- Reported sales of $365 million, up
7% year-over-year driven primarily by PVI acquisition; organic
sales up 1%
- GAAP operating margin of 12.1%, up
140 bps year-over-year; adjusted operating margin of 12.6%, up 50
bps year-over-year
- GAAP EPS of $0.77, up 22%; adjusted
EPS of $0.80, up 13%; both records for the third quarter
- Year-to-date cash flow from
operations up 5%; year-to-date free cash flow up 31%
Watts Water Technologies, Inc. (NYSE: WTS) today announced third
quarter 2017 results. Sales of $365 million increased 7% compared
to the same period in 2016. Third quarter GAAP EPS was $0.77 as
compared to $0.63 for the same period last year. The increase was
driven by higher volume, strong operating performance, benefits
from the PVI acquisition and lower transformation costs. Adjusted
for special items, third quarter EPS was $0.80 as compared to $0.71
for the same period last year. Adjusted earnings benefited from
higher volume, operating improvements and the PVI acquisition. A
summary of third quarter financial results is as follows:
(In millions, except per share information)
Third Quarter Ended
October 1,2017
October 2,2016
% Change Sales $ 364.7 $ 341.1 7 % Net income $ 26.5
$ 21.9 21 % Diluted earnings per share $ 0.77 $ 0.63 22 %
Special items 0.03 0.08 Adjusted earnings per share $
0.80 $ 0.71 13 %
Remarking on operating results, Chief Executive Officer, Robert
J. Pagano Jr., noted, “I am very pleased with our results for the
third quarter. As anticipated, we saw improvement in our top-line
growth rate led by a strong performance in the Americas. We
sustained our first half earnings momentum, delivering an all-time
record adjusted operating margin and a Q3 record for adjusted EPS.
Margins continued to benefit from our transformation and
productivity initiatives. We also delivered strong free cash flow
in the quarter, and we expect that trend to continue through the
balance of the year. We remain focused on the execution and
deployment of our key initiatives, which we expect will continue to
drive results this year and over the long-term.”
Financial Highlights
- Organic sales were up 1% compared to
the third quarter last year; adjusted operating margin expanded 50
basis points. Regionally:
- Americas’ organic sales increased 4%
with growth in plumbing, drains and heating and hot water products.
Adjusted operating margin increased 10 basis points as benefits
from increased volume, productivity and transformation savings were
partially offset by anticipated PVI margin dilution and growth
investments.
- Europe’s organic sales were down 3% as
water and plumbing products were affected by planned product
rationalization and lower demand for HVAC products, partially
offset by continued growth in our drains business. Our product
rationalization efforts across the regions represent the exit of
low-margin, non-core products. Adjusted operating margin expanded
90 basis points driven by favorable sales mix, bad debt recovery,
productivity and benefits from our restructuring programs.
- APMEA’s organic sales declined 10%,
driven by planned product rationalization, which negatively
impacted sales by 11%. Adjusted operating margin decreased 720
basis points, due to a significant decline in affiliate volume,
sales mix and higher growth investments.
- PVI delivered sales of approximately
$14 million during the quarter, up mid-single digits
year-over-year.
- The Company repurchased approximately
73,000 shares of Class A common stock at a cost of approximately
$4.7 million during the third quarter. Year-to-date, we have
purchased approximately 214,000 shares at a cost of approximately
$14 million, which offset dilution from our stock compensation
programs.
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 third quarter results for 2017 on
Thursday, November 2, 2017, at 9:00 a.m. Eastern Time. This press
release and the live web cast can be accessed by visiting the
Investors 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 November 1, 2018.
