Mueller Water Products Inc (MWA) 2013 Q3 法說會逐字稿

Good morning, and welcome to the Mueller Water Products conference call. I would like to remind all parties that your lines are on a listen-only mode until the question-and-answer segment of today's conference. Also, this call is being recorded. If you have any objections, please disconnect at this time. I will now turn the call over to Martie Zakas. You may begin.

Thank you. Good morning, everyone. Welcome to Mueller Water Products 2013 third-quarter conference call. We issued our press release, reporting results of operations for the quarter ended June 30, 2013, yesterday afternoon. A copy of it is available on our website, MuellerWaterProducts.com. Mueller Water Products had 158 million shares outstanding at June 30, 2013.

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 non-GAAP and GAAP financial measures are included in the supplemental information within our press release and on our website.

Slide 3 addresses our 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 refer to our fiscal year, which ends on September 30. All operating results discussed in these prepared remarks are from continuing operations, unless specified otherwise.

A replay of this morning's call will be available for 30 days after the call at 1-866-470-7045. The archived webcast and the 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 for questions. I will now turn the call over to Greg.

Thanks, Martie. And thank you for joining us today as we discuss our results for the 2013 third quarter. I will begin with a brief overview of the quarter, followed by Evan's detailed financial report, which covers key drivers affecting our business. I will then provide additional comments on the quarter's results and developments in our end markets, as well as our outlook for the fourth quarter. We are pleased with our third-quarter results, with an 8.5% increase in net sales, and a 25.4% increase in adjusted operating income. Net sales and adjusted operating margins at both Mueller Company and Anvil increased both year-over-year and sequentially. These results contributed to our best overall quarter in the past five years.

We continued to benefit from improved operating leverage at Mueller Company and the ongoing recovery of our end markets, with Mueller Company's net sales increasing 9.1%, and adjusted operating margin improving 180 basis points, to 15.3% in the quarter, compared to the prior year. We saw a nice increase in net sales for our metering and leak-detection products and services in the third quarter, demonstrating the progress we continue to make in the marketplace. Anvil had a solid quarter, with net sales up 7.3%, and adjusted operating income up 24.2% year over year. Finally, we had a very strong free cash flow of $37.7 million for the quarter, which was driven by both growth in operating income and working capital management. I will now turn the call over to Evan.

Thanks, Greg, and good morning, everyone. I'll first review our consolidated financial results and then discuss segment performance. Net sales for the 2013 third quarter of $299.4 million increased $23.5 million, or 8.5%, from the 2012 third-quarter net sales of $275.9 million, due mostly to higher shipment volumes at both Mueller Company and Anvil. Gross profit improved 13.1% to $90 million for the 2013 third quarter, compared to $79.6 million for the 2012 third quarter. Gross profit margin of 30.1% improved 120 basis points from 28.9%. This improvement was driven primarily by higher shipment volumes and higher sales prices.

Selling, general and administrative expenses, as a percent of net sales, declined to 19% for the 2013 third quarter from 19.3% for the 2012 third quarter. Selling, general, and administrative expenses were $56.9 million for the 2013 third quarter, compared to $53.2 million for the 2012 third quarter. Adjusted operating income for the 2013 third quarter increased 25.4%, at $33.1 million, from adjusted operating income of $26.4 million for the 2012 third quarter. This increase was driven primarily by higher shipment volumes and higher sales prices, partially offset by higher selling, general and administrative expenses. Adjusted EBITDA for the 2013 third quarter increased to $47.7 million from $41.4 million for the 2012 third quarter. Trailing 12-months adjusted EBITDA through June 30, 2013, was $147.9 million, an improvement of $29.2 million, or 24.6%, from a year ago.

