It has been about a month since the last earnings report for Watts Water Technologies, Inc. WTS . Shares have added about 6% in that time frame.
Will the recent positive trend continue leading up to its next earnings release, or is WTS due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important catalysts.
Watts Water Q4 Earnings and Revenues Beat Estimates
Watts Water delivered fourth-quarter 2017 adjusted earnings of 74 cents per share, up 16% year over year. The improvement was driven by strong operating performances in the Americas and Europe. Earnings also surpassed the Zacks Consensus Estimate of 73 cents.
On a reported basis, including special items, Watts Water reported a loss of 7 cents per share in the quarter against earnings per share of 51 cents in the year-ago quarter.
Total revenues were up 7% year over year to $366 million in the quarter. It came ahead of the Zacks Consensus Estimate of $364 million. Organic sales went up 3% year over year.
Regionally, organic sales improved 3% in the Americas driven by growth in plumbing, drains along with water quality products. Organic sales growth improved 5% in Europe owing to continued strength in drains business and solid growth in water and plumbing products. APMEA's organic sales suffered a decline of 1% due to planned product rationalization, which dragged down sales by 10%. Cost and Margins
Cost of sales went up 6.3% year over year to $217 million. Gross profit increased 8% to $149 million. Gross margin in the reported quarter expanded 40 basis points (bps) to 40.7%. Selling, general and administrative expenses went up to $108 million from $107 million in the prior-year quarter. Adjusted operating profit surged 34% to $41.7 million in the reported quarter.
Americas: Net sales increased 4.6% to $233.6 million in the reported quarter. Adjusted operating profit increased 11% to $37.8 million.
Europe: Net sales increased 13.8% year over year to $115.7 million. The segment reported adjusted operating profit of $11.8 million compared with $8.9 million recorded in the year-ago quarter.
APMEA: Net sales remained flat year over year at $17 million. Adjusted operating profit declined 30% year over year to $1.4 million. Financial Performance
Watts Water had cash and cash equivalents of $280.2 million at the end of 2017 compared with $338.4 million at the end of 2016. The company recorded cash from operations of $156 million in 2017 compared with $138 million recorded last year.
The company repurchased 63,000 shares of Class A common stock for $4.6 million during the fourth quarter. In 2017, the company repurchased approximately 278,000 shares at a cost of approximately $18 million. Approximately $38 million remains available for stock repurchases.
Net debt was at $216.9 million as of Dec 31, 2017, lower than $312 million as of Dec 31, 2016. Consequently, net debt-to-capitalization ratio dropped to 20.7% as of Dec 31, 2017 from 29.8% as of Dec 31, 2016.
Fiscal 2017 Performance
Watts Water's adjusted earnings came in at $3.02 in fiscal 2017 which beat the Zacks Consensus Estimate of $3.01. Earnings increased 13% year over year. Including special items, Watts Water reported earnings per share of $2.12 per share in the year compared with $2.44 in the prior year. Total revenues increased 4% year over year to $1.46 billion in 2017 and also surpassed the Zacks Consensus Estimate of $1.45 billion.
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed an upward trend in fresh estimates. There have been four revisions higher for the current quarter.
Watts Water Technologies, Inc. Price and Consensus
Watts Water Technologies, Inc. Price and Consensus | Watts Water Technologies, Inc. Quote
At this time, WTS has a strong Growth Score of A, though it is lagging a bit on the momentum front with a B. The stock was allocated a grade of C on the value side, putting it in the middle 20% for this investment strategy.
Overall, the stock has an aggregate VGM Score of A. If you aren't focused on one strategy, this score is the one you should be interested in.
Based on our scores, the stock is primarily suitable for growth investors while also being suitable for those looking for momentum and to a lesser degree value.
Estimates have been trending upward for the stock and the magnitude of these revisions looks promising. It comes with little surprise that WTS has a Zacks Rank #2 (Buy). We expect an above average return from the stock in the next few months.
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