- GAAP EPS of $0.63, up 34%; adjusted
EPS of $0.65, up 14%
- Reported sales of $347 million, up
1% year-over-year driven by acquisitions; organic sales down
1%
- Strong GAAP operating margin of
10.3%, up 120 bps; adjusted operating margin of 11.1%, up 30
bps
Watts Water Technologies, Inc. (NYSE: WTS) today announced first
quarter 2017 sales of $347 million, an increase of 1% as compared
to the same period last year. First quarter net income per diluted
share (EPS) was $0.63 as compared to $0.47 for the same period last
year. The improvement in GAAP EPS was primarily driven by lower
restructuring and transformation deployment costs, and a favorable
effective tax rate. Adjusted for special items, first quarter EPS
was $0.65 as compared to $0.57 for the same period last year.
Adjusted earnings improved due to strong productivity, and lower
interest expense and a favorable tax rate. A summary of first
quarter financial results is as follows:
First Quarter Earnings Summary
(In millions, except per share information) 2017 2016
% Change Sales $ 347.2 $ 344.2 0.9% Net
income 21.7 16.2 34.0% Diluted earnings per share $ 0.63 $
0.47 34.0% Special items 0.02 0.10 Adjusted earnings
per share (1) $ 0.65 $ 0.57 14.0% (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.
Commenting on operating results, Chief Executive Officer Robert
J. Pagano Jr., said, “Overall, the first quarter played out as we
anticipated. On an adjusted basis, we delivered a record Q1
operating margin and EPS despite a nominal reduction in organic
revenue. This was the sixth consecutive quarter that adjusted
operating margin increased year-over-year. We continued to execute
on key initiatives, including the Americas transformation and seed
planting to enhance our long-term growth trajectory. The steps
we’ve taken have us well-positioned to meet our longer-term
operating and financial objectives and to create long-term
shareholder value.”
Additional Noteworthy Items
- Organic sales were down 1% compared to
the first quarter last year. Regionally, organic sales decreased in
the Americas and APMEA by 2% and 10%, respectively; partially
offset by 1% organic growth in Europe. The Americas sales
performance was impacted by lower heating and hot water product
sales and expected headwinds in the retail sector. APMEA sales were
negatively affected by anticipated product rationalization. Europe
saw growth in both the drains and electronics products.
- The recent PVI acquisition performed
well and as expected, delivering $14 million in sales and
contributing $0.01 of EPS. Operating margin was also in line with
expectations.
- For the first quarter of 2017,
operating cash outflow was approximately $9 million and net capital
expenditures were approximately $6 million, resulting in free cash
outflow of nearly $15 million. In the comparable period last year,
operating cash outflow was approximately $22 million, net capital
expenditures were approximately $9 million and free cash outflow of
$31 million. Free cash outflow improved due to increased net
income, reduced inventory build and lower capital spend. The first
quarter is a seasonally slow cash flow period and we expect
continued improvement in free cash flow as the year
progresses.
- The Company repurchased approximately
69,000 shares of Class A common stock at a cost of approximately
$4.4 million during the first quarter of 2017.
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 web cast of its
conference call to discuss first quarter results for 2017 on
Friday, May 5, 2017, at 9:00 a.m. Eastern Time. This press release
and the live web cast can be accessed by visiting the Investor
Relations section of the Company's website at www.wattswater.com.
Following the web cast, an archived version of the call will be
available at the same address until May 5, 2018.
