- Reported sales of $472 million increased 2%; organic sales
increased 4%
- Reported operating margin of 18.0%, up 260 bps; adjusted
operating margin of 17.9%, up 220 bps
- Reported EPS of $1.93, up 20%; adjusted EPS of $1.92, up
18%
- Year-to-date operating cash flow of $33 million and free
cash flow of $28 million, a significant increase on prior
year
- Acquired the assets of Enware Australia Pty. Limited
(“Enware”) in an all-cash transaction on March 31, 2023
*Performance relative to first quarter in 2022
Watts Water Technologies, Inc., (NYSE: WTS) – through its
subsidiaries, one of the world’s leading manufacturers and
providers of plumbing, heating and water quality products and
solutions – today announced results for the first quarter of
2023.
Chief Executive Officer Robert J. Pagano Jr. commented, “We
continued our solid execution into 2023 and delivered another
record quarter. We drove organic sales growth in all regions
despite the challenging comparison to a very strong first quarter
in 2022 and generated record operating earnings, operating margin
and EPS. As a result of our first quarter performance and our
second quarter expectations, we are increasing our full year 2023
adjusted operating margin outlook to a range of 15.7% to 16.3% from
our previous outlook of 15.4% to 16.0%, while maintaining our
incremental investments. Although we continue to anticipate softer
market conditions as 2023 progresses, we are maintaining our full
year 2023 organic sales growth outlook of negative 5% to positive
2%. This would not be possible without the strong execution by the
Watts team, and I would like to thank our employees who have
remained focused on delivering quality and value to our
customers.”
Mr. Pagano continued, “I would also like to announce that at the
beginning of the second quarter we acquired the primary business
assets of Enware located near Sydney, Australia. Enware is a
leading supplier of specialty plumbing and safety equipment used in
the Australian institutional and commercial end markets, revenues
of approximately $30 million USD annually. The acquisition of
Enware aligns with our strategy to expand geographically into
countries with mature and enforced plumbing codes. Enware will
enhance our product offering and channel access in the Australian
marketplace. We welcome the Enware employees to the Watts family
and look forward to integrating Enware’s strong brand into our
portfolio.”
A summary of first quarter financial results is as follows:
First Quarter Ended
March 26,
March 27,
(In millions, except per share
information)
2023
2022
% Change
Sales
$
471.7
$
463.2
2
%
Net income
64.7
54.5
19
%
Diluted net income per share
$
1.93
$
1.61
20
%
Special items (1)
(0.01
)
0.02
Adjusted earnings per share (1)
$
1.92
$
1.63
18
%
__________________________ (1)
Special items and adjusted earnings per
share represent non-GAAP financial measures. For a reconciliation
of GAAP to non-GAAP items please see the tables attached to this
press release.
First Quarter Financial Highlights
First quarter 2023 performance relative to first quarter
2022
- Sales of $472 million increased 2% on a reported basis and 4%
organically due to low-single digit organic growth in the Americas
and Europe and double-digit growth in APMEA. Unfavorable foreign
exchange movements reduced sales by approximately $9 million, or
2%.
- Operating margin increased 260 basis points on a reported basis
and 220 basis points on an adjusted basis, primarily due to price
and productivity, which more than offset inflation, lower volume
and incremental investments.
Regional Performance
Americas
- Sales of $323 million increased 3% on a reported basis and an
organic basis with growth across all platforms, primarily driven by
price.
- Operating margin increased 400 basis points on a both a
reported basis and an adjusted basis as benefits from price
realization, mix and productivity more than offset inflation, lower
volume and incremental investments.
Europe
- Sales of $128 million decreased 1% on a reported basis, which
included unfavorable foreign exchange movements of 5%. Organic
sales increased 4%, primarily driven by price, with sales growth in
plumbing and HVAC products, offset partly by a decline in sales of
drains products. Sales growth in the quarter was negatively
impacted by approximately 1% due to our decision to exit all direct
sales into Russia effective April 1, 2022.
- Operating margin decreased 120 basis points on a reported basis
and 250 basis points on an adjusted basis as benefits from
increased price and productivity were more than offset by inflation
and lower volume.
Asia-Pacific, Middle East and Africa
(“APMEA”)
- Sales of $20 million increased 4% on a reported basis, which
included unfavorable foreign exchange movements of 7%. Organic
sales increased 11% driven by growth in China, the Middle East and
Australia.
