ミューラー・ウォーター・プロダクツ（MWA）2026年度第4四半期決算説明会：過去最高のEBITDAと2027年のマージン拡大

要点

• ミューラー・ウォーター・プロダクツが発表した2026年度通期決算は、売上高が約15億ドル（前年比3.2%増）となり、調整後EBITDAは14.1%増の3億7,220万ドルと過去最高を記録した。
• 通期の調整後EBITDAマージンは240ベーシスポイント（bp）拡大して25.2%となった。調整後EPSは19.8%増の1.57ドルと過去最高を更新した。
• 第4四半期の売上高は1.1%減の3億7,650万ドルとなったものの、調整後EBITDAは4.0%増の9,550万ドルとなり、マージンは130ベーシスポイント拡大して25.4%に達した。
• フリーキャッシュフローは2億730万ドルに達し、7,400万ドルの配当および自社株買いの原資となった。また、ミューラーは自社株買いの認可枠を3億ドル増額したほか、四半期配当を14.3%引き上げ、1株当たり0.08ドルとした。
• ミューラーは赤字の計量器事業をZENNER USAに移管することで合意した。経営陣は、2027年度に約2,600万ドルの一時費用が発生する一方、主として第2四半期以降、年換算で100〜140ベーシスポイントの調整後EBITDAマージン改善効果を見込んでいる。
• 2027年度について、経営陣は売上高を14億4,000万ドル〜14億7,000万ドル、調整後EBITDAを3億7,800万ドル〜3億8,800万ドルと予想している。中央値に基づく調整後EBITDAマージンは26.3%となる。

主要財務業績

通期の調整後EPSには、関税の払戻金とi2O事業撤退に伴う一時的な税務項目による合計0.09ドルのプラス効果が含まれている。フリーキャッシュフローは調整後純利益の84%に達した。

ミューラーの2026年度末時点の現金および現金同等物は5億6,600万ドル、総負債は4億5,400万ドル、流動性は7億3,100万ドルとなった。同社が発行する4億5,000万ドルのシニアノート（優先債）は固定金利4%で、2029年6月まで満期を迎える負債はない。

事業部門別の業績動向

ウォーター・フロー・ソリューションズ

第4四半期の売上高は、主に鋳鉄製仕切弁および給水用黄銅製品の販売数量減少により、3.0%減の2億1,090万ドルとなった。価格引き上げや特殊バルブの販売数量増加がこの減少を一部相殺した。

調整後EBITDAは7.0%増の6,710万ドルとなり、マージンは300ベーシスポイント拡大して31.8%となった。製造プロセスの改善、価格改定、販管費の削減が、数量減少、不利な製品ミックス、インフレ、関税の影響を上回った。同セグメントの通期マージンは430ベーシスポイント上昇し、過去最高の33.0%に達した。

ウォーター・マネジメント・ソリューションズ

第4四半期の売上高は1.4%増の1億6,560万ドルとなった。価格引き上げに加え、補修用製品や天然ガス供給向け製品の伸びが、農業用製品および消火栓の数量減少を相殺した。

調整後EBITDAは8.4%減の4,120万ドルとなり、マージンは270ベーシスポイント低下して24.9%となった。経営陣はこのマージン悪化の要因として、販売数量の減少、関税、インフレ圧力を挙げた。通期マージンは24.6%と、前年をわずかに下回った。

計量器事業の移管

計量器事業の2026年度売上高は約4,000万ドルで、調整後EBITDAマージンは赤字であった。ミューラーは、同事業は十分な規模を欠いており、専門企業が担うのに適した技術投資が必要とされていたと説明した。

ZENNER USAへの移管の大半は2027年度中に行われる見通しである。同社は約2,600万ドルの一時費用を見込んでおり、主として製品保証債務、顧客サポート、取引関連費用、退職金などに関連するものである。これらの費用の大部分は第1四半期に発生する見込みである。

経営陣は、事業撤退により、主として第2四半期以降、年換算で100〜140ベーシスポイントの調整後EBITDAマージン改善効果がもたらされると見込んでいる。中央値ベースでは、年換算のEBITDA改善効果は約800万ドルとなる。