Interest expense, net for the 2013 third quarter declined $900,000 to $12.7 million from $13.6 million for the 2012 third quarter, excluding $1.3 million of non-cash costs for terminated interest rate swap contracts for the 2012 third quarter. This decrease was due to lower levels of total debt outstanding. During the 2013 third quarter, income tax expense was $4.2 million on pretax income of $20.2 million, or an effective income tax rate of 20.8%. The 2013 third-quarter expense was reduced by $4 million related to a deferred tax asset valuation allowance adjustment. Excluding this adjustment, the effective tax rate for the 2013 third quarter was 40.5%. Net operating loss carry forwards remain available to offset future taxable earnings. Adjusted net income per diluted share for the 2013 third quarter was $0.08, compared to an adjusted net income per diluted share for the 2012 third quarter of $0.05, an improvement of $0.03.

I will now walk you through the after-tax adjustments for both the 2013 and 2012 third quarters. 2013 EPS from continuing operations of $0.10 was adjusted by the following items -- restructuring expenses of $100,000, offset by the deferred tax asset valuation allowance adjustment benefit of $4 million. 2012 EPS from continuing operations of $0.04 was adjusted by the following items -- loss on early extinguishment of a debt of $900,000; terminated interest rate swap contract costs of $800,000; and restructuring expenses of $400,000. There was a weighted average of 160.7 million diluted shares of our common stock outstanding for the 2013 third quarter compared to a weighted average of 158 million diluted shares outstanding for the 2012 third quarter.

I will now move on to segment performance and begin with Mueller Company. Net sales for the 2013 third quarter increased 9.1%, to $199.3 million, from net sales of $182.6 million for the 2012 third quarter. This increase was due primarily to higher shipment volumes, particularly of our metering products, and higher prices. Net sales of the metering and leak-detection products and services increased 67% year over year and accounted for two-thirds of Mueller Company's net sales growth in the third quarter. Adjusted operating income for the 2013 third quarter improved 23.6%, to $30.4 million, from adjusted operating income of $24.6 million for the 2012 third quarter. Adjusted operating margin for the 2013 third quarter improved 180 basis points, at 15.3%, from adjusted operating margin for the 2012 third quarter of 13.5%. Adjusted EBITDA for the 2013 third quarter grew to $41.3 million, compared to adjusted EBITDA for the 2012 third quarter of $35.9 million.

I will now turn to Anvil. Net sales for the 2013 third quarter increased 7.3%, to $100.1 million, compared to net sales of $93.3 million for the 2012 third quarter. The increase resulted from higher shipment volumes and higher prices. Adjusted operating income for the 2013 third quarter improved 24.2%, to $12.3 million, compared to adjusted operating income for the 2012 third quarter of $9.9 million. Anvil's adjusted operating margin for the 2013 third quarter was 12.3%, compared to 2.6% for the 2012 third quarter. Adjusted EBITDA for the 2013 third quarter increased 17.8%, at $15.9 million, compared to adjusted EBITDA for the 2012 third quarter of $13.5 million.

Turning now to a discussion of our liquidity, free cash flow, which is cash flows from operating activities plus capital expenditures, was $37.7 million for the 2013 third quarter, compared to negative $3.4 million for the 2012 third quarter. The increase was generated by both our growth in operating income and working capital management. Year to date, free cash flow was $19.8 million, compared to $5 million in 2012. For the 2013 third quarter, trailing four-quarter average accounts receivable, inventory, and accounts payable as a percent of net sales improved 170 basis points from the 2012 third quarter.

At June 30, 2013, total debt was $600.9 million, down $21.9 million from a year ago. Total debt outstanding included $420 million of 7.375% senior subordinated notes due 2017, $177.9 million of 8.75% senior unsecured notes due 2020, and $3 million of other. Net debt leverage declined to 3.6 times at June 30, 2013, due to improved operating performance and free cash flow generation. Using June 30, 2013, data, we had $157.8 million of excess availability under our asset-based credit agreement. During the quarter, Standard & Poor's rating services raised its corporate credit rating on Mueller Water Products at BB minus from B. I will now turn the call back to Greg.