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, 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; 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
SUBSIDIARIESCONSOLIDATED STATEMENTS OF
OPERATIONS(Amounts in millions, except per share
information)(Unaudited)
Third Quarter Ended Nine Months Ended
October 1,2017 October 2,2016
October 1,2017 October 2,2016 Net sales
$
364.7 $
341.1 $
1,090.4 $
1,056.4
Cost of goods sold
212.0 199.1
637.2 628.5 GROSS
PROFIT
152.7 142.0 453.2 427.9 Selling,
general and administrative expenses
107.0 104.5
324.8 317.6 Restructuring
1.4 1.0
3.6 5.6 Gain on disposition
-
- - (8.7
) OPERATING INCOME
44.3
36.5 124.8 113.4
Other (income) expense: Interest income
(0.2 )
(0.3 ) (0.6 ) (0.8 )
Interest expense
4.7 4.9 14.5 17.1
Other expense (income), net
0.3
(0.5 ) 0.8 (3.6
) Total other expense
4.8
4.1 14.7 12.7
INCOME BEFORE INCOME TAXES
39.5 32.4
110.1 100.7 Provision for income taxes
13.0 10.5 34.7
34.0 NET INCOME $
26.5 $
21.9 $
75.4 $
66.7
BASIC EPS NET INCOME PER SHARE $
0.77 $
0.63
$
2.19 $
1.93 Weighted average
number of shares
34.4 34.5
34.4 34.5 DILUTED
EPS NET INCOME PER SHARE $
0.77 $
0.63
$
2.19 $
1.93 Weighted average number
of shares
34.4 34.5
34.5 34.5 Dividends
declared per share $
0.19 $
0.18 $
0.56 $
0.53 WATTS
WATER TECHNOLOGIES, INC. AND SUBSIDIARIESCONSOLIDATED
BALANCE SHEETS(Amounts in millions, except share
information)(Unaudited)
ASSETS
October 1,2017 December 31,2016 CURRENT ASSETS: Cash
and cash equivalents $
246.6 $ 338.4 Trade accounts
receivable, less allowance for doubtful accounts of $14.3 million
at October 1, 2017 and $14.2 million at December 31, 2016
229.2 198.0 Inventories, net: Raw materials
82.5 81.5
Work in process
16.5 13.7 Finished goods
160.1
144.2 Total Inventories
259.1 239.4
Prepaid expenses and other assets
28.1 40.5 Assets held for
sale
2.0 3.1 Total Current
Assets
765.0 819.4 PROPERTY,
PLANT AND EQUIPMENT: Property, plant and equipment, at cost
515.3 498.1 Accumulated depreciation
(323.2
) (308.4 ) Property, plant and equipment, net
192.1 189.7 OTHER ASSETS: Goodwill
548.5 532.7 Intangible assets, net
190.0 202.5
Deferred income taxes
2.6 3.0 Other, net
17.4
15.9 TOTAL ASSETS $
1,715.6 $
1,763.2 LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES: Accounts payable $
96.3 $ 101.1 Accrued
expenses and other liabilities
128.6 136.8 Accrued
compensation and benefits
50.5 48.5 Current portion of
long-term debt
22.5 139.1 Total
Current Liabilities
297.9 425.5
LONG-TERM DEBT, NET OF CURRENT PORTION
500.6 511.3 DEFERRED
INCOME TAXES
50.8 48.6 OTHER NONCURRENT LIABILITIES
35.5 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: 27,771,206
shares at October 1, 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 October 1, 2017 and December 31,
2016
0.6 0.6 Additional paid-in capital
547.5 535.2
Retained earnings
386.4 348.5 Accumulated other
comprehensive loss
(106.5 ) (150.8 )
Total Stockholders' Equity
830.8 736.3
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $
1,715.6
$ 1,763.2
WATTS WATER
TECHNOLOGIES, INC. AND SUBSIDIARIESCONSOLIDATED STATEMENTS