経営陣による業績予想

2027年度の業績予想には、計量器事業に関連する財務業績は一切含まれていない。

経営陣は、前期からのキャリーオーバー効果や第2四半期後半に予定されている値上げを含め、1桁台前半から半ばの価格転嫁効果を見込んでいる。連結ベースの販売数量は、前年の消火栓バックログ効果を除くと中央値で横ばいとなる見通しである。

ウォーター・フロー・ソリューションズの売上高は、価格引き上げと特殊バルブ需要に支えられ、1桁台前半から半ばの成長率が見込まれている。一方、ウォーター・マネジメント・ソリューションズの売上高は、計量器事業の移管および前年の消火栓バックログとの比較から、1桁台後半の減少となる見通しである。

同社は、建設活動の季節性や、事業ポートフォリオ見直しおよび業務改善効果の発現時期を反映し、下期の売上高および調整後EBITDAマージンが上期を上回ると予想している。

リスクと注視すべき分野

• 経営陣は、住宅建設活動が2026年度に2桁の減少を記録した後、2027年度も1桁台前半の減少となると予想している。
• 自治体による修繕および更新用の購買活動は、予算面でのインフレ圧力を背景に引き続き慎重な姿勢が続くと予想される。
• 消火栓バックログの正常化は、2027年度の売上高に対して前年比で約2%の下押し要因となる。
• インフレ、通商拡大法232条に基づく関税、販売数量の減少、製品ミックスの悪化は、依然として価格改定や生産性向上によるプラス効果を相殺する潜在的なリスク要因である。
• ZENNER USAへの顧客移行のペースが計量器事業移管における最大の不確実性要因であり、一部の費用や対応作業は2027年度以降に持ち越される可能性がある。

アナリスト質疑応答の要点

経営陣は、より広範な流体制御プラットフォームへのシフトを継続する中で、特殊バルブが2桁成長を達成すると見込んでいると述べた。この成長により、住宅建設の低迷や自治体の慎重な支出姿勢による下押し圧力が相殺されると期待されている。

価格とコストに関して、ミューラーは金額ベースではプラスを維持し、マージンへの影響は概ね中立にとどまると見込んでいる。経営陣は、現時点で把握している関税コストは2027年度の前提条件に織り込み済みであると述べた。

中長期的な収益性について、経営陣は正式なマージン目標を提示しなかった。ただし、ミューラー・オペレーティング・システム（Mueller Operating System）の導入はまだ初期段階にあると指摘しつつも、特殊バルブ、上下水道インフラ、治水、産業用流体制御分野においてさらなる事業機会が存在することを強調した。

決算説明会トランスクリプト全文

決算説明会の完全なトランスクリプト

経営陣による説明

Operator

is being recorded. If you have any objections, you may disconnect at this time. It is now my pleasure to turn the call over to Whit Kincaid.

Whit Kincaid

Good morning, everyone. Thank you for joining Mueller Water Products' fourth quarter and fiscal 2026 conference call. Yesterday afternoon, we issued our press release reporting results for the quarter and year ended September 30, 2026. The release is available on our website, muellerwaterproducts.com. Joining me this morning are Paul McAndrew, our President and Chief Executive Officer, and Mike Morgan, our Executive Vice President of Finance and future Chief Financial Officer [1.3.3]. After our prepared remarks, we will take questions about the information covered on the call. Please limit yourself to 1 question and 1 follow-up and then return to the queue. Today's call is being recorded and webcast live on the Internet.

The accompanying slides are available on our website and include our forward-looking statements and non-GAAP disclosures. Please turn to Slide 2, which identifies the non-GAAP financial measures referenced in our press release, slides, and remarks, and explains why we believe these measures are useful to investors. Reconciliations of non-GAAP measures to GAAP measures are included in the supplemental information in 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. Please review Slides 2 and 3 in their entirety. Unless otherwise noted, all references to years and quarters on this call refer to our fiscal year, which ends September 30.

A replay of this morning's call will be available for 30 days at 1-800-819-5743. The archived webcast and corresponding slides will be available for at least 90 days on the Investor Relations section of our website. I'll now turn the call over to Paul.