Thanks, Evan. I will now elaborate on our 2013 third-quarter performance and end markets, and provide an outlook for our fourth quarter. I will begin with Mueller Company. Mueller Company's results came in about as we expected, with top-line year-over-year growth of 9.1%, and growth across all of our product lines. Net sales of our metering and leak-detection products and services grew 67% year over year. However, sales were down in Canada by $3 million year over year. We believe the flooding in western Canada, coupled with the construction workers' strike in Quebec, contributed to the decline.

As we mentioned on our last call, we believe distributor inventory levels were generally greater entering the third quarter of this year than they were last year. This increase was due to several factors, primarily the timing of our January price increase and weather-related impact on construction in some parts of the country. We believe that our Mueller distributors reduced inventories throughout the quarter, and their inventories were lower at the end of the third quarter than they were at the end of the second quarter and generally flat year over year. We believe the distributors met some of the end market demand during the third quarter by pulling down inventory.

During the quarter, domestic unit shipments of our valves were down slightly under 5%, hydrants were down slightly more than 6%, and brass products were up almost 9%. This was expected, since our distributors ended the quarter with higher inventory of valves and hydrants, again as a result of the January price increase. However, domestic orders for these products and units were all up -- valves, more than 8%; hydrants, more than 5%; and brass products, more than 20%. Mueller Company adjusted operating margins expanded by 180 basis points during the quarter, as we continued to benefit from increased volumes, higher sales prices, and operating leverage.

Margins in the third quarter were the highest we have seen since the fourth quarter of 2010. We believe that most of the growth in our base Mueller Company business in the quarter came from new residential construction. We think that municipal spending is mixed and, in total, was up only slightly on a year-over-year basis.

Before discussing our outlook for the fourth quarter, I will provide an overview of some of the macro drivers in our end markets. While the recently reported macro economic data has remained mixed, the macro factors that impact our markets appear to be holding their own and, for the most part, remain positive. Both state and local seasonally adjusted tax receipts continue to increase and hit new highs, budgets in many areas remain stressed by healthcare costs and under-funded retirement plans. On the municipal bond front, with interest rates rising sharply recently, total issuances have slowed and are now showing a 9% decline through the first six months of calendar 2013, compared to the prior-year period. New money issuances are barely positive at 1.4%. However, the CPI for water and sewage rates increased by an annualized rate of 5% in June year over year.

Single-family housing starts, which significantly impact demand for our products, averaged about 600,000 on an annualized basis for the nine months through June, compared to about 500,000 last year, up 20%. According to a June survey by Ivy Zelman & Associates, demand for land and lots hit a record high for their survey, with strong activity especially in the central and west regions, although the pace of improvement had slowed slightly. Anvil also had a solid quarter, with adjusted operating margin expanding by 170 basis points, to 12.3%. In particular, we saw a nice pick-up in demand for our mechanical products in certain regions of the country, which was driven by commercial construction. This is the highest margin we have achieved since the first quarter of 2009.

Turning now to our outlook for the fourth quarter, we expect Mueller Company's fourth-quarter net sales to increase year over year. However, we expect the year-over-year growth rate to be less in the fourth quarter than it was in the third quarter. We expect only modest year-over-year growth in our metering product line, because we have passed the one-year anniversary of a significant meter supply agreement. Additionally, as we have said, this product line is more dependent on specific projects, and we have seen a delay on certain meter projects, which may push orders and shipments into fiscal 2014. All in all, we expect total Mueller Company net sales in the fourth quarter to be slightly less than in the third quarter, with a year-over-year growth rate in the mid-single digits. We expect Mueller Company's adjusted operating margin to improve substantially, and for fourth-quarter adjusted operating income to improve year over year across all of its key product categories.

Mueller Company's adjusted operating income is also expected to decline slightly sequentially, which is consistent with the seasonality of the business. We previously said that we expected our metering and leak-detection products and services to be profitable for the full year, based on the backlog and the expected timing of being awarded additional contracts. Today, we believe that certain contracts, which we had expected to be awarded and shipped in 2013, may be awarded in 2013, but shipments will be delayed into fiscal 2014. As a result, today, we do not think these products and services will be profitable in 2013. However, we have seen significant improvement this year.