OF CASH FLOWS(Amounts in millions)(Unaudited)
Nine Months Ended October 1,2017 October
2,2016 OPERATING ACTIVITIES Net income $
75.4 $
66.7 Adjustments to reconcile net income to net cash
provided by operating activities: Depreciation
21.9
22.7 Amortization of intangibles
16.8 15.3
Loss on disposal and impairment of property, plant and equipment
and other
1.0 1.8 Gain on disposition
-
(8.6 ) Gain on acquisition
- (1.7
) Stock-based compensation
10.2 10.6 Deferred
income tax
1.8 2.9 Changes in operating assets and
liabilities, net of effects from business acquisitions and
divestitures: Accounts receivable
(21.9 )
(24.3 ) Inventories
(10.1 ) 1.4
Prepaid expenses and other assets
11.1 8.7 Accounts
payable, accrued expenses and other liabilities
(32.8
) (25.9 ) Net cash provided by
operating activities
73.4 69.6
INVESTING ACTIVITIES Additions to property, plant and
equipment
(17.1 ) (26.3 ) Proceeds from
the sale of property, plant and equipment
0.4 - Net
proceeds from the sale of assets, and other
3.1 4.2
Business acquisitions, net of cash acquired
0.1
(2.1 ) Net cash used in investing
activities
(13.5 ) (24.2
) FINANCING ACTIVITIES Proceeds from long-term borrowings
20.0 530.0 Payments of long-term debt
(151.8
) (501.1 ) Payment of capital leases and other
(4.6 ) (1.6 ) Proceeds from share
transactions under employee stock plans
1.0 7.3 Tax
benefit of stock awards exercised
- 0.4 Payments to
repurchase common stock
(13.6 ) (22.2 )
Debt issuance costs
- (2.1 ) Dividends
(19.4 ) (18.2 ) Net cash used in
financing activities
(168.4 )
(7.5 ) Effect of exchange rate changes on cash and
cash equivalents
16.7 4.5
(DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS
(91.8 ) 42.4 Cash and cash
equivalents at beginning of year
338.4
296.2 CASH AND CASH EQUIVALENTS AT END OF PERIOD $
246.6 $
338.6 WATTS
WATER TECHNOLOGIES, INC. AND SUBSIDIARIESSEGMENT
INFORMATION(Amounts in millions)(Unaudited)
Net Sales
Third Quarter Ended Nine Months Ended October 1,
2017 October 2, 2016 October 1, 2017 October 2,
2016 Americas
$ 239.1 $ 215.8
$
718.3 $ 677.6 Europe*
109.0 107.0
324.6 329.6
APMEA*
16.6 18.3
47.5 49.2 Total
$ 364.7
$ 341.1
$ 1,090.4 $ 1,056.4
Operating Income (Loss) Third
Quarter Ended Nine Months Ended October 1, 2017
October 2, 2016
October 1, 2017 October 2, 2016
Americas
$ 39.8 $ 32.2
$ 110.5 $ 95.7
Europe*
13.4 12.3
38.5 32.3 APMEA*
0.5 1.6
3.3 13.1 Corporate
(9.4 ) (9.6 )
(27.5 ) (27.7 ) Total
$
44.3 $ 36.5
$ 124.8 $
113.4
Intersegment Sales
Third Quarter Ended Nine Months Ended October 1,
2017 October 2, 2016
October 1, 2017 October 2, 2016
Americas
$ 2.5 $ 2.9
$ 9.0 $ 9.1
Europe*
4.0 2.9
11.9 8.8 APMEA*
12.8
17.2
52.8 58.3
Total
$ 19.3 $ 23.0
$
73.7 $ 76.2
* 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 1RECONCILIATION OF GAAP "AS REPORTED" TO THE
"ADJUSTED" NON-GAAPEXCLUDING THE EFFECT OF ADJUSTMENTS FOR
SPECIAL ITEMS(Amounts in millions, except per share
information)(Unaudited)
CONSOLIDATED RESULTS Third Quarter
Ended Nine Months Ended October 1,2017
October 2,2016
October 1,2017 October 2,2016
Net sales $ 364.7 $ 341.1
$
1,090.4 $ 1,056.4