Paul McAndrew

Thanks, Whit. Good morning, everyone. Thank you for joining our fourth quarter and fiscal 2026 earnings call. 2026 was an excellent year for Mueller. We delivered record results and made meaningful progress in strengthening the business. Full-year net sales increased 3.2% to approximately $1.5 billion, supported by enhanced commercial execution and resilient end-market demand. Higher pricing was partially offset by lower volumes. Adjusted EBITDA grew 14.1% year-over-year to a record $372 million. Adjusted EBITDA margin expanded 240 basis points to 25.2%, bringing our cumulative expansion over the past 3 years to 940 basis points. Adjusted net income per share reached a record $1.57, an increase of approximately 20% year-over-year. Free cash flow was strong in the fourth quarter and for the full year, totaling $207 million for the year.

This cash generation enabled us to return $74 million to shareholders through dividends and share repurchases. We recently announced a $300 million increase in our share repurchase authorization and 14.3% increase in our quarterly dividend to $0.08 per share. These actions reflect our confidence in Mueller's strategy and our ability to continue investing in the business. Three things drove our progress. First, operational improvements through greater productivity and disciplined cost management, including SG&A productivity. Second, commercial execution through improved service levels, strategic pricing, and strong growth in specialty valves. Third, a stronger organization built around leadership accountability. Together, these efforts have made Mueller a more profitable business and positioned us well for fiscal 2027.

These results reflect the hard work and dedication of our employees across Mueller. I want to thank our teams for their commitment to our customers and to making the company stronger. I am proud of what we have accomplished together. I also want to highlight an important announcement about our metering business. We have entered into an agreement to transition the business, which operates through our Mueller Systems subsidiary, to ZENNER USA, who is part of the Minol-ZENNER Group. Following a comprehensive portfolio review, we believe that exiting this business will improve earnings quality, simplify operations, strengthen returns on invested capital, and allow us to direct resources towards areas with stronger growth potential. This transition is another decisive step in strengthening Mueller.

Metering requires scale and technology investments that a more specialized company is better positioned to provide. Zenner is an established global metering company with extensive industry experience and compatible technology. We believe these capabilities will support a smooth transition for our customers. This decision reinforces our focus on building a stronger, more profitable Mueller through disciplined execution of our strategy, supported by the Mueller Operating System. As we expand margins, accelerate growth, and create long-term shareholder value, we will begin the transition immediately and work closely with our customers and suppliers to maintain service continuity and ongoing support. We expect most of the transition to occur in 2027, although some activity and associated costs could extend beyond this year. The timing of customers' migration to the Zenner platform will be the main source of variability in the phased transition.

In connection with the agreement, we expect to incur approximately $26 million of one-time expenses in fiscal 2027. These primarily relate to the outstanding warranty liability, operating and customer service costs, transaction-related costs, and severance. The transition impacts will be adjusted as appropriate in our key financial metrics. The one-time and ongoing transition activities will be included in net sales, cost of sales, and strategic reorganization and other charges. The majority of the expenses will be incurred during the first quarter, with most of the remaining expenses incurred prior to the end of the year. Finally, the financial impacts and benefits will occur in the Water Management Solutions segment. For 2026, we generated approximately $40 million in metering-related sales with a negative adjusted EBITDA margin.

We expect the transaction to support adjusted EBITDA margin expansion with a 100 to 140 basis points annualized benefit, primarily beginning in the second quarter of fiscal 2027. At the midpoint of the range, this would be approximately $8 million favorable to EBITDA on an annualized basis. Taking the one-time expenses and annualized benefit into account, we believe the cash return on investment of completing this transition is very attractive relative to other opportunities. I would like to welcome Mike Morgan, who joined Mueller on October 28 and will become our Chief Financial Officer on or about November 19 following the filing of our annual report [1.3.3]. He most recently served as Chief Financial Officer of Indicor and previously held senior finance roles at LabCorp and Timken. Mike is a proven industrial finance leader with an extensive track record working with management teams and boards to improve performance and drive profitable growth. He will recap our fourth quarter and full-year performance, and I'll provide more details on our annual guidance for 2027.

Unknown Speaker

Thanks, Paul. Good morning, everyone. It's an exciting time to join Mueller. Over the coming months, I look forward to meeting many of you and working with Paul and the leadership team to strengthen execution, support disciplined investment, and advance Mueller's strategy for profitable growth. In the fourth quarter, net sales decreased 1.1% versus the prior year to $376.5 million, with Water Management Solutions up 1.4% and Water Flow Solutions down 3.0%. The year-over-year decrease in consolidated net sales was primarily driven by lower volumes, partially offset by higher pricing across most product lines. In the quarter, gross profit of $139.3 million decreased 0.5% year-over-year, and gross margin expanded 20 basis points to 37.0%. We incurred $600,000 of Decatur Legacy Brass Foundry costs in the Water Flow Solutions segment. Excluding these costs, our gross margin was 37.2%.

