Strong demand for plastic pipe and drainage products in the Southeastern U.S. coupled with favorable weather in the Midwest helped Advanced Drainage Systems (ADS) deliver a solid performance for its 2017 fiscal year that ended March 31.
The Hilliard, Ohio-based company, which trades publicly as WMS, generated net sales of $1.26 billion — down slightly from $1.29 billion the prior year — and adjusted earnings before interest, taxes, depreciation and amortization (EBITDA) of $193 million. That met or exceeded guidance, CEO Joseph Chlapaty said Thursday during a conference call with investment bankers.
"During fiscal 2017, we delivered above-market growth in both the non-residential and new residential construction markets as sales outpaced their respective end markets by an estimated 300 basis points," Chlapaty said.
Even though agricultural, international and retail sales were down, ADS officials said they are encouraged by the national focus on upgrading infrastructure.
"We feel very good about our position in this market over the long term as we expect to benefit from increased spending and adoption of our newly released HPXR product line, which is designed to address a $1 billion market opportunity in large-diameter storm water applications," Chlapaty said.
The new product line, which includes corrugated polypropylene pipe with a smooth interior and diameters of 30-60 inches for gravity sewers, is a high profit, high growth area, Chief Financial Officer Scott Cottrill added.
ADS officials also are optimistic about seeing increased infrastructure spending at the state level, Cottrill said. In addition, he said he believes the overall housing market will remain healthy and positioned for growth in fiscal 2018.
"We used the winter months to build specific high-demand inventory for our upcoming selling season, positioning ourselves to have the right products at the right plant at the right time to meet customer needs as quickly and efficiently as possible," Cottrill said.
He expects mid-single digit sales growth in domestic construction markets but a revenue decline of low- to mid-single digits in the agricultural market due to "continued weakness in farmers' income and crop prices" during fiscal 2018.
ADS ended up "mothballing a couple plants" dedicated to the soft agricultural market and moved the assets to other facilities in the South and Southeast where capacity is needed to support growth, Chlapaty said.
Overall, Cottrill said he projects net sales of $1.275 billion to $1.325 billion, which represents growth of 1 to 5 percent, and adjusted EBITDA of $200 million to $220 million. The margin improvement is likely to be driven by favorable demand and operational improvements, Cottrill added.
"We continue to review every aspect of how we can operate more efficiently, including optimizing our footprint, accelerating new product development and introduction, and implementing continuous improvement and lean manufacturing among many other initiatives," Cottrill said.
ADS officials also are evaluating "numerous" potential deals related to mergers and acquisitions.
"We could see ourselves investing some meaningful dollars in the organic growth opportunities and initiatives," Chlapaty said.
The out-going CEO, who is retiring at the end of the year, also gave an update about the succession planning underway. A committee has developed a profile for the type of company leader ADS needs and "we're gathering candidate names," Chlapaty said.