Watts Water (WTS) Q1 Earnings Beat Estimates, Revenues Match

Watts Water Technologies, Inc. WTS reported healthy first-quarter 2019 financial results, mainly driven by strong operating performance in the Americas, resulting in year-over-year growth in sales and profitability.

Net Income

On a reported basis, quarterly net income was $31 million or 91 cents per share compared with $28.2 million or 82 cents per share in the year-ago quarter. The improvement was primarily driven by price, volume, productivity, lower effective tax rate and reduced interest costs. However, the momentum was partly offset by inflation, higher tariff costs, growth investments and a negative impact in foreign exchange.

Adjusted net income came in at $32 million or 94 cents per share compared with $28.2 million or 82 cents per share a year ago. The bottom line beat the Zacks Consensus Estimate by a penny.

Watts Water Technologies, Inc. Price, Consensus and EPS Surprise

Watts Water Technologies, Inc. price-consensus-eps-surprise-chart | Watts Water Technologies, Inc. Quote


On a reported basis, quarterly net sales increased 2.7% year over year to $388.7 million, driven by pricing actions and organic volume in the Americas and Europe. The top line matched the Zacks Consensus Estimate.

Organic sales jumped 6% year over year. Regionally, organic sales in the Americas increased 8%, driven by broad growth in plumbing, heating and hot water, drains and water quality products; however partly offset by negative foreign exchange. Organic sales improved 3% in Europe owing to strength in drains business and one additional shipping day in the reported quarter as compared to the preceding year. Asia Pacific Middle East and Africa (APMEA) saw a decline of 3% as sales in the Middle East, Australia and in China’s commercial valves market were more than offset by softness in Korea and China’s residential heating market.

Segmental Performance

Americas: Net sales increased 7.4% to $258.9 million in the first quarter. Adjusted operating income increased 18.4% to $43.1 million.

Europe: Net sales decreased 5.4% to $116.3 million, affected by negative foreign exchange movements. The segment’s adjusted operating income was $14.6 million compared with $14.9 million in the year-ago quarter.

APMEA: Net sales decreased 6.3% to $13.5 million. Adjusted operating income came in at $1.3 million compared with $1.4 million in the prior-year quarter.

Other Details

Cost of goods sold went up 1.2% year over year to $224.5 million. Gross profit increased 4.8% to $164.2 million. Operating income was $46.7 million, up 6.4%. Operating margin was up 40 basis points (bps) to 12%. Adjusted operating margin came in at 12.4%, up 80 bps.

Cash Flow & Liquidity

During first-quarter 2019, Watts Water utilized $24.2 million of net cash from operating activities compared with a cash utilization of $26.1 million in the year-ago period. As of Mar 31, 2019, the company had $170.2 million in cash and equivalents with $341.1 million of long-term debt (net of current portion).

Watts Water repurchased about 74,000 shares of Class A common stock for $5.6 million during the first quarter. It repatriated $11 million in cash during the quarter and used it to pay down revolving debt.

Going Forward

Watts Water is focused on accelerating organic growth, drive margin expansion and reinvest in future growth and productivity initiatives. The company intends to launch smart and connected product strategy in 2019, which is likely to provide it with further differentiation in the marketplace. Also, it is committed to enhancing shareholder value and executing its balanced cash allocation strategy while following its long-term growth strategy of driving the business organically and through acquisitions.

Zacks Rank & Stocks to Consider

Watts Water currently has a Zacks Rank #4 (Sell). A few better-ranked stocks in the broader industry are Woodward, Inc. WWD, Harris Corporation HRS and Juniper Networks, Inc. JNPR. While Woodward sports a Zacks Rank #1 (Strong Buy), Harris and Juniper carry a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Woodward has long-term earnings growth expectation of 12.9%.

Harris has long-term earnings growth expectation of 8%.

Juniper has long-term earnings growth expectation of 6.2%.

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