- Operating margin increased 420 basis points on a reported basis
and 490 basis points on an adjusted basis. Reported and adjusted
margins both benefited from increased trade and affiliate sales
volume, price and productivity, which more than offset
inflation.
Cash Flow and Capital Allocation
- For the first quarter of 2023, operating cash flow was $33
million and net capital expenditures were $5 million, resulting in
free cash flow of $28 million. In the comparable period last year,
operating cash flow was negative $2 million and net capital
expenditures were $6 million, resulting in negative free cash flow
of $8 million. Operating and free cash flow increased due to higher
net income and reduced working capital investment. We expect
improvement in free cash flow throughout 2023 due to normal
seasonality.
- The Company repurchased approximately 22,000 shares of Class A
common stock at a cost of $3.7 million during the first
quarter.
For a reconciliation of GAAP to non-GAAP items and a statement
regarding the usefulness of these measures to investors and
management in evaluating our operating performance, please see the
tables attached to this press release.
Watts Water Technologies, Inc. will hold a live webcast of its
conference call to discuss first quarter 2023 results on Thursday,
May 4, 2023, at 10:00 a.m. EDT. This press release and the live
webcast can be accessed by visiting the Investor Relations section
of the Company's website at www.wattswater.com. Following the
webcast, the call recording will be available at the same address
until May 4, 2024.
The Company's 2023 Annual Meeting of Stockholders will be held
at 9:00 a.m. EDT on Wednesday, May 17, 2023 at the Company’s
executive offices located at 815 Chestnut Street, North Andover,
Massachusetts.
Watts Water Technologies, Inc., through its subsidiaries, is a
world leader in the manufacture of innovative products to control
the efficiency, safety, and quality of water within residential,
commercial, and institutional applications. Watts’ expertise in a
wide variety of water technologies enables us to be a comprehensive
supplier to the water industry.
This Press Release includes “forward-looking statements” as
defined in the Private Securities Litigation Reform Act of 1995,
including statements relating to expected 2023 financial results
and our ability to manage challenging macro-economic and softer
market conditions. These forward-looking statements reflect our
current views about future events. You should not rely on
forward-looking statements because our actual results may differ
materially from those predicted as a result of a number of
potential risks and uncertainties. These potential risks and
uncertainties include, but are not limited to: the effectiveness,
the timing and the expected savings associated with our
cost-cutting actions, restructuring and transformation programs and
initiatives; current economic and financial conditions, which can
affect the housing and construction markets where our products are
sold, manufactured and marketed; shortages in and pricing of raw
materials and supplies; our ability to compete effectively; changes
in variable interest rates on our borrowings; inflation; failure to
expand our markets through acquisitions; failure to successfully
develop and introduce new product offerings or enhancements to
existing products; failure to manufacture products that meet
required performance and safety standards; foreign exchange rate
fluctuations; cyclicality of industries where we market our
products, such as plumbing and heating wholesalers and home
improvement retailers; environmental compliance costs; product
liability risks; changes in the status of current litigation; the
war in Ukraine; supply chain and logistical disruptions or labor
shortages and workforce disruptions that could negatively affect
our supply chain, manufacturing, distribution, or other business
processes; and other risks and uncertainties discussed under the
heading “Item 1A. Risk Factors” and in Note 15 of the Notes to the
Consolidated Financial Statements in our Annual Report on Form 10-K
for the year ended December 31, 2022, filed with the SEC, as well
as risk factors disclosed in our subsequent filings with the SEC.
We undertake no duty to update the information contained in this
Press Release, except as required by law.
WATTS WATER TECHNOLOGIES, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF
OPERATIONS
(Amounts in millions, except
per share information)
(Unaudited)
First Quarter Ended
March 26,
March 27,
2023
2022
Net sales
$
471.7
$
463.2
Cost of goods sold
253.6
264.6
GROSS PROFIT
218.1
198.6
Selling, general and administrative
expenses
133.7
126.1
Restructuring
(0.3
)
1.0
OPERATING INCOME
84.7
71.5
Other (income) expense:
Interest income
(0.4
)
(0.1
)
Interest expense
1.5
1.4
Other expense, net
0.1
0.3
Total other expense
1.2
1.6
INCOME BEFORE INCOME TAXES
83.5
69.9
Provision for income taxes
18.8
15.4
NET INCOME
$
64.7
$
54.5
BASIC EPS
NET INCOME PER SHARE
$
1.94
$
1.62
Weighted average number of shares
33.4
33.7
DILUTED EPS
NET INCOME PER SHARE
$
1.93
$
1.61
Weighted average number of shares
33.5
33.8
Dividends declared per share
$
0.30
$
0.26
WATTS WATER TECHNOLOGIES, INC.