The Company's 2017 Annual Meeting of Stockholders will be held
at 9:00 a.m. on Wednesday, May 17, 2017 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. Its expertise in a wide
variety of water technologies enables it 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 improvement in free cash
flow during the year, inventory normalization, our long-term growth
strategy, our transformation and restructuring initiatives and the
timing and expected costs and savings associated with those
initiatives. 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
costs and savings associated with our ongoing restructuring and
transformation programs and initiatives; the current economic and
financial condition, 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; 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; failure of the settlements in Ponzo v. Watts and Klug
v. Watts to gain approval; and other risks and uncertainties
discussed under the heading “Item 1A. Risk Factors” and in Note 14
of the Notes to the Consolidated Financial Statements in our Annual
Report on Form 10-K for the year ended December 31, 2016 filed with
the SEC and 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 April
2, April 3,
2017 2016 Net sales $
347.2 $ 344.2 Cost of goods sold
203.4 209.0
GROSS PROFIT
143.8 135.2 Selling, general and
administrative expenses
107.6 102.6 Restructuring
0.5
1.4 OPERATING INCOME
35.7 31.2
Other (income) expense: Interest income
(0.2 ) (0.2 )
Interest expense
4.8 6.7 Other expense (income), net
0.3 (2.2 ) Total other expense
4.9 4.3
INCOME BEFORE INCOME TAXES
30.8 26.9 Provision for
income taxes
9.1 10.7 NET INCOME $
21.7
$ 16.2 BASIC EPS NET INCOME PER SHARE $
0.63 $ 0.47 Weighted average number of shares
34.4 34.4 DILUTED EPS NET INCOME PER SHARE $
0.63 $ 0.47 Weighted average number of shares
34.5 34.5 Dividends declared per share $
0.18 $ 0.17
WATTS WATER
TECHNOLOGIES, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE
SHEETS (Amounts in millions, except share information)
(Unaudited)
April 2, December 31, ASSETS
2017 2016 CURRENT
ASSETS: Cash and cash equivalents $
287.0 $ 338.4 Trade
accounts receivable, less allowance for doubtful accounts of $14.1
million at April 2, 2017 and $14.2 million at December 31, 2016
211.4 198.0 Inventories, net: Raw materials
78.8 81.5
Work in process
14.3 13.7 Finished goods
162.0
144.2 Total Inventories
255.1 239.4 Prepaid expenses
and other assets
41.9 40.5 Assets held for sale
3.0
3.1 Total Current Assets
798.4 819.4
PROPERTY, PLANT AND EQUIPMENT: Property, plant and equipment
506.3 498.1 Accumulated depreciation
(316.5 )
(308.4 ) Property, plant and equipment, net
189.8
189.7 OTHER ASSETS: Goodwill
537.0 532.7 Intangible
assets, net
197.9 202.5 Deferred income taxes
2.3 3.0
Other, net
16.8 15.9 TOTAL ASSETS $
1,742.2 $ 1,763.2 LIABILITIES
AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES: Accounts payable $
104.2 $ 101.1 Accrued expenses and other liabilities
124.9 136.8 Accrued compensation and benefits
40.6
48.5 Current portion of long-term debt
117.8 139.1
Total Current Liabilities
387.5 425.5
LONG-TERM DEBT, NET OF CURRENT PORTION
505.8 511.3 DEFERRED
INCOME TAXES
53.4 48.6 OTHER NONCURRENT LIABILITIES
38.5 41.5 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; 80,000,000 shares
authorized; 1 vote per share; issued and outstanding: 27,898,153
shares at April 2, 2017 and 27,831,013 shares at December 31, 2016
2.8 2.8 Class B Common Stock, $0.10 par value; 25,000,000
shares authorized; 10 votes per share; issued and outstanding:
6,379,290 shares at April 2, 2017 and December 31, 2016
0.6
0.6 Additional paid-in capital
539.5 535.2 Retained earnings
356.9 348.5 Accumulated other comprehensive loss
(142.8 ) (150.8 ) Total Stockholders' Equity
757.0 736.3 TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $
1,742.2 $ 1,763.2
WATTS WATER TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (Amounts in
