand for our products to increase year-over-year, driven by growth in both municipal spending and residential construction, and we believe we are on track to meet our overall expectations for Mueller Water Products for the full year.

With that, I'll turn the call over to Evan.

Evan L. Hart - Chief Financial Officer & Senior Vice President

Thanks, Greg, and good morning, everyone.

I'll first review our third quarter consolidated financial results and then discuss segment performance. 2016 third quarter net sales increased $9.1 million or 3% to $310.1 million compared with $301 million last year. We experienced solid growth in shipment volumes at both Mueller Company and Mueller Technologies, which was partially offset by Anvil's lower shipment volumes into the oil and gas market.

Gross profit improved to $107.1 million for the 2016 third quarter from $96.2 million last year. Gross margin increased 250 basis points to 34.5% from 32% in 2015. Selling, general and administrative expenses were $55.9 million in the quarter, compared with $52.9 million last year. The increase was due primarily to personnel-related expenses. Adjusted operating income for the 2016 third quarter increased 18.2% or $7.9 million to $51.2 million as compared with $43.3 million last year. Operating performance improved at Mueller Company, Mueller Technologies and Anvil.

Adjusted EBITDA for the 2016 third quarter increased to $64.3 million, compared with $57.8 million last year. And for the trailing 12 months, adjusted EBITDA was $196.2 million. Interest expense net for the 2016 third quarter was $6 million, slightly down from $6.3 million last year. For the 2016 third quarter, income tax expense of $8.2 million was 34.6% of income before income taxes. Adjusted net income per share improved to $0.18 for the 2016 third quarter, compared with $0.15 last year.

2016 third quarter adjusted results excluded non-cash pension settlement charge and other charges primarily associated with the demolition of a surplus facility. In June 2016, the Company's U.S. pension plan completed a pension benefit settlement program. Lump sum distributions to fully settle existing obligations were offered to all vested participants, who are no longer working for the Company and not yet receiving benefits. Approximately 75% of these participants accepted the offer. As a result, the plan disbursed $58.5 million and the Company recorded a non-cash pension settlement charge of $16.6 million. These distributions are intended to reduce obligations associated with providing future pension benefits.

I'll now move on to segment performance beginning with Mueller Company. Net sales for the 2016 third quarter of $198.7 million increased $10.9 million as compared with $187.8 million last year, primarily due to a 9% increase in domestic shipments of valves, hydrants and brass products. We experienced strong improvement in adjusted operating income in the 2016 third quarter, largely due to higher shipment volumes, lower raw material cost and improved operating efficiencies. Adjusted operating income improved 15.6% to $54.1 million, as compared with $46.8 million last year. Adjusted operating margin improved 230 basis points to 27.2%, as compared with 24.9% last year. Adjusted EBITDA for the 2016 third quarter increased to $62.6 million, compared with $56.5 million last year, and adjusted EBITDA margin increased 140 basis points to 31.5%, from 30.1% last year.

Continuing with Anvil, net sales decreased 4.3% to $85.4 million for the 2016 third quarter from $89.2 million last year, as an increase in sales of fire protection products was more than offset by a $3.2 million decrease in sales into the oil and gas market. Adjusted operating income for the 2016 third quarter improved to $7.4 million as compared with $7.2 million last year. This improvement reflects lower raw material cost and other cost savings despite lower sales in our oil and gas products, which have historically been our higher margin products.

And now concluding with Mueller Technologies, net sales for the 2016 third quarter increased to $26 million, as compared with $24 million last year. This 8.3% increase was primarily due to $9.3 million in higher year-over-year shipments of our AMI products, partially offset by an $8 million decrease in sales of AMR products to one customer. Additionally, AMI backlog and projects awarded was up about 10% at the end of the quarter year-over-year. Adjusted operating loss for the 2016 third quarter improved $2 million to $1.5 million, as compared with $3.5 million last year due to the increase in net sales, improved product mix and lower selling, general, and administrative expenses.

Now turning to a discussion of our liquidity. Free cash flow, which is cash flows from operating activities, less capital expenditures, was $59.4 million for the 2016 third quarter, a $10.6 million improvement compared with the 2015 third quarter. Free cash flow for the first nine months was $58.1 million higher year-over-year. At June 30, 2016, total debt was comprised of a $484 million senior secured term loan due November 2021 and $2 million of other. The term loan accrues interest at a floating rate equal to LIBOR, subject to a floor of 75 basis points, plus a margin of 325 basis points. Net debt leverage improved to 1.7 times at June 30, 2016. Our excess availability under the ABL Agreement was about $173 million. In July 2016, we amended the ABL Agreement and extended its maturity date to July 2021. Additionally, we were able to improve both financial and other terms, including reduced interest rate margins and commitment fees.

