Advanced Drainage Systems, Inc. (WMS) Earnings & Analysis

Latest quarter

Advanced Drainage Systems reported fiscal second-quarter revenue of $889.4 million, up from $850.4 million a year earlier but below the consensus. Its non-GAAP profit of $1.88 per share was 5.2% above the consensus.

The company’s filing shows Stormwater sales rose 6.2% to $712.1 million, including $77.3 million from NDS. It attributed the increase to NDS and improved price and product mix, partly offset by lower pipe and allied-product volumes. Wastewater sales fell 1.3% to $177.3 million, primarily because of lower volume.

The company reported diluted earnings from continuing operations of $1.77 per share, down from $1.99. Its gross margin declined to 38.9% from 40.0%, while adjusted EBITDA fell to $286.8 million from $287.5 million. The filing attributed higher selling and administrative expenses primarily to NDS operating and integration costs.

For the first six months of fiscal 2027, ADS reported free cash flow of $359.5 million, compared with $398.8 million a year earlier.

Adjusted EPS is the figure the consensus estimates, not the GAAP EPS above.

What management said on the call

CEO Scott Barbour directed investors to the first half as a view of underlying performance because customers bought ahead of price increases. CFO Scott Cottrill estimated that $40 million-$50 million of revenue had moved from the second quarter into the first, more than the company previously estimated.

Barbour said first-half organic non-residential revenue grew 8%, with growth on data centers, warehouses and general commercial construction. Organic residential sales fell 4% as land development activity offset growth at Infiltrator. Asked about demand, he said the change in the company’s assessment was concentrated in residential land development, where higher interest rates had reduced momentum.

Cottrill attributed second-quarter margin compression to the shifted volume and inflation in materials, diesel and third-party logistics. He said pricing had more than offset material and transportation inflation to date. Asked about costs ahead, he said resin costs in the second half would remain elevated but below their second-quarter level, while transportation costs continued to rise.

On competition, Barbour said rapid material and transportation cost increases had made it harder for some smaller competitors to compete. He said ADS’s fleet helped it manage transportation costs, while the company continued to focus on service and pricing.

Barbour said ADS had begun cross-selling with NDS during the quarter. Asked about synergies, corporate strategy and investor relations vice president Mike Higgins said they were tracking ahead of the first-year plan; cross-selling had not yet produced a material amount of orders, and he expected a bigger impact next fiscal year.

Barbour said the proposed StormTrap acquisition would expand ADS’s engineered stormwater offering and was expected to close in the fourth quarter of calendar 2026. Cottrill put the proposed purchase price at approximately $530 million and said capital priorities also included investment in new products, automation and productivity, followed by dividends and opportunistic repurchases.

Guidance

Cottrill said ADS lowered its fiscal 2027 revenue guidance by 3% at the midpoint to $3.35 billion, primarily because it expects less raw-material inflation than it anticipated in May. The previously stated revenue range was $3.4 billion–$3.6 billion.

He said the company lowered adjusted EBITDA guidance by 1% at the midpoint to $1.015 billion, implying a 30.3% margin; the previously stated range was $1.0 billion–$1.1 billion. Cottrill said the outlook excludes StormTrap and implies low-single-digit organic growth in the second half, with pricing offsetting material and transportation inflation.