Year to date, through the third quarter, we reduced year-over-year operating losses by approximately $9 million. In addition, we recently introduced new technologies in fixed leak detection during the third quarter. These are in the pilot stage, and we are very bullish about the potential. All in all, for the fourth quarter, we expect a richer conversion margin than what we saw in the third quarter, due primarily to expected growth in our base domestic valve, hydrant, and brass products. At Anvil, we expect net sales to be both slightly higher than in the third quarter and to increase year over year. The increase in volume should also result in higher year-over-year adjusted operating income.

For the Company as a whole, we believe that 2013 fourth-quarter net sales will increase year over year, primarily due to volume increases at both Mueller Company and Anvil. We expect a solid increase in adjusted operating income year over year and to see improvement in our adjusted operating margins. Raw material costs continue to decline. We expect material costs for all of 2013 will be slightly favorable year over year, as we should benefit from lower raw material costs, partially offset by higher costs of purchased components. Other key variables for 2013 include -- corporate expenses are estimated to be $32 million to $33 million; depreciation and amortization is estimated to be $59 million to $60 million; and interest expense is estimated to be approximately $52 million.

Our adjusted effective income tax rate should be about 40% for the full year. Capital expenditures should be between $32 million and $34 million. For the full year, we expect free cash flow to be stronger than 2012. Most of our improved free cash flow generation should come from increased income from operations. Additionally, we expect income tax payments and pension contributions to be minimal this year.

We are pleased with our third-quarter results, especially the margin expansion at Mueller Company and Anvil. Although our metering and leak-detection products and services will not likely be profitable in 2013, we believe they will be profitable soon. They continue to make progress in the marketplace, and we are excited about the potential of our new fixed leak-detection products, and the overall opportunities in the smart-meter and leak-detection markets. With that, I will open this call for your questions.

(Operator Instructions)

Seth Weber, RBC Capital Markets.

Couple of questions. Can you just give us a sense for the price increases that you pushed through earlier this year, whether they're sticking, how much of that you're capturing, and how you're feeling about the pricing environment?

Seth, I'd say that the pricing environment is typical to what we see, and that's not to say from time to time some projects can get competitive. But we think the price increase is sticking. In fact, when you look at our Mueller Company year-over-year improvement in margins, about 70 basis points of that improvement came from higher pricing, which was about 40% of the improvement. So yes, I think our price increase, we're still getting in that 50% to 60% that we generally expect to achieve of a price increase.

Okay. Great. Thank you. I guess going back to your comments about the systems and Echologics profitability push out. Can you give us a little bit more color there? Is that just budgeting issues, or is the customer rethinking the process? Is it budgeting, or give us any more color on what gives you confidence that those awards are still coming?

I think what we're finding is it is just taking a longer for municipalities to make decisions on AMI systems. I think it goes through a longer review process, and it is not just the meter. It is just not maybe the head of the meter department making the decision, I think the mayor even gets involved because it is a much bigger decision and higher dollar spend. So I think it takes a little more time. Looking at our sales funnel today, as compared to three months ago, we did lose one contract where we thought that we had a better than 50% chance of winning. However, all of the other projects that were in our funnel, that were at the basis of our comments are still in our funnel, they are moving along, and we remain confident in our ability to win those. Additionally, new opportunities have been added. I think that when we look at just the timing, it has been several contracts that we would have expected to be awarded the third quarter that we can start shipping in the fourth quarter, those decisions have not been made yet. We do not see an overall drop off in market interest or market demand. What I do think that we are finding that it is a little more difficult to predict when the project decision will actually be made.

Okay. Can you just frame -- I think that business collectively is doing something like high $20 million of revenue per quarter. Is that fair?

I would say more in the mid-$20 million.