I'll now turn the call back to Greg.

Gregory E. Hyland - Chairman, President & Chief Executive Officer

Thanks, Evan. I'll now comment further on our 2016 third quarter results and end markets, and provide an overview of our expectations and outlook for the fourth quarter and full year, beginning with Mueller Company. Overall, Mueller Company's net sales were up nearly 6% and as expected, we saw a strong growth in domestic net sales of valves, hydrants and brass products in the quarter, as our key end markets remained solid. Domestic orders for these products were up 13.9% year-over-year, which contributed to a higher domestic backlog entering the fourth quarter.

Mueller Company is clearly demonstrated the benefits of higher volumes and its very strong operating leverage. Adjusted operating income for the 2016 third quarter improved 15.6%, adjusted operating margin improved 230 basis points, and adjusted EBITDA margin in the third quarter was 31.5%. On a trailing 12-month basis, adjusted EBITDA margin was 27%, an increase of 140 basis points compared to the prior trailing 12 months. This is our 16th consecutive quarter where Mueller company has delivered year-over-year higher adjusted margins and higher adjusted operating income on a quarterly basis. And the 31.5% adjusted EBITDA margin is the highest quarterly adjusted EBITDA margin that Mueller company has achieved since Mueller Water Products became a standalone publicly traded company in December 2006.

Turning to Anvil, end market demand for Anvil's product is mix. As we expected, sales of our products that go directly into the oil and gas market were down year-over-year. Demand from our industrial markets was flat to slightly down. However, sales of our fire protection products, which generally account for over 20% of Anvil's overall net sales were up more than 13% year-over-year. As we have discussed in the past, Anvil's sales into the oil and gas market have closely correlated with the U.S. rig count. While the rig count is currently down 47% from last year, as of July 29, it has increased 15% since the end of May. While we believe it is too soon to conclude this market is stabilizing, this is the first positive indicator we have seen in some time. Despite lower net sales, Anvil's adjusted operating income and margins improved due to lower raw material costs and other cost reductions.

Mueller Technologies' third quarter net sales increased at both Mueller Systems and Echologics. Mueller Systems had significantly higher sales of AMI products, which more than offset a decline in AMR sales primarily to one customer. In Echologics, net sales increased 33%, primarily in our fixed and mobile leak detection technology.

As we have discussed on previous calls, Mueller System's strategy is gaining traction as we increase our penetration of the AMI segment of the market. In fact, AMI shipments grew $9.3 million in the third quarter year-over-year and AMI backlog and awards at Mueller Systems was $45 million at the end of the quarter, up 10% from last year. Mueller Systems is continuing to benefit from its longer range radio capabilities, which we introduced into the market at the end of 2015.

Our lower (14:45) communications technology has several competitive advantages, but most importantly, it lowers the cost of infrastructure investment and provides a path for Internet of Things for water utilities and municipalities. Echologics net sales increased as our fixed and mobile leak detection technologies continue to gain traction in the market. Year-to-date, orders at Echologics increased 45%, compared to the same period in 2015. Mueller Technologies' operating performance improved $2 million compared to last year, and its operating loss was $1.5 million. The operating loss was Echologics as Mueller Systems was slightly profitable for the quarter.

Turning now to our outlook for the 2016 fourth quarter, beginning with Mueller Company. Municipal spending and residential construction, our principal end markets remain solid, which we expect should drive growth of about 10% in domestic shipments of valves, hydrants and brass products in the fourth quarter. Last year in the fourth quarter, we had very strong shipments of our Pratt product line, as well as overall international shipments.

We believe our Pratt and international shipments will be less in the fourth quarter of this year. Consequently, we expect Mueller Company's overall net sales percentage growth in the fourth quarter to be in the low to mid-single digits year-over-year. We expect Mueller Company to continue its trend in improving year-over-year operating income and margins on a quarterly basis as we anticipate fourth quarter operating income to improve in excess of 10%.

Turning now to Anvil, net sales for the fourth quarter are expected to be down year-over-year, driven again primarily by a decline in shipments to the oil and gas market. Sales to this market are now about 7% of Anvil's total net sales on a trailing 12-month basis, and we expect that will be down about $3 million to $4 million in the fourth quarter year-over-year.

