Watts Water Technologies, Inc.
) fourth-quarter 2013 adjusted earnings decreased 5% year over
year to 57 cents per share. Earnings fell short of the Zacks
Consensus Estimate of 64 cents by 11%.
On a reported basis, including special items, earnings in the
quarter were 23 cents per share against 51 cents in the year-ago
Total revenue rose 6.1% year over year to $376 million,
surpassing the Zacks Consensus Estimate of $372 million. The
company reported organic sales growth of 4.6% in the quarter,
which was the highest in its history.
Cost and Margins
Cost of sales increased 8% year over year to $245 million. Gross
profit increased 1.7% to $130.9 million. However, gross margin
contracted 150 basis points (bps) to 34.8% in the quarter.
Selling, general and administrative expenses rose 17% year over
year to $111.7 million.
Adjusted operating profit dropped 0.8% to $36.7 million from $37
million in the year-ago quarter. Adjusted operating margin also
contracted 60 bps to 9.8% primarily due to incremental customer
rebate costs and manufacturing inefficiencies related to lead
North America: Net sales grew 7% to $220.6 million, aided by
organic sales growth of 7.9%. This was partly offset by
unfavorable foreign currency translation with the weakening of
the Canadian dollar against the U.S. dollar. Adjusted operating
profit declined 2.8% to $27 million.
EMEA: Net sales went up 4% year over year to $146 million.
Adjusted operating profit improved 13% to $16 million from the
year-ago operating income of $14 million due to productivity and
cost savings initiatives.
Asia: Net sales increased 15% to $9.2 million from $8 million in
the prior-year quarter. Adjusted operating profit fell to $1.8
million from $2.2 million in the year-earlier quarter.
Watts Water ended 2013 with cash and cash equivalents of $267.9
million, down from $271.3 million as of 2012-end. Cash flow from
operations was $118 million as of Dec 31, 2013, compared with
$130 million Dec 31, 2012.
Long-term debt, excluding current portion of the company
decreased to $305.5 million as of Dec 31, 2013 from $304.5
million as of Dec 31, 2012. Debt-to-capitalization ratio
contracted 550 bps to 23.5% as of Dec 31, 2013 from year-ago
During the quarter, Watts Water bought back 0.5 million shares
for $3 million as part of the $90 million share repurchase
program announced in April last year.
On Feb 18, 2014, the company entered into a new unsecured line of
credit agreement with a syndicate of banks. The agreement
provides a credit line of up to $500 million, which will mature
in Feb 2019. Watts Water intends to use the proceeds for general
corporate purposes, acquisitions and the repayment of existing
The company also announced a quarterly dividend of 13 cents per
share, to be paid on Mar 14, 2014 to shareholders of record on
Feb 28, 2014.
Fiscal 2013 Performance
For full-year 2013, Watts Water reported adjusted earnings per
share of $2.22, up 2.3% from $2.17 in 2012. The results however,
lagged the Zacks Consensus Estimate of $2.29. Including one-time
items, earnings per share (EPS) was $1.71, compared with $1.95 in
the prior year.
Revenues for the year 2013 increased 3.2% year over year to $1.47
billion, driven by organic sales growth and favorable foreign
exchange movements. Revenues were in line with the Zacks
Watts Water has made significant progress in the lead free
conversion program, facilitating successful transitioning of
manufacturing processes and the fulfillment of
product requirements. Its continuous focus on restructuring
action and business transformation initiatives in Europe will
drive further growth. Watts Water will benefit from expansion of
its business and capitalization of opportunities in the booming
markets of Asia.
In 2014, we expect to the company to be aided by residential
construction recovery and a steady repair and replacement market.
However, the weak economic scenario in Europe remains a headwind.
Watts Water, which operates through its subsidiaries, is a
leading manufacturer of innovative products that control the
efficiency, safety, and quality of water within applications
(residential, commercial, and institutional). At present, Watts
Water carries a Zacks Rank #2 (Buy). Another stock to consider in
the same industry is
Badger Meter Inc.
), which has the same Zacks Rank as Watts Water.
Roper Industries Inc.
) earnings rose 14.5% year over year to $1.65 per share and beat
the Zacks Consensus Estimate by a nickel.
On the other hand,
Thermon Group Holdings, Inc.
) reported weak results in fourth-quarter 2013. Adjusted earnings
per share came in at 18 cents, which was lower than 21 cents in
the year-ago quarter and lagged the Zacks Consensus Estimate of
BADGER METER (BMI): Free Stock Analysis
ROPER INDS INC (ROP): Free Stock Analysis
THERMON GROUP (THR): Free Stock Analysis
WATTS WATER TEC (WTS): Free Stock Analysis
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