This was down 100 basis points compared with the prior year, excluding the $5.6 million warranty charge at Water Management Solutions in the prior year. The decrease was primarily driven by lower volumes, product mix, and inflationary pressures, including the impact of higher Section 232 tariffs, partially offset by higher pricing and manufacturing performance. For the full year, we achieved a record gross margin of 37.9%, an increase of 180 basis points compared with the prior year. Excluding the impact of tariff refunds, portfolio optimization costs, and the Decatur foundry closure cost, adjusted gross margin was 37.8%. Gross margin expanded 100 basis points compared with the prior year, excluding one-time items in both periods. The increase was primarily driven by manufacturing performance and price/cost.

Total SG&A expenses for the quarter of $57.3 million decreased $9.4 million year-over-year, primarily due to lower incentive-based compensation, favorable personnel-related costs resulting from productivity actions, and reduced foreign currency headwinds, partially offset by inflationary pressures. We incurred $8.9 million of strategic reorganization and other charges, which have been excluded from adjusted results. These costs primarily relate to closure of our legacy brass foundry in Decatur, Illinois, and severance. Strategic reorganization and other charges and the brass foundry closure costs in gross profit have been excluded from adjusted results for the fourth quarter.

For the quarter, adjusted EBITDA of $95.5 million increased 4.0% year-over-year. Adjusted EBITDA margin expanded 130 basis points versus the prior year to 25.4%, setting a new fourth-quarter record. Our strong margin performance was driven by higher pricing, lower SG&A expenses, and manufacturing performance, partially offset by inflationary pressures, lower volumes, product mix, and tariffs. For the full year, adjusted EBITDA increased 14.1% year-over-year to a record $372.2 million, representing 25.2% of net sales. For the quarter, adjusted net income per share was $0.38, which was flat compared with the prior year.

Our fourth-quarter effective income tax rate was 28.0% compared with 23.4% in the prior-year quarter. The fourth-quarter income tax rate was within our expectations as our annual guidance for the full-year effective tax rate was 21% to 23%. For the full year, the effective income tax rate was 22.7% as compared with 24.6% in the prior year. The lower effective tax rate for the full year was primarily due to a one-time tax benefit resulting from the recognition of a loss on a foreign subsidiary investment. This benefit was in the third quarter and equates to a one-time cash tax benefit of $0.06 per share. Full-year adjusted net income per share increased 19.8% year-over-year to a record $1.57 per share. As a reminder, full-year earnings per share included a combined $0.09 benefit from tariff refunds and the one-time tax item associated with the i2O business exit.

Turning now to segment performance, starting with Water Flow Solutions. Fourth-quarter net sales decreased 3.0% year-over-year to $210.9 million, primarily due to lower iron gate valve and service brass volumes. These declines were partially offset by higher pricing across most product lines and increased specialty valve volumes. Adjusted EBITDA increased 7.0% year-over-year to $67.1 million, and adjusted EBITDA margin improved 300 basis points versus the prior year to 31.8%. This improvement was driven by manufacturing performance, higher pricing, and lower SG&A expenses, which more than offset lower volumes, product mix, inflationary pressures, and tariffs. For the full year, adjusted EBITDA margin expanded 430 basis points year-over-year to 33.0%, a record for the segment.

Moving on to Water Management Solutions. Fourth-quarter net sales increased 1.4% year-over-year to $165.6 million, driven by higher pricing across most product lines and volume growth in repair and natural gas distribution products. These were partially offset by lower volumes of agriculture and hydrants. Adjusted EBITDA decreased 8.4% year-over-year to $41.2 million, and adjusted EBITDA margin of 24.9% decreased 270 basis points. The decrease was due to lower volumes, tariffs, and inflationary pressures, partially offset by higher pricing and lower SG&A expenses, including reduced foreign currency headwinds. For the full year, adjusted EBITDA margin was 24.6%, slightly below the prior year.