Operating income - as
reported $ 44.3 $ 36.5
$ 124.8 $
113.4 Operating margin %
12.1 % 10.7 %
11.4
% 10.7 %
Adjustments for special items:
Acquisition related
costs
- Acquisition costs
- -
0.2 0.1 - Purchase accounting
adjustment
- - 0.5
- -
0.2 0.6 Restructuring
1.4
1.0
3.6 5.6 Gain on disposition
- -
-
(8.7 )
Deployment costs
related to transformation activities
- Europe transformation
0.1 0.1
0.5 0.2 - Americas
& APMEA transformation
- 3.8
2.4 11.7
0.1 3.9
2.9 11.9 Total
adjustments for special items $ 1.5
$ 4.9
$ 6.7 $ 9.4
Operating income - as adjusted $ 45.8 $
41.4
$ 131.5 $ 122.8 Adjusted operating margin %
12.6 % 12.1 %
12.1 % 11.6 %
Net income - as reported $ 26.5 $ 21.9
$ 75.4 $ 66.7
Adjustments for special items
- tax affected:
Acquisition related
costs
- Acquisition costs
- -
0.1 0.1 - Gain on acquisition
- -
- (1.0 ) - Purchase accounting adjustment
- -
- 0.4
- -
0.1 (0.5 ) Restructuring
0.9
0.6
2.4 3.6 Gain on disposition
- -
-
(8.3 )
Deployment costs
related to transformation activities
- Europe transformation
0.1 0.1
0.4 0.2 - Americas
& APMEA transformation
- 2.2
1.5 7.1
0.1 2.3
1.9 7.3
Other
Items
- Tax adjustments (0.2 )
(1.3 ) 1.5
Total Adjustments for special items - tax
affected: $ 1.0 $ 2.7
$ 3.1 $ 3.6
Net income
- as adjusted $ 27.5 $ 24.6
$ 78.5
$ 70.3
Diluted earnings per share - as reported
$ 0.77 $ 0.63
$ 2.19 $ 1.93 Adjustments
for special items
0.03 0.08
0.09 0.11
Diluted earnings
per share - as adjusted $ 0.80 $ 0.71
$ 2.28 $ 2.04
TABLE 2SEGMENT INFORMATION - RECONCILIATION
OF GAAP "AS REPORTED" TO THE "ADJUSTED" NON-GAAPEXCLUDING
THE EFFECT OF ADJUSTMENTS FOR SPECIAL ITEMS(Amounts in
millions)(Unaudited)
Third Quarter EndedOctober 1, 2017 Third
Quarter EndedOctober 2, 2016 Americas
Europe* APMEA* Corporate
Total Americas Europe*
APMEA* Corporate Total
Net sales $ 239.1 109.0
16.6 - 364.7
$ 215.8
107.0 18.3 -
341.1
Operating income (loss) - as
reported $ 39.8 13.4 0.5 (9.4 ) 44.3
$ 32.2 12.3
1.6 (9.6 ) 36.5 Operating margin % 16.6 % 12.3 % 3.0 % 12.1 % 14.9
% 11.5 % 8.7 % 10.7 %
Adjustments for special items
$ 0.7 0.6 0.2 -
1.5
$ 4.1 0.4
0.5 (0.1 ) 4.9
Operating income (loss) - as adjusted $ 40.5 14.0 0.7
(9.4 ) 45.8
$ 36.3 12.7 2.1 (9.7 ) 41.4 Adjusted operating
margin % 16.9 % 12.8 % 4.3 % 12.6 % 16.8 % 11.9 % 11.5 % 12.1 %
Nine Months
EndedOctober 1, 2017 Nine Months EndedOctober
2, 2016 Americas Europe*
APMEA* Corporate Total
Americas Europe* APMEA*
Corporate Total Net sales
$ 718.3 324.6 47.5
- 1,090.4
$ 677.6 329.6
49.2 - 1,056.4
Operating income (loss) - as reported $ 110.5
38.5 3.3 (27.5 ) 124.8
$ 95.7 32.3 13.1 (27.7 ) 113.4
Operating margin % 15.4 % 11.9 % 6.9 % 11.4 % 14.1 % 9.8 % 26.6 %
10.7 %
Adjustments for special items $ 5.0
1.1 0.6 -
6.7
$ 13.1 3.4 (7.0 )
(0.1 ) 9.4
Operating income (loss) -
as adjusted $ 115.5 39.6 3.9 (27.5 ) 131.5
$
108.8 35.7 6.1 (27.8 ) 122.8 Adjusted operating margin % 16.1 %
12.2 % 8.3 % 12.1 % 16.1 % 10.8 % 12.4 % 11.6 %
* 2016 results retrospectively adjusted to
reflect the change in composition of reportable segments moving
Watts Middle East out of Europe and into APMEA.