AND SUBSIDIARIES
CONSOLIDATED BALANCE
SHEETS
(Amounts in millions, except
share information)
(Unaudited)
March 26,
December 31,
2023
2022
ASSETS
CURRENT ASSETS:
Cash and cash equivalents
$
311.8
$
310.8
Trade accounts receivable, less reserve
allowances of $11.7 million at March 26, 2023 and $10.7 million at
December 31, 2022
269.8
233.8
Inventories, net:
Raw materials
151.6
138.0
Work in process
24.4
21.0
Finished goods
225.2
216.6
Total Inventories
401.2
375.6
Prepaid expenses and other current
assets
31.0
30.4
Total Current Assets
1,013.8
950.6
PROPERTY, PLANT AND EQUIPMENT:
Property, plant and equipment, at cost
603.2
595.6
Accumulated depreciation
(407.3
)
(398.8
)
Property, plant and equipment, net
195.9
196.8
OTHER ASSETS:
Goodwill
593.6
592.4
Intangible assets, net
110.8
113.7
Deferred income taxes
18.1
17.8
Other, net
57.8
59.6
TOTAL ASSETS
$
1,990.0
$
1,930.9
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable
$
151.3
$
134.3
Accrued expenses and other liabilities
183.0
174.6
Accrued compensation and benefits
61.9
69.8
Total Current Liabilities
396.2
378.7
LONG-TERM DEBT
147.8
147.6
DEFERRED INCOME TAXES
25.7
26.2
OTHER NONCURRENT LIABILITIES
74.5
77.8
STOCKHOLDERS' EQUITY:
Preferred Stock, $0.10 par value;
5,000,000 shares authorized; no shares issued or outstanding
—
—
Class A common stock, $0.10 par value;
120,000,000 shares authorized; 1 vote per share; issued and
outstanding: 27,414,400 shares at March 26, 2023 and 27,314,679
shares at December 31, 2022
2.7
2.7
Class B common stock, $0.10 par value;
25,000,000 shares authorized; 10 votes per share; issued and
outstanding: 5,958,290 shares at March 26, 2023 and at December 31,
2022
0.6
0.6
Additional paid-in capital
658.1
651.9
Retained earnings
831.6
795.3
Accumulated other comprehensive loss
(147.2
)
(149.9
)
Total Stockholders' Equity
1,345.8
1,300.6
TOTAL LIABILITIES AND STOCKHOLDERS'
EQUITY
$
1,990.0
$
1,930.9
WATTS WATER TECHNOLOGIES, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF
CASH FLOWS
(Amounts in millions)
(Unaudited)
First Quarter Ended
March 26,
March 27,
2023
2022
OPERATING ACTIVITIES
Net income
$
64.7
$
54.5
Adjustments to reconcile net income to net
cash provided by (used in) operating activities:
Depreciation
7.0
7.2
Amortization of intangibles
3.0
3.1
Loss on disposal and impairment of
long-lived asset
0.2
1.3
Stock-based compensation
4.0
3.3
Deferred income tax
(0.7
)
5.8
Changes in operating assets and
liabilities:
Accounts receivable
(34.8
)
(43.2
)
Inventories
(23.9
)
(34.7
)
Prepaid expenses and other assets
(1.9
)
—
Accounts payable, accrued expenses and
other liabilities
15.8
0.7
Net cash provided by (used in) operating
activities
33.4
(2.0
)
INVESTING ACTIVITIES
Additions to property, plant and
equipment
(5.1
)
(5.6
)
Net cash used in investing activities
(5.1
)
(5.6
)
FINANCING ACTIVITIES
Proceeds from long-term borrowings
30.0
60.0
Payments of long-term debt
(30.0
)
—
Payments for tax withholdings on vested
stock awards
(14.6
)
(12.6
)
Payments for finance leases and other
(0.7
)
(0.2
)
Proceeds from share transactions under
employee stock plans
0.1
—
Payments to repurchase common stock
(3.7
)
(42.9
)
Dividends
(10.1
)
(9.0
)
Net cash used in financing activities
(29.0
)
(4.7
)
Effect of exchange rate changes on cash
and cash equivalents
1.7
(2.9
)
INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS
1.0
(15.2
)
Cash and cash equivalents at beginning of
year
310.8
242.0
CASH AND CASH EQUIVALENTS AT END OF
PERIOD
$
311.8
$
226.8
WATTS WATER TECHNOLOGIES, INC.
