Exchange: NYSE | Sector: Industrials | Industry: Construction
Q3 2025
Published: Feb 6, 2025
Earnings Highlights
Revenue of $690.54M down 15.3% year-over-year
EPS of $1.04 decreased by 49.5% from previous year
Gross margin of 35.0%
Net income of 81.23M
""We are in a great position to execute on our capital deployment priorities," stated Scott Cottrill, CFO, highlighting the company's robust liquidity and capital management strategy." - Scott Cottrill
Advanced Drainage Systems Inc (WMS) Q3 2025 Financial Performance Analysis
Executive Summary
In Q3 2025, Advanced Drainage Systems Inc (WMS) reported a revenue of $691 million, reflecting a 4% increase year-over-year, driven by strong performance in non-residential sales and residential markets. Despite a challenging infrastructure sector, which saw a 6% decline, management remains optimistic about future growth driven by ongoing demand in construction and strategic acquisitions such as Orenco. The company is well-positioned for continued growth with a robust EBITDA margin of approximately 27.6% and a significant cash flow generation, allowing for future expansion and shareholder returns.
Key Performance Indicators
Revenue
690.54M
QoQ: 0.00% | YoY:-15.31%
Gross Profit
241.59M
34.99% margin
QoQ: 0.00% | YoY:-24.63%
Operating Income
126.86M
QoQ: 0.00% | YoY:-43.99%
Net Income
81.23M
QoQ: 0.00% | YoY:-49.67%
EPS
1.05
QoQ: 0.00% | YoY:-49.52%
Revenue Trend
Margin Analysis
Key Insights
**Revenue:** $691 million (YoY Growth: +4%)
**Gross Profit:** $241.59 million (Gross Margin: 35%)
**Operating Income:** $126.86 million (Operating Margin: 18.3%)
**Net Income:** $81.23 million (Net Margin: 11.7%)
**EBITDA:** $191 million (YoY Decline: -6%)
Financial Highlights
### Financial Performance Highlights
- Revenue: $691 million (YoY Growth: +4%)
- Gross Profit: $241.59 million (Gross Margin: 35%)
- Operating Income: $126.86 million (Operating Margin: 18.3%)
- Net Income: $81.23 million (Net Margin: 11.7%)
- EBITDA: $191 million (YoY Decline: -6%)
- EPS: $1.05 (YoY Decline: -49.5%)
### Year-over-Year Comparisons:
- Revenue increased by 4% mainly due to a strong residential market, up 9%, and an increase in non-residential sales, which grew by 7%.
- The infrastructure segment experienced a decrease of 6%, reflecting tougher comparisons due to previous strong performance in the same period.
Income Statement
Metric
Value
YoY Change
QoQ Change
Revenue
690.54M
-15.31%
0.00%
Gross Profit
241.59M
-24.63%
0.00%
Operating Income
126.86M
-43.99%
0.00%
Net Income
81.23M
-49.67%
0.00%
EPS
1.05
-49.52%
0.00%
Key Financial Ratios
currentRatio
3.21
grossProfitMargin
35%
operatingProfitMargin
18.4%
netProfitMargin
11.8%
returnOnAssets
2.26%
returnOnEquity
5.25%
debtEquityRatio
0.91
operatingCashFlowPerShare
$2.45
freeCashFlowPerShare
$1.75
dividendPayoutRatio
15.3%
priceToBookRatio
5.8
priceEarningsRatio
27.59
Net Income vs. Revenue
Expense Breakdown
Management Commentary
### Key Insights from Management
1. Operational Focus: "We executed well in the third quarter, meeting our commitments on safety, delivery performance and operational execution," stated Scott Barbour, CEO. This consistent performance underlines the company's operational strength despite market fluctuations.
2. Market Growth: Scott Barbour further noted, "Sales in the non-residential market increased 7% as demand improved in the third quarter... good demand in the South and Southeastern United States such as Florida, Texas, and Georgia." This indicates strategic geographic advantages and effective market positioning.
3. Strategic Investment: "To support growth in the Southeast, we released... ground on an expansion of the ADS recycling facility in Cordele, Georgia... allowing us to more efficiently service the seven facilities in this growing market," reflecting the company’s commitment to expanding capacity and sustainability initiatives.
"We are in a great position to execute on our capital deployment priorities," stated Scott Cottrill, CFO, highlighting the company's robust liquidity and capital management strategy.
— Scott Cottrill
"Our disciplined approach to capital allocation remains unchanged," noted Cottrill, reaffirming focus on organic growth and strategic acquisitions.
— Scott Cottrill
Forward Guidance
Management reaffirmed its guidance for fiscal 2025, expecting stability in both revenues and EBITDA margins, anticipating consistent performance in core markets while navigating potential weather and economic uncertainties. Continued investment in product innovation and strategic acquisitions, such as Orenco, are expected to bolster future growth. "Based on our performance to date, current visibility, backlog of orders, and trends, our revenue and adjusted EBITDA guidance remain unchanged," stated CFO Scott Cottrill, emphasizing confidence in the company's trajectory.
Competitive Position
Company
Gross Margin
Operating Margin
Return on Equity
P/E Ratio
WMS Focus
34.99%
18.40%
5.25%
27.59%
APOG
26.10%
8.39%
4.02%
21.85%
AZEK
37.80%
17.70%
3.60%
29.97%
LII
32.60%
20.20%
31.70%
22.50%
ROCK
25.90%
12.20%
3.39%
15.68%
Gross Profit Margin
Operating Profit Margin
Return on Equity
P/E Ratio Comparison
Investment Outlook
Given solid financial fundamentals, anticipated operational improvements, and the strategic expansion of product lines, Advanced Drainage Systems Inc presents a stable investment opportunity in the Industrials sector. Investors should monitor performance in the construction markets, the upcoming investor day for insights on long-term strategy, and overall economic conditions affecting the construction industry.
Key Investment Factors
Growth Potential
The residential sector's continued expansion, driven by land development and supply shortages, offers significant growth potential for ADS, alongside increasing demand for advanced stormwater management solutions amid changing climate conditions.
Profitability Risk
The primary risk relates to fluctuations in the infrastructure market, where ADS has less historical participation, which can lead to volatile revenue performance. Additionally, external factors such as regulatory changes and economic shifts could impact demand.
Financial Position
ADS maintains a healthy financial position, with $489 million in cash and equivalent along with significant liquidity from its revolving credit facility. The net-debt-to-adjusted EBITDA leverage is at 1.0, indicating a manageable debt level in relation to earnings.
SWOT Analysis
Strengths
Strong market position in the residential drainage solutions sector.
Diversified product offering enhanced by the acquisition of Orenco.
Solid cash flow generation with positive EBITDA margins.
Weaknesses
Dependence on the fluctuating infrastructure segment for revenue.
Recent significant decline in EPS reflecting increased costs and competitive pricing pressure.
Opportunities
Expansion in the recycling and stormwater management solutions market.
Potential for increased market share in the Southeastern U.S.
Threats
Economic downturn affecting construction spending.
Intense competition in core markets affecting pricing strategies.