TABLE 3SEGMENT
INFORMATION - RECONCILIATION OF REPORTED NET SALES TO ORGANIC
SALES(Unaudited)
Third Quarter
Ended Americas Europe* APMEA* Total
Reported net sales October 1, 2017 $ 239.1 $ 109.0 $ 16.6 $
364.7 Reported net sales October 2, 2016 215.8
107.0 18.3 341.1 Dollar change $
23.3 $ 2.0 $ (1.7 ) $ 23.6
Net Sales %
increase (decrease) 10.8 %
1.9 % -9.7 % 6.9
% (Increase) due to foreign exchange -0.3 % -4.9 % - -1.8 %
(Increase) due to acquisition -6.7 % -
- -4.2 % subtotal -7.0 % -4.9 %
0.0 % -6.0 %
Organic sales increase (decrease)
3.8 % -3.0 % -9.7
% 0.9 %
Nine
Months Ended Americas Europe* APMEA*
Total Reported net sales October 1, 2017 $ 718.3 $
324.6 $ 47.5 $ 1,090.4 Reported net sales October 2, 2016
677.6 329.6 49.2 1,056.4
Dollar change $ 40.7 $ (5.0 ) $ (1.7 ) $ 34.0
Net Sales % increase (decrease) 6.0 %
-1.5 % -3.7 %
3.2 % Decrease due to foreign exchange - 0.9 % 0.5 %
0.3 % Decrease due to divestitures 0.5 % - - 0.3 % (Increase) due
to acquisition -6.2 % - -2.6 %
-4.1 % subtotal -5.7 % 0.9 % -2.1 %
-3.5 %
Organic sales (decrease) increase 0.3
% -0.6 % -5.8 %
-0.3 % * 2016 results retrospectively adjusted
to reflect the change in composition of reportable segments moving
Watts Middle East out of Europe and into APMEA.
TABLE
4RECONCILIATION OF NET CASH PROVIDED BY OPERATIONS TO FREE
CASH FLOW(Amounts in millions)(Unaudited)
Nine Months Ended October 1,2017
October 2,2016 Net cash provided by operations - as reported
$
73.4 $ 69.6 Less: additions to property, plant, and
equipment
(17.1 ) (26.3 ) Plus: proceeds from the
sale of property, plant, and equipment
0.4
- Free cash flow $
56.7 $ 43.3
Net income - as reported $
75.4 $ 66.7
Cash conversion rate of free cash flow to net income
75.2 % 64.9 %
TABLE 5RECONCILIATION
OF LONG-TERM DEBT (INCLUDING CURRENT PORTION) TO NET DEBT AND NET
DEBT TO CAPITALIZATION RATIO(Amounts in
millions)(Unaudited)
October 1,2017 December 31,2016 Current
portion of long-term debt $
22.5 $ 139.1 Plus: Long-term
debt, net of current portion
500.6 511.3 Less: Cash and cash
equivalents
(246.6 ) (338.4 ) Net debt
$
276.5 $ 312.0 Net debt $
276.5
$ 312.0 Plus: Total stockholders' equity
830.8
736.3 Capitalization $
1,107.3 $
1,048.3 Net debt to capitalization ratio
25.0 % 29.8 %
View source
version on businesswire.com: http://www.businesswire.com/news/home/20171101006702/en/
Watts Water Technologies, Inc.Timothy M. MacPheeTreasurer, VP –
Investor RelationsTelephone: (978) 689-6201Fax: 978-794-0353
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