millions) (Unaudited) First
Quarter Ended April 2, April 3,
2017 2016 OPERATING ACTIVITIES Net income $
21.7 $
16.2 Adjustments to reconcile net income to net cash used in
operating activities: Depreciation
6.6 7.3 Amortization of
intangibles
5.5 5.1 Loss on disposal and impairment of
property, plant and equipment and other
0.4 0.3 Gain on
acquisition
- (1.7 ) Stock-based compensation
2.9 2.8
Deferred income tax benefit
5.3 (1.0 ) Changes in operating
assets and liabilities, net of effects from business acquisitions
and divestitures: Accounts receivable
(12.5 ) (16.0 )
Inventories
(14.3 ) (19.9 ) Prepaid expenses and
other assets
(2.7 ) (2.3 ) Accounts payable, accrued
expenses and other liabilities
(22.0 ) (12.7 ) Net
cash used in operating activities
(9.1 ) (21.9 )
INVESTING ACTIVITIES Additions to property, plant and equipment
(5.8 ) (9.2 ) Proceeds from the sale of property,
plant and equipment
- 0.1 Restricted cash
- (18.2 )
Net proceeds from the sale of assets, and other
1.9 -
Business acquisitions, net of cash acquired
0.1 (2.1
) Net cash used in investing activities
(3.8 ) (29.4
) FINANCING ACTIVITIES Proceeds from long-term borrowings
10.0 300.0 Payments of long-term debt
(38.9 )
(275.4 ) Payments of capital leases and other
(3.3 )
(0.5 ) Proceeds from share transactions under employee stock plans
0.3 0.6 Payments to repurchase common stock
(4.4
) (12.5 ) Debt issuance costs
- (2.1 ) Dividends
(6.2 ) (5.9 ) Net cash (used in) provided by
financing activities
(42.5 ) 4.2 Effect of
exchange rate changes on cash and cash equivalents
4.0
10.3 DECREASE IN CASH AND CASH EQUIVALENTS
(51.4 ) (36.8 ) Cash and cash equivalents at
beginning of year
338.4 296.2 CASH AND CASH
EQUIVALENTS AT END OF PERIOD $
287.0 $ 259.4
WATTS WATER TECHNOLOGIES, INC. AND SUBSIDIARIES
SEGMENT INFORMATION (Amounts in millions)
(Unaudited) Net
Sales First Quarter Ended April 2, 2017
April 3, 2016 Americas
$ 228.7 $
222.3 Europe*
104.9 108.3 APMEA*
13.6
13.6 Total
$ 347.2 $ 344.2
Operating Income (Loss) First
Quarter Ended April 2, 2017 April 3, 2016
Americas
$ 31.1 $ 28.1 Europe*
12.4 9.8
APMEA*
1.0 1.7 Corporate
(8.8 )
(8.4 ) Total
$ 35.7 $ 31.2
Intersegment Sales First Quarter
Ended April 2, 2017 April 3, 2016
Americas
$ 2.8 $ 2.8 Europe*
3.9 2.9 APMEA*
19.6 25.1 Total
$
26.3 $ 30.8 * 2016 results
retrospectively adjusted to reflect the change in composition of
reportable segments moving Watts Middle East out of Europe and into
APMEA.
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, net debt to capitalization
ratio and the cash conversion rate of free cash flow to net income)
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 are appropriate to enhance
an overall understanding of our historical financial performance
and future prospects. Adjusted operating income, adjusted operating
margins, adjusted net income and adjusted earnings per share
eliminate certain expenses incurred in the periods presented that
relate primarily to our global restructuring programs, deployment
costs, acquisition related costs, gains on acquisition and
disposition, the related income tax impacts on these items and
other tax adjustments. 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, which allows for a more complete
understanding of underlying sales trends by providing sales growth
on a consistent basis. Free cash flow 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. The cash conversion rate
of free cash flow to net income is also a measure of our
performance in cash flow generation. 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 THE "ADJUSTED"
NON-GAAP EXCLUDING THE EFFECT OF ADJUSTMENTS FOR SPECIAL
ITEMS (Amounts in millions, except per share
information) (Unaudited) CONSOLIDATED
RESULTS First Quarter Ended April 2, April
3,
2017 2016
Net sales $ 347.2 $
344.2
Operating income - as reported $
35.7 $ 31.2 Operating margin %
10.3% 9.1%
Adjustments for special items: Acquisition costs
0.2
0.1 Restructuring
0.5 1.4