Moving on to cash flow. For the year, free cash flow increased $35.3 million to $207.3 million and was 84% of adjusted net income. Free cash flow exceeded our expectations, primarily due to favorable working capital and lower capital expenditures. Net cash provided by operating activities for the year increased by $43.6 million year-over-year to $262.9 million, primarily driven by higher net income and lower cash taxes, offset by changes in working capital. We increased our capital expenditures by 17.5% year-over-year to $55.6 million, or 3.8% of net sales, primarily driven by investments in our iron foundries. We ended the year with $566 million in cash and cash equivalents and $454 million in total debt.

Our balance sheet remains exceptionally strong, providing significant flexibility for organic investment and strategic growth opportunities. We have no debt maturities until June 2029. Our senior notes total $450 million at a favorable fixed interest rate of 4%, and we had no borrowings under our ABL facility. Total year-end liquidity was $731 million, including $165 million available under the ABL facility. This positions us to reinvest in the business, return cash to shareholders, and pursue acquisitions in existing and adjacent markets that create value. I'll now turn it back to Paul to discuss the outlook for 2027.

Paul McAndrew

Thanks, Mike. I'll now review our fiscal 2027 outlook, which excludes all metering-related financial results. We expect consolidated net sales between $1.44 million and $1.47 billion. In fiscal 2026, the metering-related sales were approximately $40 million. Excluding the portfolio optimization headwind, our net sales would range between flat and approximately 2.5% higher year-over-year. For price realization, we are assuming a low single-digit to mid-single-digit benefit for the year. This includes carryover pricing and new price increases sometime in Q2, which we have not yet announced. The year-over-year volume headwinds are mainly driven by the prior hydrant backlog benefit at Water Management Solutions.

Excluding this impact, we anticipate consolidated volumes will be flat at the midpoint. This includes double-digit specialty valve growth and benefits from commercial initiatives. These benefits will be offset by slower new residential construction activity and cautious purchasing behavior from municipalities in terms of repair and replacement. We expect our adjusted EBITDA to range from $378 million to $388 million. At the midpoint of our guidance range, adjusted EBITDA achieves a 26.3% margin for the year, reflecting a 110 basis point year-over-year improvement. This would be a 150 basis point year-over-year expansion, excluding the prior-year tariff refund benefit. The expansion is driven by the metering and i2O portfolio optimization actions, higher pricing, manufacturing performance, and SG&A productivity, partially offset by inflationary pressures, lower volumes, and product mix.

Similar to the prior year, we expect our second-half net sales and adjusted EBITDA margin to be higher than the first half of the year, with the first quarter lower than the second quarter. This is driven primarily by the seasonality of our business, where construction activity ramps up in the spring, and the timing of the benefits from the portfolio optimization and operational improvements. For the Water Flow Solutions segment, we expect net sales growth in the low single-digit to mid-single-digit range, supported by higher pricing and volume growth from specialty valves, partially offset by lower volumes of iron gate valves and service brass products. We anticipate adjusted EBITDA margin will be up slightly versus the prior year, excluding tariff refunds. Benefits from higher pricing and specialty valve volume growth will be partially offset by lower volumes of iron gate valves and service brass and inflationary pressures.

For the Water Management Solutions segment, we anticipate net sales to decrease in the high single-digit range, reflecting lower sales associated with the metering portfolio optimization and the prior year hydrant backlog benefit. We expect strong adjusted EBITDA margin expansion, even with the lower sales, primarily driven by higher pricing, lower SG&A related to the portfolio optimization benefits, and manufacturing performance, partially offset by lower volume of hydrants, inflationary pressures, and higher tariffs.

We expect total SG&A expenses of $228 million to $233 million, reflecting portfolio optimization benefits, including the metering business transition. We expect an effective tax rate of 24% to 26%, reflecting a more normalized rate after prior-year one-time tax benefit. We expect free cash flow to exceed 80% of adjusted net income, including higher capital expenditures of $60 million to $70 million. We will continue investing in growth, operational efficiencies, and domestic capacity with a focus on our iron foundries.

Before opening up for Q&A, I want to provide a few closing comments. We delivered strong results in an uncertain operating environment by focusing on customer service, disciplined execution, and investments in capabilities that support long-term value creation.