Okay. Can you just help frame what order of magnitude these projects are out there? In the first half of next year, can you talk about what you think that run rate could be up to?

Yes. We are talking projects that could fall within the range of a $5 million project to a $15 million project. It certainly is over the board. Across-the-board. I would say, to date, we have not had many of those projects flowing through our income statement. While we have had some AMI projects that have been smaller projects, I think that as we progress, as our technology is progressing, we are getting the opportunity to look at these bigger projects. While I think it could have, certainly as those close, it could have a more meaningful impact on our quarterly shipments.

I am just trying to understand what the breakeven revenue run rate that you're -- is it like a $30 million quarterly run rate is where you think you get profitable?

In our metering business -- it certainly is mix dependent. If we look at this quarter, our sales were about $25 million, and we lost $600,000 in that business. That is the meter business. Just a little shift in mix, certainly more towards AMI, and at $25 million, that business could be profitable. Certainly, the revenues will impact it, but mix would have almost as much of an impact.

Okay. That is actually very helpful. Thank you very much.

Mike Wood, Macquarie.

Since you had said inventories were flat at the end of the quarter year-over-year, can you give us a sense of how sales are trending in the Mueller Co business, in the base business in July, just to get a sense of where -- maybe the end market demand is?

Mike, I would say that it is probably pretty consistent with the outlook that we just gave. We think overall sales for the quarter are going to be up year-over-year. But we do think that they will be down somewhat sequentially, which, again, is consistent with the seasonality of this business. But I would point out, back to your point, is that given the movement -- as we said, given the movement that we are seeing in I would say our base -- what we expect to see in our base domestic valve, hydrant, and brass products, and a shift from our Mueller systems, that we do expect to see a richer conversion margin for Mueller Co in the first than what we saw in the third quarter, again because of that mix and that movement on valves and hydrants.

And does your outlook for next quarter consider a snapback in the Canadian business? Or do you expect that --

Actually, we think the Canadian business in units could be up slightly. But we are actually expecting that to be down because of currency exchange. On a year-over-year basis, Canada will have a somewhat negative impact on our year-over-year growth, primarily due to our exchange function.

Great. Finally, can you give us some color in terms of what end markets drove the Anvil acceleration and growth? And were there any large products in there that had an impact on in terms of the incremental margin fall though in that business?

Yes. As I said, it was coming out of the commercial construction market, but a little more regional. We saw some nice activity coming out of Texas. I wouldn't say there were any large, particular projects. It was just overall a little higher capacity utilization that then gives us, lowers our per unit overhead cost, and that drops to the -- that certainly drops to the bottom line. I think a combination of the higher pricing and somewhat from higher production contributed to the improvement in operating margins.

Great. Thank you.

Jerry Revich, Goldman Sachs.

I'm wondering if you can talk about just the overall cadence of orders over the course of the quarter and into July here. I guess you were talking about shipments slowing in Mueller Co. I'm just wondering if that is just a function of tougher comps, or is any part of the environment slowing at all, as you see it?

Yes. Actually, where it is slowing, we're saying it will slow sequentially. We still expect their shipments to be up year-over-year. We say that is typical. We will see -- going at the end of the second quarter as a result of our price increase, and certainly going into the construction season in the third quarter, our shipments will be up. Distributors will carry greater inventory. As we will start getting toward the end of our -- generally the end of our fourth quarter of our fiscal year. We start getting a couple months out, construction season starts to drop off.

From a sequential standpoint, this is a very typical pattern for us. Year-over-year, we do expect to see sales growth at the Mueller business. I would say that when we look at the fourth quarter, that we think that the municipal market may be a little flattish, and we will still expect to see growth in the residential market. When we look over the next 12 months, 15 months, in the municipal market, based on our input from our field, based upon input from our distributors, we still expect to see growth. I would say, as we are looking three months out, that the feedback that we are getting is that the market could be flat, and we probably won't see much or any year-over-year growth in the fourth quarter coming from the municipal market.