Although we expect fire protection net sales to increase in the quarter, we don't believe this increase will be enough to offset the decline in sales of our oil and gas products. We expect Anvil's net sales percentage to decline to be in the low to mid-single digits. Despite declining net sales, we expect margins will improve at Anvil and believe operating income will be essentially flat on a year-over-year basis.

Mueller Technologies continues to diversify its customer base and win AMI projects, and we believe that in the fourth quarter, growth in our AMI shipments will again more than offset the decline in AMR meter sales compared to last year. We also expect the meaningful year-over-year improvement in Mueller Technologies' operating performance to continue, due to higher shipment volumes at both Mueller Systems and Echologics, and a better mix with more AMI shipments.

With this improvement, we expect Mueller Systems and Mueller Technologies as a whole to be profitable in the fourth quarter. Although our outlook for the fourth quarter for Mueller Technologies is down somewhat in both net sales and operating income, from what we expected last quarter, it is largely due to the timing of projects at Mueller Systems. We expect backlog and projects awarded of AMI products at Mueller Technologies to be around $54 million entering 2017, up about 25% year-over-year. For full year 2016, we expect Mueller Technologies' net sales to be down very slightly, as Mueller Systems is expected to largely offset a $25 million decline in AMR shipments to one customer by growing its overall AMI business.

2016 AMI revenue is expected to grow between $20 million to $25 million, compared to the prior year. Despite essentially flat sales for the year, we expect operating results to improve $3 million to $4 million for the full year. For Mueller Water Products, key variables for the full year include corporate expenses, which are expected to be $36 million to $37 million; depreciation and amortization, which is expected to be $54 million to $55 million and interest expense, which is expected to be about $24 million. We expect our adjusted effective income tax rate to be 35% to 36%, and capital expenditures to be $38 million to $40 million.

We expect 2016 free cash flow to be driven by improved operating results and an improvement in working capital. We expect free cash flow to exceed adjusted net income and to be significantly higher than in 2015.

Our overall earnings expectations for Mueller Water Products 2016 results remain unchanged, with the impact from project delays for Mueller Technologies offset by a stronger Mueller Company performance, as we continue to be confident in the growth in demand we are seeing from both residential construction and municipal spending. We continue to feel positive about our outlook, our strengthening financial position, and our earnings prospects.

With that operator, I will open up this call for questions.

Question-and-Answer Session

Operator

Thank you. We will now begin the question-and-answer session. Our first question comes from Seth Weber, RBC Capital Markets. Your line is now open.

Seth Weber - RBC Capital Markets LLC

Hi. Good morning.

Gregory E. Hyland - Chairman, President & Chief Executive Officer

Good morning, Seth.

Evan L. Hart - Chief Financial Officer & Senior Vice President

Good morning.

Seth Weber - RBC Capital Markets LLC

I think first I just wanted to clarify some of the numbers that I think I heard. Echologics sales up 33% in the quarter, but orders were up 45% year-to-date. Was that correct?

Evan L. Hart - Chief Financial Officer & Senior Vice President

Yes, that's correct, Seth.

Seth Weber - RBC Capital Markets LLC

And I guess, so my question there is – at these types of levels is that a critical mass? Is that big enough for that business to start to turn profitable as well, I guess maybe in the early part of next year? Where do you see sort of the threshold for the Echologics business now turning the corner as well, I guess is my first question?

Evan L. Hart - Chief Financial Officer & Senior Vice President

Yeah, Seth, we're still not quite there. Echologics, certainly as we've talked in the past, we've added fixed costs to the business on the selling side, on R&D and we're not obviously quite at the volume level to be able to cover that fixed cost. We're seeing very nice gross margin and when we do get to that level, we will have very high conversion rates. We think we're still probably – we could get there in 2017. It obviously depends on the continued adoption of our fixed leak detection. We've seen a nice growth in our fixed leak detection. That is different than our field work. Our field work is profitable, but it's lumpy. Fixed leak detection is more predictable, a more steady flow of -- more steady flow of income. So we would think that we probably need to see another overall 20% growth in sales and revenues to get to that breakeven point. We're not sure if we're going to get there – when we'll see that and if we see that in 2017 or not.