AND SUBSIDIARIES
SEGMENT INFORMATION
(Amounts in millions)
(Unaudited)
Net Sales
First Quarter Ended
March 26, 2023
March 27, 2022
Americas
$
323.2
$
313.9
Europe
128.3
129.9
APMEA
20.2
19.4
Total
$
471.7
$
463.2
Operating Income
First Quarter Ended
March 26, 2023
March 27, 2022
Americas
$
72.5
$
57.9
Europe
19.2
21.1
APMEA
4.0
3.0
Corporate
(11.0
)
(10.5
)
Total
$
84.7
$
71.5
Intersegment Sales
First Quarter Ended
March 26, 2023
March 27, 2022
Americas
$
2.0
$
3.0
Europe
5.6
7.1
APMEA
22.1
23.5
Total
$
29.7
$
33.6
Key Performance Indicators and Non-GAAP
Measures
In this press release, we refer to non-GAAP financial measures
(including adjusted operating income, adjusted operating margins,
adjusted net income, adjusted earnings per share, organic sales,
free cash flow, cash conversion rate of free cash flow to net
income and net debt to capitalization ratio) and provide a
reconciliation of those non-GAAP financial measures to the
corresponding financial measures contained in our consolidated
financial statements prepared in accordance with GAAP. We believe
that these financial measures enhance the overall understanding of
our historical financial performance and give insight into our
future prospects. Adjusted operating income, adjusted operating
margins, adjusted net income and adjusted earnings per share
eliminate certain expenses incurred and benefits recognized in the
periods presented that relate primarily to our global restructuring
programs, and the related income tax impacts on these items.
Management then utilizes these adjusted financial measures to
assess the run rate of the Company’s operations against those of
comparable periods. Organic sales growth is a non-GAAP measure of
sales growth excluding the impacts of foreign exchange,
acquisitions and divestitures from period-over-period comparisons.
Management believes reporting organic sales growth provides useful
information to investors, potential investors and others, and
allows for a more complete understanding of underlying sales trends
by providing sales growth on a consistent basis. Free cash flow,
cash conversion rate of free cash flow to net income, and the net
debt to capitalization ratio, which are adjusted to exclude certain
cash inflows and outlays, and include only certain balance sheet
accounts from the comparable GAAP measures, are an indication of
our performance in cash flow generation and also provide an
indication of the Company's relative balance sheet leverage to
other industrial manufacturing companies. These non-GAAP financial
measures are among the primary indicators management uses as a
basis for evaluating our cash flow generation and our
capitalization structure. In addition, free cash flow is used as a
criterion to measure and pay certain compensation-based incentives.
For these reasons, management believes these non-GAAP financial
measures can be useful to investors, potential investors and
others. The Company’s non-GAAP financial measures may not be
comparable to similarly titled measures reported by other
companies. The presentation of this additional information is not
meant to be considered in isolation or as a substitute for
financial measures prepared in accordance with GAAP.
