WMS Q1 Earnings Call: Revenue and Profit Miss as Management Highlights Execution in Challenging End Markets

Water management company Advanced Drainage Systems (NYSE:WMS) missed Wall Street’s revenue expectations in Q1 CY2025, with sales falling 5.8% year on year to $615.8 million. Its non-GAAP EPS of $1.03 per share was 6.2% below analysts’ consensus estimates.

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StockStory’s Take

Advanced Drainage Systems’ first quarter results reflected a combination of subdued demand in key end markets and operational adjustments across its product lines. Management cited higher interest rates and unfavorable weather as primary reasons for lower sales, particularly noting the impact of a delayed spring construction season compared to last year. CEO Scott Barbour emphasized the company’s strategy of focusing on higher-margin segments like Infiltrator and Allied products, which now comprise a significant share of revenue. Craig Taylor, President of Infiltrator, pointed to new product launches and continued material conversion from traditional concrete tanks as contributors to growth within that segment. Management acknowledged the macroeconomic headwinds, with Barbour stating, “We got a lot of things done in spite of a very difficult demand environment and a difficult pricing and materials market.”

Looking ahead, Advanced Drainage Systems’ guidance reflects cautious expectations for both residential and nonresidential construction markets, as management anticipates ongoing pressure from elevated interest rates and economic uncertainty. CFO Scott Cottrill outlined that volume growth is expected to be modest, with pricing remaining relatively flat after the first quarter. The company expects manufacturing costs to rise due to lower production volumes, particularly in the early part of the year, but anticipates transportation efficiencies will offset some of these headwinds. Barbour explained the postponement of the company’s long-term outlook, citing the difficulty of forecasting amid current market volatility: “We couldn’t feel comfortable nailing down a three year plan underneath those kind of conditions.” Management remains focused on driving above-market growth through product innovation and select acquisitions, while maintaining a flexible and disciplined approach to capital deployment.

Key Insights from Management’s Remarks

Management attributed the first quarter’s results to softer construction demand, unfavorable weather, and a continued focus on higher-margin product lines and geographic diversification. Cost discipline and product mix shifts helped limit the impact of external pressures.

• Weather delayed construction demand: Management highlighted that unfavorable weather conditions delayed the start of the spring construction and agriculture season, shifting activity from last year’s early start and impacting year-over-year comparability.
• Product mix shift to higher margin: The company continued to increase the share of revenue from its higher-margin Infiltrator and Allied product segments, helping offset weaker demand in traditional pipe and certain mature geographies.
• Material conversion driving growth: Both ADS and Infiltrator segments benefited from ongoing conversion from traditional materials (such as concrete) to plastic products, with new products and engineering approvals supporting increased adoption, especially in residential and wastewater end markets.
• Geographic focus on growth regions: Growth remained strongest in states like Florida, Texas, and the Southeast, areas where the company has prioritized market share gains and sees lower existing penetration, providing a runway for future expansion.
• Operational investments and efficiency gains: Management pointed to investments in manufacturing automation, new product development, and a refreshed transportation fleet as drivers of improved operational efficiency and customer service, even as they navigated cost absorption challenges tied to production volumes.

Drivers of Future Performance

Management expects continued headwinds in construction demand, with margin stability dependent on product mix, operational efficiency, and disciplined capital deployment.

• Sluggish end market demand: Barbour and Cottrill expect both residential and nonresidential markets to remain under pressure due to higher interest rates and economic uncertainty, forecasting flat to slightly declining volumes and no acceleration in the near term.
• Operating margin pressures: The company anticipates unfavorable manufacturing cost absorption in the first quarter as a result of lower production volumes, while transportation efficiencies and ongoing cost controls are expected to partially offset these headwinds over the full year.
• Strategic focus on growth levers: Management intends to drive above-market growth by prioritizing higher-margin Allied and Infiltrator products, expanding geographic reach in growth states, and executing targeted acquisitions, while maintaining a flexible approach to capital allocation and monitoring for market recovery.

Catalysts in Upcoming Quarters

Looking forward, the StockStory team will monitor (1) order trends and backlog strength as a sign of end market stabilization, (2) progress on operational cost controls and manufacturing efficiency, especially as new capacity comes online, and (3) execution on targeted acquisitions and geographic expansion in key growth markets. The pace of demand recovery and the realization of anticipated margin improvements will also be critical markers of performance.

Advanced Drainage currently trades at a forward P/E ratio of 17.1×. In the wake of earnings, is it a buy or sell? Find out in our full research report (it’s free).

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