Okay. That is helpful context. In terms of the lead times that you see now, or year-over-year order growth, can you just put that into context for what you saw in the quarter?

Yes. Our lead times of our products still fall in the three, four, five weeks for our domestic business. Certainly international business can be longer.

Greg, I apologize if I missed it. I know you mentioned the Mueller Systems and the Echologics business faced a tougher comp in the fourth fiscal quarter. Do you still expect double-digit growth in the business? Can you just put that into context for us, what you mean by moderated growth?

Yes. I would say that we do not expect to see double-digit growth, and I would say based on the push out of projects, I would say that we said modest growth. Modest sales growth, I would say that we're looking at it just to be up $2 million.

Okay. Lastly, in terms of material costs, can you talk about are the greater benefit in Mueller Co than Anvil? It sounds like, based on the point on purchase components, it is probably a greater benefit in Mueller Co but I'm wondering if you can just confirm that for us?

It is pretty close. The benefit is actually maybe a little better at Anvil, because we source more components in the Mueller products than we do in the Anvil product. We're seeing lower raw material costs, we said. But we're seeing some -- that is being offset by some of the components that we source, and as I said, we source more components for Mueller products that we do on the Anvil side. I would say that Anvil, in this year, in this quarter, had a little more of a benefit from lower raw material costs than Mueller did.

Thank you very much.

Walt Liptak.

I wanted to ask a follow-on to the material cost question. Is there anything that changes in terms of material cost hedges or material pricing as you get further into the year?

Yes. This is Evan. We do not hedge any raw materials. As Greg mentioned, we have seen some favorability with respect to what we classify as raw materials. Purchased components are up a little bit on a year-over-year basis. As we go through the year, we had a benefit both in our Mueller Company operations as well as Anvil. Slightly, a little more weighted to Anvil because they're little more raw material dependent. We have seen that favorability throughout the year on a consistent basis, and do not expect any changes as we finish up fiscal 2013.

Okay. Great. Thank you.

Brent Thielman, DA Davidson.

Greg, I'm not sure if you mentioned this. But can you quantify the negative impact of Canada on Mueller Co this quarter?

On the sales side, it was -- sales were down $3 million from the previous year.

Perfect. Thanks. Obviously, great margins here in Anvil. Would you characterize these towards the higher end of your expectations for this segment? Or do you think there's more to go?

Brent, we think as capacity utilization increases that we could still see higher margins in the Anvil business. I think that as we over the last couple of years talked about the restructuring that we have done, and our Lean initiative, we have continued to get more efficient in our facilities. I think as we see overall capacity utilization increasing, and I think that our commercial construction markets still are forecasted to have a very slow growth, but at least growing the next couple of years, I think that we would expect to see -- have the ability to earn some higher margins. But it is also dependent, as we have mentioned several times in the past, we do import branded products from offshore and sell into the marketplace and we produce domestically. Obviously, the more we produce domestically, the higher the margins are going to be. But I think that all in all, that we said on an EBITDA margin range, that we think that 15% or 16% can be achievable, and I think as our capacity utilization goes up, and if our mix stays the same relative to domestic-produced versus what we bring in offshore, we can see a little more upside in these margins.

Okay. That is great. I imagine debt reduction is still the focus here. Thinking a little further out, as you continue to lever the balance sheet to the point where you like, can you talk about your views on share buybacks or potentially a larger dividend?

Yes, Brent. We have always -- that is a topic that we discuss with our Board, and we discuss it regularly. You are right. Share buyback was not something that was something that we discussed the last several years. As we move forward, it can certainly can be something that comes on the agenda, as well as the dividend.

A couple of years ago when our markets were really depressed, we elected to still continue to pay a dividend. That was very important for us to continue to do so. Analyzing dividends and whether it is the right dividend is something that is on the table, though I will say, and I will ask Evan to comment on this, that probably, on what we could do on dividends and share buyback is somewhat limited by our covenants.

