Yahoo Finance Will Advanced Drainage Systems (WMS) be Able to Regain in FY23?
Advanced Drainage Systems, Inc. WMS or ADS declined significantly in the past three months. The stock declined 34.3% in the said period versus the Zacks Building Products - Miscellaneous industry’s 14% growth.
On Nov 3, it reported lackluster results for second-quarter fiscal 2023. Both the top line and bottom line lagged the Zacks Consensus Estimates by 4.9% and 4.3%, respectively. The company has been suffering from inflationary pressures on material and manufacturing costs and increased transportation costs.
Owing to the weakness in the residential housing market due to higher interest rates and affordability issues as well as end-market choppiness in certain non-residential geographies, the company reduced its prospects for fiscal 2023 net sales. Net sales are now expected to be $3.1-$3.2 billion compared with $3.25-$3.35 billion.
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Nonetheless, this projection is still above the previous year’s figure of $2.77 billion. The consensus mark for fiscal 2023 revenues reflect year-over-year growth of 13.7%. Earnings of $6.01 per share also show a positive trend in analysts’ expectations, up 68.8% year over year. ADS still expects adjusted EBITDA to be in the range of $900-$940 million, with adjusted EBITDA margin up 130 basis points on the mid-point.
Let’s delve deeper into the factors supporting this leading provider of innovative water management solutions in the stormwater and onsite septic wastewater industries.
Solid Performance: The company has been navigating the challenges related to inflationary cost pressures in transportation and manufacturing operations with broad-based growth across the construction end markets and geographies it serves, with notable strength in its priority states. The pricing actions have more than offset its raw material costs.
In the second half of fiscal 2023, the company’s net sales increased 30.7% year over year to $1,798.4 million. Domestic Pipe sales rose 35.2%, Domestic Allied Products & Other sales gained 47.1% and Infiltrator sales increased 16.3% during the period. These upsides were driven by double-digit sales growth in the U.S. construction end markets. International sales increased 12.4%, given the strong sales growth in the Mexican and Exports businesses. Notably, adjusted EBITDA rallied 69.7% year over year. Adjusted EBITDA margin also improved 720 bps year over year.
Strong Liquidity: ADS ended the first half of fiscal 2023 with $1.05 billion in liquidity, including $457.4 million in cash and cash equivalents along with a $588.4 million committed credit facility. At September end, net cash provided by operating activities was $437 million compared to $94.9 million in the prior-year period. Free cash flow (non-GAAP) was $361.5 million versus $31.1 million a year ago. Net debt (total debt and finance lease obligations net of cash) was $853.9 million as of Sep 30, 2022, a decrease of $70.6 million from Mar 31, 2022.
Higher ROE: WMS’ trailing 12-month ROE is indicative of growth potential. ROE for the trailing 12 months is 51.6%, much higher than the industry’s 8.7% reflecting the company’s efficient usage of shareholders’ funds.
Zacks Rank & Key Picks
Currently, Otis carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Some better-ranked stocks in the same space are CRH plc CRH, Hillman Solutions Corp. HLMN and United Rentals, Inc. URI, each sporting a Zacks Rank #1.
CRH manufactures cement, concrete products, aggregates, roofing, insulation and other building materials.
CRH’s expected earnings growth rate for 2023 is 18.4%. The Zacks Consensus Estimate for 2023 earnings has improved to $3.86 per share from $3.42 over the past 60 days.
Hillman is one of the largest providers of hardware-related products and related merchandising services to retail markets in North America.
HLMN’s expected earnings growth rate for 2023 is negative 9%. The Zacks Consensus Estimate for next-year earnings has improved to 33 cents per share from 30 cents over the past seven days.
United Rentals has been benefiting from a broad-based recovery of activity across the end markets it serves. Also, higher margins from rental revenues and used equipment sales are added benefits.
The consensus mark for URI’s 2023 earnings rose to $37.14 per share from $36.81 in the past 30 days. This suggests 14.2% year-over-year growth.
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Advanced Drainage Systems, Inc. (WMS) : Free Stock Analysis Report
United Rentals, Inc. (URI) : Free Stock Analysis Report
CRH PLC (CRH) : Free Stock Analysis Report
Hillman Solutions Corp. (HLMN) : Free Stock Analysis Report