Seth Weber - RBC Capital Markets LLC

Perfect. That's very helpful. Thank you. And then I guess as a follow up question – just conceptually your net debt leverage is down 1.7. It's come down materially over the years, and your free cash flow is going up. So can you just update us on your current thoughts on capital allocation? I mean you have a small buyback in place. You did raise the dividend a little bit earlier this year. But what's your thinking here, given the improvement in the capital structure and the free cash flow look outlook?

Gregory E. Hyland - Chairman, President & Chief Executive Officer

Yes. Seth, good question. I know that a number of you have been following us a while, and know that several years ago, our balance sheet was constrained. More specifically, our net debt leverage was approaching 7 times. As you mentioned – as you know and Evan mentioned, at the quarter we just ended, it's 1.7 times. And given the confidence I think in our outlook and our expected free cash flow, we expect to have an even stronger balance sheet and to have more flexibility. And as you would expect, we're having a lot more detailed capital allocation discussions with our board. As you pointed out, during the last 12 months, we have increased dividends twice, repurchased some shares as part of a $50 million share buyback that has been approved by the board. We've also evaluated acquisition strategies.

So at this point I can assure you that we are very thoughtfully looking at all capital allocation options that we believe will best drive shareholder value. But I think it's – when we talk about lead capital allocation at this point, I think it's also important to note that we still remember the days when our net debt leverage approached 7 times. So I think that we're taking this all into account when we look at possibilities. So we do think we have – we were at the point now where we can drive shareholder value with a very focused capital allocation plan. And I would say that where we are right now, we're not ready to comment on exactly what that plan will be, but I think, again, we have a lot more flexibility, we have a very positive outlook, and we think we have some real opportunity to drive shareholder value with the right capital allocation plan.

Seth Weber - RBC Capital Markets LLC

Okay. As you think about M&A, is it primarily on the – just on the technologies, kind of smaller technology type tuck-in stuff or would you be thinking something a little bit more transformational, either from a product perspective or regionally?

Gregory E. Hyland - Chairman, President & Chief Executive Officer

I think we are certainly – we'd consider a look at both. It depends – I think it depends on the opportunity. I think we would look at a transformational acquisition, but I think that we would be very hesitant about – let me put it this way, we would certainly be very, very concerned and watch what our net debt leverage would be. And that's what I meant by the previous comment that, hey, it's still fresh in our minds, where we were.

Seth Weber - RBC Capital Markets LLC

Sure, sure.

Gregory E. Hyland - Chairman, President & Chief Executive Officer

So, we would look at something transformational, but I don't think that we would stretch the balance sheet too much beyond our comfort level, and I can never say what it exactly would be because it always depends on the acquisition and how quickly it would de-lever and so on. But I think that we've been pretty consistent to saying that we feel comfortable managing the business with net debt leverage at 3 times, but sort of look at that 4 times as a feeling, but it certainly would depend on the acquisition.

Seth Weber - RBC Capital Markets LLC

Terrific. I appreciate the thoughts. Thanks guys.

Gregory E. Hyland - Chairman, President & Chief Executive Officer

Thanks, Seth.

Operator

Thank you. Our next question comes from Mike Wood, Macquarie. Your line is now open.

Unknown Speaker

Hi there. This is Drew (27:41) on for Mike. Thanks for taking the questions.

Gregory E. Hyland - Chairman, President & Chief Executive Officer

Absolutely.

Unknown Speaker

Thanks. So, you say that you are on track with expectations. So I just wanted to ask if you could contrast the low double-digit growth for your base business in the second half with the 9% growth in valves, hydrants and brass products this past quarter, with the easy comps that you called out?

Gregory E. Hyland - Chairman, President & Chief Executive Officer

I'm sorry. Would you repeat that again?

Unknown Speaker

Just on the low double-digit growth expectation for the second half in the base business, the 9% in valves, hydrants and brass products this quarter, despite easy comps. So I just wanted to get a comment on what you were thinking for the fourth quarter?

Gregory E. Hyland - Chairman, President & Chief Executive Officer

Yes. We are – of course, when we talked about double-digit growth, we're talking about our domestic valves, hydrants and brass products. And certainly that's the largest percent of our Mueller Co. business. And as we said, yes, we still expect double-digit growth. In fact, we expect that to grow – valves, hydrants and brass products to grow 10% in the fourth quarter. And in fact, in July, our orders for these products were up between 10% and 11%.