That is right. Under our indentures, we are limited to the amount of dividends that we can pay on an annual basis. Roughly about $15 million, as well as limited on the share buyback as well. Certainly, we evaluate all of these alternatives, as well as evaluate the capital structure. As you mentioned, certainly debt reduction, as we move forward, continues to be a focus, and we have the ability under our indentures to take out $65 million of subordinated notes under restricted payment baskets, and that would be the next deleveraging opportunity that we have going forward. All of these capital structure options are things that we will consider.

Lastly, one for you, Evan. Obviously you had some NOLs available to offset cash taxes this year. Are those available for next year as well, or how do we think about payment of cash taxes into 2014?

Certainly, we said that cash income taxes would be minimal this year. Coming into this year, we had about a tax value of $64 million of NOLs coming into fiscal 2013. We have utilized some in this year, but we will provide the actual ending balance when we finalize and close the year and publish our 10-K. But there will be NOLs that will continue on into 2014 to shield cash taxes. The NOLs that we have do not expire until 2029. We can utilize those commensurate with generation of net income.

Great. Thanks.

Sean Wondrack, Deutsche Bank.

As you look at the Mueller Company business, and I appreciate all of the color you have given on the call. Can you talk a little bit about how much did the metering/AMI business impact the overall margin on segment this quarter?

When you look at our new technology businesses, we improved about $3 million year-over-year. But we still had a negative $1 million from these businesses so it reduced Mueller's overall operating income by $1 million.

Great. Thank you. As you look at both of your segments, can you let us know where capacity utilization is, please?

Yes. When you look at -- our Mueller business, we are at about the mid-60% range. Anvil, just slightly less than that. We are in -- as I said, we are up slightly. We are up from where we were a year ago. But I think, still with Mueller in the mid 60% and Anvil slightly less.

Okay. Great. Thank you. Last question. With regard to Anvil, I know that you talked about regionally you had said commercial construction has been picking up a bit. When you talked about Texas, where exactly are your parts going in Texas? What kind of jobs? What kind of end markets, exactly?

Actually, it was more on the hospitality side. I think there was a nice hotel project. What we're seeing on the Anvil business, as I said, it is a little spotty. Institutional investment is down. Industrial is mixed. Some of the other areas such as hospitality, and it's project related, that we saw a nice opportunity. We saw some more opportunity this past quarter.

Okay. Great. As you are seeing either the pullback in commodities and the commodity like nature of the products, are you seeing more coming at Anvil?

I would not say any more competition, but I think that we are always watching if there is a shift going from the domestic produced product to offshore. As I said earlier, I answered one of the questions, we source our branded products offshore, and I think that while we would probably -- what we can expect is we may see the offshore products gain a little more share as these markets improve.

Thank you very much. I appreciate it. Good luck in this quarter.

Nick Prendergast, BB&T Capital Markets.

Just to piggyback on some of these earlier questions about your Mueller systems or your newer tech products, did you say they were running somewhere around the mid-$20 million per quarter?

Yes. If you look at the last couple of quarters on a revenue basis, combining our leak detection and Mueller Systems, I would say in the mid-$20 million. Anywhere from $20 million to the mid-$20 millions is a pretty good range.

And just real quick, I know that sales were up pretty strong. About 70% in the quarter for those newer-type products. Did I understand correctly that you clearly do not see that going forward in Q4?

No. We don't see it going up in Q4. The biggest reason contributing to the that is two reasons. One, we anniversaried late in the third quarter the big contract that we received last year. That is now in our comparison numbers. Plus, we have seen a bit of a push out on some projects that we thought were going to be awarded, and that we would win and be awarded in the third quarter. And they have yet to be awarded. We think it is very unlikely that we would be able to ship those in the fourth quarter if we win those.

Okay. Great. Thank you.

That does conclude the question-and-answer segment of today's conference.

Thanks again for your interest in Mueller Water Products and your questions today. We look forward to seeing you on the road and talking with you next quarter.

That does conclude today's presentation. Thank you all for joining. You may now disconnect.