Our fiscal 2027 priorities are straightforward: protect the strength of our core business, improve operational returns, and invest in the best opportunities to create value. Our balance sheet gives us capacity to invest as we pursue above-market sales growth and continued margin expansion. While we remain mindful of market uncertainty, we enter the year with a clear agenda and confidence in our ability to take another step forward in margin performance. The Mueller Operating System supports these priorities with tools, processes, and management disciplines that strengthen execution, accountability, and continuous improvement across the company. This quarter provides further evidence that the system is taking hold. I want to thank our employees worldwide for their extraordinary commitment to our customers and communities. They are the reason for our success and why Mueller has been a trusted partner for more than a century. That concludes our comments. Operator, please open the call up for questions.

Operator

[Operator Instructions]

Brian Lee with Goldman Sachs.

質疑応答

Keshav Choudhary

Hey, guys. This is Keshav Choudhary on for Brian Lee. Firstly, your 2027 sales guidance implies some growth, even excluding the metering business. Can you maybe walk us through what you're assuming for residential construction versus municipal repair and replacement and specialty valves within that outlook? Thank you.

Operator

One moment, please. Please continue to stand by. We're experiencing technical difficulties. Please continue to stand by. Please continue to stand by. We're experiencing technical difficulties. Please continue to stand by. Brian Lee, you may go ahead and ask your question again from Goldman Sachs.

Keshav Choudhary

Yes. Hey, guys. It's Keshav Choudhary on for Brian Lee. So, firstly, your 2027 sales guidance implies growth, excluding the metering business. Can you maybe walk us through what you're assuming for residential construction versus municipal repair and replacement and specialty valves within that outlook? Thank you.

Operator

One moment, please.

Paul McAndrew

So, just following through, sorry about technical difficulties there. Our sales guidance, excluding the metering portfolio optimization, is 1.5%. We are expecting residential construction to continue to decline at low single digits on top of double-digit decline in FY '26. We anticipate municipal spending to be cautious as they have the inflationary pressures around their budgets. Where we are expecting to see double-digit growth and where we've seen growth at that level over the last 3 years is around our specialty valve business as we continue to move this company to a broader flow control platform.

Keshav Choudhary

Thank you. That was helpful. And then just maybe on the price/cost side of things, you previously expected to remain price/cost positive despite lower price realization. How are you thinking about pricing relative to inflation and maybe Section 232 tariff costs as you enter '27?

Unknown Speaker

Yes, the company, this is Mike Morgan, by the way, the company has strong brands and we continue to expect to be able to deliver price increases year-over-year. So, from a price/cost perspective, we would expect to be dollar positive, and in terms of margin, it's in the neutral range in terms of price/cost.

Paul McAndrew

Thank you, guys. As a reminder, on our tariffs, the Section 232 impacted our steel products from Israel when the IPA tariffs came to an end. But right now, we have all that priced in our assumptions.

Keshav Choudhary

Cool. Thank you, guys.

Operator

[Operator Instructions]

Our next caller is Jeffrey with RBC Capital Markets.

Jeffrey Reive

Good morning, everyone. Just want to say congrats to Mike, and it's nice to have you on the call.

Unknown Speaker

Thank you very much. Appreciate it.

Jeffrey Reive

Yeah, and just I want to follow up on that pricing question. So, the slides indicate I think it's low single-digit to mid-single-digit realization for next year, but this is including, I guess, a new price increase that has not been announced. This is a change from the historical practice that used to just not embed the price increase until you announced it. Just can you help us understand what gives you confidence to include that now, on the ability to capture it?

Paul McAndrew

Yes, thanks, Jeff. I think twofold. Look, our price confidence is high based on the brands of our business and our commercial execution and operational execution with our customers. So, this is why we've given a range. I think previously it was a little confusing to everyone, so we wanted to make it clear this is what is baked into our guidance right now. And in terms of that price increase, it would be later in our Q2 as per we do on an annualized basis.

Jeffrey Reive

Got it. Okay. I appreciate that. I think it makes sense. And maybe just moving to the metering exit, can you just help us understand the economics of the agreement? Is it that Mueller's not receiving any consideration and you just have to basically take a $26 million charge and you hand over the customers? And is there any, I guess, incremental liability that can persist?

