穆勒水利產品 (MWA) 2026 財年第四季法說會：EBITDA 創新高與 2027 年利潤率成長

重點摘要

• Mueller Water Products 公布 2026 會計年度淨銷售額約為 15 億美元，成長 3.2%；調整後 EBITDA 成長 14.1%，創下 3.722 億美元的歷史新高。
• 全年調整後 EBITDA 利潤率擴張 240 個基點至 25.2%。調整後 EPS 成長 19.8%，達創紀錄的 1.57 美元。
• 第四季銷售額下滑 1.1% 至 3.765 億美元，但調整後 EBITDA 成長 4.0% 至 9,550 萬美元，利潤率擴張 130 個基點至 25.4%。
• 自由現金流達 2.073 億美元，支應了 7,400 萬美元的股利與股票回購。Mueller 亦將庫藏股回購授權額度增加 3 億美元，並將季度股利提高 14.3% 至每股 0.08 美元。
• Mueller 同意將其虧損的水表業務移轉給 ZENNER USA。管理階層預計 2027 會計年度將產生約 2,600 萬美元的一次性費用，並自第二季開始帶來 100 至 140 個基點的年化調整後 EBITDA 利潤率效益。
• 展望 2027 會計年度，管理階層預期淨銷售額為 14.4 億至 14.7 億美元，調整後 EBITDA 為 3.78 億至 3.88 億美元。以中位數計算，調整後 EBITDA 利潤率隱含為 26.3%。

核心財務業績

全年調整後 EPS 包含關稅退稅及退出 i2O 業務相關的一次性稅務項目所帶來的合計 0.09 美元效益。自由現金流占調整後淨利的 84%。

截至 2026 會計年度末，Mueller 擁有 5.66 億美元的現金及約當現金、4.54 億美元的總債務以及 7.31 億美元的流動性。其 4.5 億美元的優先票據採固定利率 4%，且在 2029 年 6 月之前均無債務到期。

業務與營運表現

水流處理解決方案

第四季銷售額下滑 3.0% 至 2.109 億美元，主要由於鑄鐵閘閥與黃銅管件銷量減少所致。價格調漲與特殊閥門銷量增加部分抵銷了此一下滑。

調整後 EBITDA 成長 7.0% 至 6,710 萬美元，利潤率擴張 300 個基點至 31.8%。製造改善、定價效益及營業費用 (SG&A) 下降，抵銷了銷量下滑、不利產品組合、通膨與關稅的影響。該部門全年利潤率創下 33.0% 的歷史新高，增加 430 個基點。

水資源處理解決方案

第四季銷售額成長 1.4% 至 1.656 億美元。定價提升以及維修和天然氣配氣產品的成長，抵銷了農業與消防栓銷量的下滑。

調整後 EBITDA 下滑 8.4% 至 4,120 萬美元，利潤率下滑 270 個基點至 24.9%。管理階層將此收縮歸因於銷量下滑、關稅及通膨壓力。全年利潤率為 24.6%，略低於上年水準。

水表業務移轉

水表業務在 2026 會計年度創造約 4,000 萬美元的銷售額，調整後 EBITDA 利潤率為負。Mueller 表示，該業務缺乏足夠規模，且所需之技術投資更適合由專業供應商進行。

移轉至 ZENNER USA 的作業預計大部分於 2027 會計年度進行。該公司預期將產生約 2,600 萬美元的一次性成本，主要與保固負債、客戶支援、交易費用及資遣費相關。大部分費用預計發生在第一季。

管理階層預期退出該業務將帶來 100 至 140 個基點的年化調整後 EBITDA 利潤率效益，主要自第二季開始顯現。以中位數計算，年化 EBITDA 效益約為 800 萬美元。

管理階層財務指引

2027 會計年度指引已排除所有與水表相關的財務業績。

管理階層預期價格實現率將達低個位數至中個位數百分比，包括遞延定價效益以及計畫於第二季稍晚實施的調價。在排除前一年消防栓積壓訂單效益後，合併銷量中位數預計將持平。

在定價與特殊閥門需求支撐下，水流處理解決方案銷售額預期將以低個位數至中個位數幅度成長；水資源處理解決方案銷售額則因水表業務移轉以及前一年消防栓積壓訂單的高基期比較，預期將下滑高個位數百分比。

該公司預期下半年銷售額與調整後 EBITDA 利潤率將超越上半年水準，反映出營造工程活動的季節性以及投資組合與營運效益顯現的時程。

風險與關注焦點

• 管理階層預期住宅營建活動在 2026 會計年度下滑雙位數後，2027 會計年度將下滑低個位數百分比。
• 由於預算面臨通膨壓力，市政維修與汰換採購預計仍將保持謹慎。
• 消防栓積壓訂單正常化，對 2027 會計年度銷售額而言約有 2% 的年減逆風。
• 通膨、232 條款關稅、銷量下滑與產品組合，仍是可能抵銷定價與生產力收益的潛在因素。
• 客戶移轉至 ZENNER USA 的進度是水表業務移轉的主要不確定性來源，部分成本或作業可能延續至 2027 會計年度之後。

分析師問答重點

管理階層表示，特殊閥門預期將實現雙位數成長，延續公司朝向更廣泛流體控制平台轉型的步伐。該成長預期將抵銷住宅營造放緩與市政支出謹慎所帶來的壓力。

在價格與成本方面，Mueller 預期以金額計仍將維持正向，對利潤率的影響則大致呈中性。管理階層表示，公司目前已知的關稅成本均已納入 2027 會計年度假設中。

關於長期獲利能力，管理階層並未提供具體的利潤率目標，但強調在特殊閥門、水及廢水基礎設施、防洪以及工業流體控制應用領域擁有進一步商機，同時指出 Mueller 營運系統 (Mueller Operating System) 目前仍處於推行初期。

完整財報電話會議逐字稿

完整財報電話會議逐字稿

管理層陳述

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.

分析師問答

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.