Deployment costs
related to transformation activities
Europe transformation
0.2 - Americas & APMEA
transformation
1.8 4.6
2.0 4.6
Total adjustments for special items $
2.7 $ 6.1 Operating
income - as adjusted $ 38.4 $ 37.3 Adjusted
operating margin %
11.1% 10.8%
Net income - as
reported $ 21.7 $ 16.2
Adjustments for
special items - tax affected:
Acquisitions /
divesture related costs / (benefits):
Gain on acquisition
- (1.0 ) Acquisition costs
0.1
0.1
0.1 (0.9 ) Restructuring
0.4
0.9
Deployment costs
related to transformation activities
Europe transformation
0.2 - Americas & APMEA
transformation
1.1 2.8
1.3 2.8
Other
Items
Tax adjustments
(1.2 ) 0.6
Total
Adjustments for special items - tax affected: $
0.6 $ 3.4
Net income - as
adjusted $ 22.3 $ 19.6
Diluted earnings
per share - as reported $ 0.63 $ 0.47 Adjustments
for special items
0.02 0.10
Diluted
earnings per share - as adjusted $ 0.65 $
0.57
TABLE 2 SEGMENT
INFORMATION - RECONCILIATION OF GAAP "AS REPORTED" TO THE
"ADJUSTED" NON-GAAP EXCLUDING THE EFFECT OF ADJUSTMENTS FOR
SPECIAL ITEMS (Amounts in millions) (Unaudited)
First Quarter Ended First Quarter Ended April 2,
2017 April 3, 2016 Americas
Europe APMEA
Corporate Total Americas
Europe* APMEA*
Corporate Total Net sales
$ 228.7 104.9 13.6
- 347.2
$
222.3 108.3 13.6
- 344.2
Operating income (loss) - as reported $ 31.1 12.4 1.0
(8.8 ) 35.7
$ 28.1 9.8 1.7 (8.4 ) 31.2 Operating margin %
13.6% 11.8% 7.4% 10.3% 12.6% 9.0% 12.5% 9.1%
Adjustments
for special items $ 2.5 0.2
- - 2.7
$ 4.9 0.4
0.7 0.1 6.1
Operating income (loss) - as adjusted $ 33.6 12.6 1.0
(8.8 ) 38.4
$ 33.0 10.2 2.4 (8.3 ) 37.3 Adjusted operating
margin % 14.7% 12.0% 7.4% 11.1% 14.8% 9.4% 17.6% 10.8%
* 2016 results retrospectively adjusted to reflect the
change in composition of reportable segments moving Watts Middle
East out of Europe and into APMEA.
TABLE 3 SEGMENT INFORMATION -
RECONCILIATION OF REPORTED NET SALES TO ORGANIC SALES
(Unaudited)
First Quarter Ended
Americas Europe*
APMEA* Total
Reported net sales April 2, 2017 $ 228.7 $ 104.9 $ 13.6 $ 347.2
Reported net sales April 3, 2016 222.3 108.3 13.6 344.2 Dollar
change $ 6.4 $ (3.4 ) $ - $ 3.0
Net Sales % increase
(decrease) 2.9% -3.1% 0.0% 0.9%
(Increase) decrease due to foreign exchange -0.2% 4.2% -0.6% 1.2%
Decrease due to divestitures 1.5% - - 1.0% (Increase) due to
acquisition -6.3% - -9.6% -4.5% subtotal -5.0% 4.2% -10.2% -2.3%
Organic sales (decrease) increase -2.1% 1.1%
-10.2% -1.4% * 2016 results retrospectively
adjusted to reflect the change in composition of reportable
segments moving Watts Middle East out of Europe and into APMEA.
TABLE 4
RECONCILIATION OF NET CASH USED IN OPERATIONS TO FREE CASH
OUTFLOW (Amounts in millions) (Unaudited)
First Quarter Ended April 2, April 3,
2017
2016 Net cash used in operations - as reported $
(9.1
) $ (21.9 ) Less: additions to property, plant, and
equipment
(5.8 ) (9.2 ) Plus: proceeds from the sale
of property, plant, and equipment
- 0.1 Free
cash outflow $
(14.9 ) $ (31.0 ) Net income -
as reported $
21.7 $ 16.2 Cash
conversion rate of free cash outflow to net income
-68.7
% -191.4 %
TABLE 5
RECONCILIATION OF LONG-TERM DEBT
(INCLUDING CURRENT PORTION) TO NET DEBT AND NETDEBT TO
CAPITALIZATION RATIO
(Amounts in millions) (Unaudited)
April 2, December 31,
2017 2016 Current
portion of long-term debt $
117.8 $ 139.1 Plus: Long-term
debt, net of current portion
505.8 511.3 Less: Cash and cash
equivalents
(287.0 ) (338.4 ) Net debt $
336.6
$ 312.0 Net debt $
336.6 $ 312.0 Plus:
Total stockholders' equity
757.0 736.3
Capitalization $
1,093.6 $ 1,048.3
Net debt to capitalization ratio
30.8 % 29.8 %
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version on businesswire.com: http://www.businesswire.com/news/home/20170504006751/en/
Watts Water Technologies, Inc.Timothy M. MacPheeTreasurer, VP –
Investor RelationsTelephone: (978) 689-6201Fax: (978) 794-0353
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