So, I do think that we're on track to hit the outlook that we have been providing, I think throughout most of the year, and even one month, obviously doesn't make a quarter, but the order rate that we saw in July certainly supports the outlook that we provided, and again I think further highlights the comments. And I think the comment you just make about an easy comp, last year we were certainly saw a falloff in our orders in the third quarter. They didn't meet our expectations because of the weather, the heavy rains in a good portion of the country and our distributors were sitting with a lot of inventory as we entered the fourth quarter. This year, our distributor inventories look like they're in line where they typically expect them, between 35 days, 40 days. As I said, we saw a nice growth in orders in July and we still look at residential construction and municipal spending as being very solid. So, I think as we sit here today, that the outlook that we've provided the last – we're pretty confident that the outlook that we've given the last several quarters and reaffirm today that we will be able to achieve.

Unknown Speaker

Thanks. And then just on raw materials, if you could comment maybe on any benefit you saw in the quarter and with steel prices going up, if that turns into headwind in the fourth quarter, if you need any additional price actions to recoup that increase in steel prices?

Gregory E. Hyland - Chairman, President & Chief Executive Officer

Yes, yes. Actually when we look at – both in our Mueller business and our Anvil business, on a sequential basis, we saw higher scrap steel costs, but year-over-year, our scrap steel costs are still down. So on a year-over-year basis, going into the fourth quarter, we expect that will be a tailwind. But however, since we did see an increase in the steel scrap prices, we did announce price increases on a number of our Anvil product lines, effective at the end of June. Those went anywhere from 4% to 8%. So we expect that we will start seeing maybe some of the benefits of that price increase in the – later in the fourth quarter. Relative to Mueller Co. we did put a price increase in February that we think more than offsets any impact that we may see on increased scrap steel prices. But again I think it's important to point out, we did see – we are seeing an increase – we did see an increase sequentially, but on a year-over-year basis, what we're paying for scrap and brass ingot is still down.

Unknown Speaker

Okay. Thanks guys.

Gregory E. Hyland - Chairman, President & Chief Executive Officer

Thank you.

Operator

Thank you. Our next question comes from Walter Liptak, Seaport Global. Your line is now open.

Walter Scott Liptak - Seaport Global Securities LLC

Hi, thanks. Good morning, guys.

Gregory E. Hyland - Chairman, President & Chief Executive Officer

Good morning.

Evan L. Hart - Chief Financial Officer & Senior Vice President

Good morning.

Walter Scott Liptak - Seaport Global Securities LLC

I wanted to ask about the Mueller Co. business and that the order growth and backlog have built a little bit more. And basically, it sounds like throughout the quarter the orders were pretty strong, including in July. Why wasn't there – why didn't it flow through the revenue? Why was it still in backlog?

Gregory E. Hyland - Chairman, President & Chief Executive Officer

Yes. A couple of things. A couple of things, Walt. Some of the orders that we saw coming in, in the third quarter were actually for larger valves. Larger valves have a longer delivery lead time, and that's a positive for us too, because generally when we see projects that require larger valves, then pipelines that require smaller valves aren't too far behind. So one, given the mix, we did see a little more of the larger valves with longer lead times.

The second thing that actually impacted us is that with most of our distributors, we do have a rebate program and it's based on them purchasing certain number of orders or volume with us throughout the year. And we've had several of our distributors achieve that level, where they move to the next level of rebate and again that's good news, and that gets subtracted from our revenue line.

So I think that one, probably, what impacted the most, have seen less in the third quarter and supports our fourth quarter forecast, is we did see a higher mix of large diameter valves, which again as I said are a little longer lead time. And we are seeing that we are getting distributors that are getting to that level of rebate sooner this year than what we even expected, and that's coming a little bit off the top line.

Walter Scott Liptak - Seaport Global Securities LLC

Okay. That sounds great. And are you starting to see the smaller valves come through behind these larger valves or is that something we might be able to look forward to next quarter?

Gregory E. Hyland - Chairman, President & Chief Executive Officer

Well, the smaller valves have been strong throughout the year, but as I said, generally that we've seen – when we see an uptick in larger valves, that's a good – that's a good omen or a good driver of what we would expect down the road, to see an uptick in smaller valves. Because again, once they put the larger diameter pipeline in, generally smaller diameter pipelines will run off that larger diameter. But I think that that will be a couple of months before we see those projects driving demand for smaller valves.

Walter Scott Liptak - Seaport Global Securities LLC

Okay, great. Thank you.

Gregory E. Hyland - Chairman, President & Chief Executive Officer

Thank you.

Operator

Thank you. Our next question comes from Ryan Connors, Boenning & Scattergood. Your line is now open.

