Last September, I introduced The Motley Fool readers to Advanced Drainage Systems (WMS 3.19%) in 1 Climate Change Stock to Consider Buying in This Age of Catastrophic Floods. This company provides water-management solutions -- including high-performance thermoplastic corrugated pipe and ancillary products -- to the commercial, residential, infrastructure, and agricultural markets.
Since my article was published in mid-September, shares are up 25.7% and have returned 26%, as of Aug. 22. (The stock pays a very modest dividend, which is why there is a difference between its price gain and total return.) By comparison, the returns of the S&P 500 and Nasdaq indexes are underwater by 5.6% and 17.1%, respectively, over this period.
Thanks to its powerful performance in recent years, the stock's also a big winner since its July 2014 initial public offering (IPO). Moreover, it still looks very attractive as a long-term investment.
Let's dive into Advanced Drainage Systems' results for its first quarter of fiscal 2023 (period ended June 30), which it reported earlier this month.
Highway drainage products to be installed. Image source: Advanced Drainage Systems.
Advanced Drainage Systems' key numbers
| Metric | Fiscal Q1 2023 | Fiscal Q1 2022 | Change |
|---|---|---|---|
| Revenue | $914.2 million | $669.3 million | 37% |
| Operating income | $251.6 million | $109.3 million | 130% |
| Net income | $188.5 million | $77.1 million | 144% |
| Earnings per share (EPS) | $2.22 | $0.87 | 155% |
Data source: Advanced Drainage Systems.
Wall Street was looking for EPS of $1.40 on revenue of $825 million, so the company raced by both expectations.
Revenue growth was broad based across the company's end markets and geographies. In the earnings release, CEO Scott Barbour said: "This growth offset inflationary cost pressures that we continue to see in transportation and our manufacturing operations. In addition, the pricing actions we have taken have more than offset [the increase in] our raw material costs, which moderated, but remain at elevated levels."
Here's the revenue performance by segment. (This total adds up to more than the company's total revenue because intersegment sales are not included in total revenue.):
- Domestic pipe sales jumped 40% year over year to $524.9 million.
- Domestic allied products and other sales soared 57% to $198.9 million.
- Infiltrator sales increased 31% to $166.3 million. (Infiltrator Water Technologies, which Advanced Drainage Systems acquired in 2019, is a leader in on-site septic wastewater treatment systems in the U.S. and Canada.)
- International sales rose 9% to $71.5 million.
Advanced Drainage Systems generated cash of $249.8 million running its operations during the quarter, up 140% from the year-ago period. Free cash flow surged 171% year over year to $213.6 million. The company ended the period with total liquidity of $1.06 billion, comprising cash of $464 million and $595 million available under credit facilities. Net debt (total debt and finance lease obligations minus cash) was $850.2 million.
Data by YCharts.
NYSE: WMS
Key Data Points
Fiscal year 2023 guidance raised
For the full year, management expects:
- Revenue in the range of $3.25 billion to $3.35 billion, up from the prior outlook of $3.10 billion to $3.20 billion.
- Adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) of $900 million to $940 million, up significantly from the prior outlook of $800 million to $820 million.
The updated full-year guidance represents expected annual revenue growth of 17% to 21% and adjusted EBITDA growth of 33% to 39%.
Advanced Drainage Systems deserves a spot on the watch lists of long-term investors. "It has a long runway for growth in this era of more frequent and severe flooding in certain areas and water scarcity in others," as I opined in my first article on the company. It's important to truly have a long-term investing mindset because the company's performance will likely be somewhat cyclical. Some of its end markets are quite cyclical, such as the residential construction market.