Paul McAndrew

First of all, Jeff, I want to remind everyone on the metering business, the sales have been declining at a 10% CAGR over the last 4 or 5 years with negative EBITDA margin. It's really about how the team and myself have looked at the portfolio and moving what is a subscale and competitively disadvantaged business from our portfolio, allows us to really focus on where we believe we are transitioning this company to from a growth opportunities perspective.

But to answer your question directly, the annualized benefit when you back in at the midpoint is $8 million of EBITDA improvement. And the one-time charges are predominantly around a warranty, both software and hardware services to fulfill customer commitments on an ongoing basis, along with the transactional costs. Just a reminder, we do have a manufacturing facility related to this business. What we will be doing ongoing is transitioning customers to Zenner. We will continue to support them from a customer warranty perspective ongoing. The goal here is to work closely with a much larger water metering company who wants to make progress in North America and is backed by a global metering manufacturer, and transition our customers across smoothly to a much better position for them.

Jeffrey Reive

All makes sense. And if I can just sneak in one more, when you look across your portfolio today, are there other low-margin products or technologies that you're evaluating for divestiture?

Paul McAndrew

Look, part of the Mueller Operating System in that simplification is looking constantly at the portfolio, and I take that down to a SKU level, not just a product portfolio. We believe we are positioned well now. We still believe the leak detection business is a key part of our technology going forward. How that integrates into our industrial products is critical. We know municipalities have a need to address non-revenue water, and we believe that technology is a key part of how that fits in.

Jeffrey Reive

Great. Thank you.

Operator

[Operator Instructions]

Our next caller is Brian Blair with Oppenheimer.

Bryan Blair

Good morning, everyone. Mike, welcome to the call.

Unknown Speaker

Thank you.

Bryan Blair

I was hoping we could level set on hydrant backlog normalization. Sorry if I missed this detail, but what was the impact in Q4? I assume that would start to phase in. And then we have enough information to back into the segment and consolidated impact for fiscal '27 overall. But how should we think about the cadence throughout the year?

Paul McAndrew

Yes, Bryan, as we kind of think about the hydrant backlog, it was minimal in Q4 as an impact as we caught up on that backlog and have seen that normalization with the channel. The overall impact for the year is around 2% from a sales perspective as a headwind that we're moving to FY '27 for a comp comparison.

Bryan Blair

Okay, understood. And a bigger picture, I guess medium-term follow-up. It looks like EBITDA margin will exceed 26% this year, so over 1,000 basis points expansion since fiscal '23. How should we think about runway from here? Are you willing to offer a medium-term margin target? And I guess at risk of leading the witness here, would that start with a 3?

Paul McAndrew

Yes, great question. And part of Mike coming on board now is to help us kind of put that narrative together from a longer-term perspective. We're really pleased with the organization. You know, Bryan, 940 basis points in 3 years, and at the midpoint of our guidance would be 1,150 in 4 years. So, we've really transformed the company. The next step now, as I said, is how do we really take the specialty valve business, which plays in the plant work, both potable and wastewater, larger pipe distribution, water and flood control, along with importantly the growing industrial segment where we are seeing a lot of traction in our investments. I know a relatively small number to start from, but definitely seeing a lot of high-growth opportunities in our industrial applications. We believe we're a company that has deep expertise and engineering skills in flow control, and how we leverage that and change the company from that perspective.

Unknown Speaker

The only thing I'd add to that is that the Mueller Operating System is just taking hold, so there's room to run.

Bryan Blair

All right. Very encouraging. Thank you.

Operator

Thank you. We are showing no further questions. I'll turn the call back over to you for closing comments.

Paul McAndrew

Thank you, operator. Thanks to everyone who joined our call today. We're excited about the progress we made in 2026, leading continued margin improvement and strong cash generation. We enter fiscal 2027 focused on strengthening our core business using the Mueller Operating System and portfolio optimization to simplify operations, enhance execution, and improve returns. We remain mindful of market uncertainty, and we will stay focused on what we can control. Once again, I want to thank our dedicated team members for their commitment to our customers and communities. They are the reason for our success and why Mueller has been a trusted partner for more than a century. And with that, operator, please conclude the call.

Operator

Thank you, sir. This concludes today's conference. You may disconnect at this time and have a great rest of your day.

This live transcript is auto-generated without human intervention or review.