Ryan Michael Connors - Boenning & Scattergood, Inc. (Broker)

Great. Thanks for taking my question. I apologize if I'm running over some covered ground here. I've been hopping on a couple of different calls. But I wanted to explore maybe, Evan, the divergence between GAAP and adjusted numbers. And in particular you mentioned in the press release the charge for the idle foundries. I'm just curious which facility that is, and that's a $5 million charge. What exactly was happening there?

Evan L. Hart - Chief Financial Officer & Senior Vice President

Yes. Several years ago, we shut down an Anvil foundry and plant in Statesboro, Georgia and moved production to our Columbia facility. Since that time, we have worked to take the appropriate steps to manage the site and recently started demolition, decommissioning, and recorded to the related charges that you outlined. We expect future expenses associated with this activity will be minimal. So effectively just in the quarter, we started the process to take down the building in South Georgia, and recorded the associated charges and we think that that's effectively all the charges that we'll need to take.

Ryan Michael Connors - Boenning & Scattergood, Inc. (Broker)

Got it. Okay. And then again, this has probably been talked about, maybe ad nauseam, but just the scrap steel tailwind and the margins in Mueller Co., Greg, over the last several years, you've talked about – you've kind of maintained that the peak margins that we saw in Mueller Co. in the past peak will probably not be revisited. And yet even if we sort of add-in Mueller Tech and Mueller Co. together to sort of form the synthetic legacy Mueller Co., it seems like we're getting back up to that level. So, is it your view that that's still the case, that those are anomaly type margins and we should moderate to the mean, or can we assume that we maybe do have a higher plateau level here?

Gregory E. Hyland - Chairman, President & Chief Executive Officer

Yes. Ryan, great question. I think we're getting confident that – when you look at historically, and since Mueller Water Products has been a publicly traded company, that Mueller Co. did reach one year, for the 12-month period, EBITDA margins of over 30%. Of course they were using 100% of their capacity then, and it was just – everything was flowing very smoothly.

We do think that as our volume picks up, that we will have the opportunity to, I think, continue. As you know that we've been pretty much saying that we were at the 25% – we're confident in the 25% plus range on our – on Mueller Co. Our last 12 months we were at 27% margin. I think if we continue to see capacity utilization increase, that we have an opportunity to expand upon those.

But it won't be linear. It will be a step. For instance, we're at a very nice position right now, where we're able to get everything out – to all of our production on one-and-half, one shift with some overtimes, maybe two in some operations. As capacity utilization goes up, when you have to add another shift, sometimes you're not as efficient in the beginning as you are as capacity utilization continues to go up. So that will be I think increase – it will be a step, it will be a step movement. But given the – if we see volume continuing to go up, sure we may see scrap steel prices going up. It could impact us somewhat, but if we've demonstrated this business in the past, we're able to pass those along, pass those along to the market.

So as we look at it today that we believe that if we continue to see volume increasing, that we feel good that our margins can continue to increase. Whether or not we'll ever get back to the – on an annual basis to the 30% that we did have the one year, that remains to be seen. But we're very pleased with the efficiencies that we're generating into manufacturing facility. Some of the capital investments we've made over the last several years to streamline operations, we're seeing the benefit. We're certainly seeing the benefit of lower scrap steal. But again as we said that – if we see raw material prices going up – costs going up, we think we can cover those on the pricing side.

Ryan Michael Connors - Boenning & Scattergood, Inc. (Broker)

And just to clarify, when you say the 30%, you're talking about – you're normalizing for the current segment structure with Mueller Co. or you're talking about when – those are numbers when Mueller Tech used to be or Mueller Systems...

Gregory E. Hyland - Chairman, President & Chief Executive Officer

No, we're just talking the current structure of – I'm just talking about Mueller Co., not Mueller Tech.

Ryan Michael Connors - Boenning & Scattergood, Inc. (Broker)

Mueller Co. as currently constituted, okay. Okay, great. Thanks for your time.

Gregory E. Hyland - Chairman, President & Chief Executive Officer

Okay. Thanks, Ryan.

Evan L. Hart - Chief Financial Officer & Senior Vice President

Thank you.

Operator

Thank you. And at this time, we don't have questions in queue.

Gregory E. Hyland - Chairman, President & Chief Executive Officer

Well, then, thank you very much for joining us today in our call. Thanks for your interest in the company. And I'm sure we'll see you all soon.

Operator

That concludes today's conference. Thank you for participating. You may disconnect at this time.

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