TABLE 1
RECONCILIATION OF GAAP "AS
REPORTED" TO "AS ADJUSTED" NON-GAAP
EXCLUDING THE EFFECT OF
ADJUSTMENTS FOR SPECIAL ITEMS
(Amounts in millions, except
per share information)
(Unaudited)
CONSOLIDATED RESULTS
First Quarter Ended
March 26,
March 27,
2023
2022
Net sales
$
471.7
$
463.2
Operating income - as reported
$
84.7
$
71.5
Operating margin %
18.0
%
15.4
%
Adjustments for special items:
Restructuring
$
(0.3
)
$
1.0
Operating income - as adjusted
$
84.4
$
72.5
Adjusted operating margin %
17.9
%
15.7
%
Net income - as reported
$
64.7
$
54.5
Adjustments for special items - tax
effected:
Restructuring
$
(0.2
)
$
0.7
Net income - as adjusted
$
64.5
$
55.2
Diluted earnings per share - as
reported
$
1.93
$
1.61
Adjustments for special items
(0.01
)
0.02
Diluted earnings per share - as
adjusted
$
1.92
$
1.63
TABLE 2
SEGMENT INFORMATION -
RECONCILIATION OF GAAP "AS REPORTED" TO "AS ADJUSTED"
NON-GAAP
EXCLUDING THE EFFECT OF
ADJUSTMENTS FOR SPECIAL ITEMS
(Amounts in millions)
(Unaudited)
First Quarter Ended
First Quarter Ended
March 26, 2023
March 27, 2022
Americas
Europe
APMEA
Corporate
Total
Americas
Europe
APMEA
Corporate
Total
Net sales
$
323.2
128.3
20.2
—
471.7
$
313.9
129.9
19.4
—
463.2
Operating income (loss) - as
reported
$
72.5
19.2
4.0
(11.0
)
84.7
$
57.9
21.1
3.0
(10.5
)
71.5
Operating margin %
22.4
%
15.0
%
19.7
%
18.0
%
18.4
%
16.2
%
15.5
%
15.4
%
Adjustments for special items
$
0.1
(0.4
)
—
—
(0.3
)
$
0.1
1.0
(0.1
)
—
1.0
Operating income (loss) - as
adjusted
$
72.6
18.8
4.0
(11.0
)
84.4
$
58.0
22.1
2.9
(10.5
)
72.5
Adjusted operating margin %
22.5
%
14.6
%
19.7
%
17.9
%
18.5
%
17.1
%
14.8
%
15.7
%
TABLE 3
SEGMENT INFORMATION -
RECONCILIATION OF REPORTED NET SALES TO NON-GAAP ORGANIC
SALES
(Amounts in millions)
(Unaudited)
First Quarter Ended
Americas
Europe
APMEA
Total
Reported net sales March 26, 2023
$
323.2
$
128.3
$
20.2
$
471.7
Reported net sales March 27, 2022
313.9
129.9
19.4
463.2
Dollar change
$
9.3
$
(1.6
)
$
0.8
$
8.5
Net sales % increase (decrease)
3.0
%
(1.2
)%
4.1
%
1.8
%
Decrease due to foreign exchange
0.4
%
5.3
%
6.7
%
2.1
%
Organic sales increase
3.4
%
4.1
%
10.8
%
3.9
%
TABLE 4
RECONCILIATION OF NET CASH
PROVIDED BY OPERATIONS TO FREE CASH FLOW
(Amounts in millions)
(Unaudited)
First Quarter Ended
March 26,
March 27,
2023
2022
Net cash provided by (used in) operations
- as reported
$
33.4
$
(2.0
)
Less: additions to property, plant, and
equipment
(5.1
)
(5.6
)
Free cash flow
$
28.3
$
(7.6
)
Net income - as reported
$
64.7
$
54.5
Cash conversion rate of free cash flow to
net income
43.7
%
(13.9
)%
TABLE 5
RECONCILIATION OF LONG-TERM
DEBT (INCLUDING CURRENT PORTION) TO NET DEBT AND NET DEBT TO
CAPITALIZATION RATIO
(Amounts in millions)
(Unaudited)
March 26,
December 31,
2023
2022
Current portion of long-term debt
$
—
$
—
Plus: Long-term debt, net of current
portion
147.8
147.6
Less: Cash and cash equivalents
(311.8
)
(310.8
)
Net debt
$
(164.0
)
$
(163.2
)
Net debt
$
(164.0
)
$
(163.2
)
Plus: Total stockholders' equity
1,345.8
1,300.6
Capitalization
$
1,181.8
$
1,137.4
Net debt to capitalization ratio
(13.9
)%
(14.3
)%
TABLE 6
2023 FULL YEAR OUTLOOK -
RECONCILIATION OF REPORTED NET SALES TO ORGANIC SALES GROWTH AND
OPERATING MARGIN TO ADJUSTED OPERATING MARGIN
(Unaudited)
Total Watts
Full Year
2023 Outlook
Approximately
Net Sales
Reported net sales growth
(4.0)% to 3.0%
Forecasted impact of acquisition / FX
(1.0)%
Organic sales growth
(5.0)% to 2.0%
Operating Margin
Operating margin range
15.7% to 16.3%
Forecasted restructuring / other costs
0.0%
Adjusted operating margin range
15.7% to 16.3%
View source
version on businesswire.com: https://www.businesswire.com/news/home/20230503005792/en/
Diane McClintock SVP FP&A & Investor Relations email:
investorrelations@wattswater.com
Watts Water Technologies (NYSE:WTS)
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