Watts Water Technologies, Inc. (NYSE:WTS) reported first-quarter 2017 adjusted earnings of 65 cents per share, a 14% year-over-year improvement driven by strong productivity, lower interest expense and a favorable tax rate. Earnings surpassed the Zacks Consensus Estimate of 60 cents.
On a reported basis, including special items, Watts Water’s earnings were 63 cents per share in the quarter, up 34% year over year from 47 cents recorded in the year-ago quarter.
Total revenue inched up 0.9% year over year to $347.2 million in the quarter, marginally beating the Zacks Consensus Estimate of $346 million. Organic sales edged down 1% in the quarter compared with the year-ago quarter.
Regionally, organic sales decreased in the Americas and APMEA 2% and 10%, respectively; partially offset by 1% organic growth in Europe. The Americas sales were impacted by lower heating and hot water product sales and headwinds in the retail sector. APMEA sales were adversely affected by anticipated product rationalization. Europe saw growth in drains and electronics products.
Cost and Margins
Cost of sales declined 2.7% year over year to $203.4 million. Gross profit increased 6.4% to $143.8 million. Gross margin in the reported quarter expanded 210 basis points (bps) to 41.4%. Selling, general and administrative expenses went down 4.9% to $107.6 million from $102.6 million in the prior-year quarter.
Adjusted operating profit went up 3% to $38.4 million in the reported quarter. Adjusted operating margin advanced 30 bps to 11.1%.
Segment Performance
Americas: Net sales climbed 2.9% to $228.7 million in the reported quarter. Adjusted operating profit increased 1.8% to $33.6 million.
EMEA: Net sales decreased 3% year over year to $104.9 million. Adjusted operating profit went up 23.5% to $12.6 million from $10.2 million in the prior-year quarter.
Asia Pacific: Net sales remained flat year over year at $13.6 million. The segment reported adjusted operating profit of $1 million compared to $2.4 million recorded in the year-ago quarter.
Financial Performance
Watts Water had cash and cash equivalents of $287 million at the end of first-quarter 2017 compared with $338.4 million at the end of 2016. The company recorded cash used for operating activities of $9.1 million in the reported quarter compared with cash usage of $21.9 million recorded in the year-ago quarter.
Watts Water repurchased 69,000 shares of Class A common stock for $4.4 million during the quarter.
Share Price Performance
In the last one year, Watts Water has underperformed the Zacks classified Instruments-Control sub-industry with respect to price performance. The stock gained around 8.2%, while the industry recorded growth of 15.1% over the same time frame.
Watts Water currently carries a Zacks Rank #4 (Sell).
Key Picks
Some better-ranked stocks in the same sector are APPLIED OPTOELECTRONICS, INC. (NASDAQ:AAOI) , Teradyne, Inc. (NYSE:TER) and Brooks Automation, Inc. (NASDAQ:BRKS) . All of these stocks sport a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
APPLIED OPTOELECTRONICS has a remarkable positive average earnings surprise of 116.49% for the last four quarters. Teradyne generated a positive average earnings surprise of 25.10% over the trailing four quarters. Brooks Automation has delivered an average positive earnings surprise of 24.11% in the past four quarters.
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