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Watts Water (WTS) Tops Q1 Earnings & Sales, Keeps View

Watts Water Technologies, Inc.WTS reported first-quarter 2016 adjusted earnings of 57 cents per share, which surged 26.7% year over year. Earnings also surpassed the Zacks Consensus Estimate of 50 cents.

On a reported basis, including special items, Watts Water's earnings increased to 47 cents per share in the first quarter from 33 cents in the year-ago quarter.

Watts Water Technologies Inc. (WTS) Street EPS & Surprise Percent - Last 5 Quarters | FindTheCompany

Total revenue dropped 3.4% year over year to $344 million in the quarter due to the 2015 exit of non-core product. Revenues, however, beat the Zacks Consensus Estimate of $337 million. The company's organic sales increased 6% in the quarter, driven by growth across all regions and additional shipping days.

Cost and Margins

Cost of sales declined 7.4% year over year to $209 million. Gross profit improved 3.6% to $135 million. Gross margin in the reported quarter expanded 270 basis points to 39.3%. Selling, general and administrative expenses decreased to $102.6 million from $105.7 million in the prior-year quarter.

Adjusted operating profit increased 27% to $37.3 million in the reported quarter. Adjusted operating margin grew 260 basis points to 10.8%.

Segment Performance

North America: Net sales dropped 6.4% to $222.3 million in the reported quarter. Adjusted operating profit increased 18.3% to $33 million.

EMEA: Net sales went up 1.8% year over year to $111 million. Adjusted operating profit rose 30.9% to $10.6 million from the year-ago quarter figure of $8.1 million.

Asia: Net sales increased 11% to $10.9 million from $9.8 million in the prior-year quarter. The segment reported adjusted operating profit of $2 million compared to $1.5 million in the year-ago quarter.

Financial Performance

Watts Water had cash and cash equivalents of $259.4 million at the end of first-quarter 2016 compared with $296 million at 2015 end. The company used $21.9 million of cash in operating activities in the reported quarter compared with cash inflow of $0.8 million in the year-ago quarter.

As of quarter end, Watts Water's net debt increased to $338.8 million from $279 million as of Dec 31, 2015. Net debt-to-capitalization ratio increased to 31.7% as of Apr 3, 2016, from 28.4% as of Dec 31, 2015.

On Apr 28, 2016, the company borrowed $230 million from its line of credit and used the funds to pay off an outstanding private placement loan of $225 million, plus accrued interest, which was due Apr 30, 2016.

Watts Water repurchased approximately 268,000 shares during the first quarter of 2016 for $12.5 million.

Outlook

Watts Water maintained its full-year 2016 outlook. The company expects inventories to normalize along with an increase in cash flow as the year progresses.

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).

Zacks Rank

At present, Watts Water carries a Zacks Rank #4 (Sell).

Some better-ranked stocks in the same sector include Nanometrics Incorporated NANO , Badger Meter Inc. BMI and M/A-Com Technology Solutions Holdings, Inc. MTSI . All these stocks sport a Zacks Rank #1 (Strong Buy).

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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