Watts Water (WTS) Q1 Earnings & Sales Top On Solid Volume

Watts Water Technologies, Inc. (NYSE:WTS) delivered first-quarter 2018 adjusted earnings of 82 cents per share, up 26% year over year. This improvement was driven by strong volume, productivity, a lower tax rate and favorable foreign exchange. Earnings also surpassed the Zacks Consensus Estimate of 79 cents.

On a reported basis, Watts Water’s earnings per share improved 30% to 82 cents in the first quarter compared to 63 cents posted in the year-ago quarter. Notably, prior-year quarter includes acquisition, restructuring and transformation costs while reported quarter does not have any such adjustments.

Total revenues were up 9% year over year to $379 million in the first quarter, on the back of solid productivity initiatives. It beat the Zacks Consensus Estimate of $363 million. Organic sales were up 3% year over year.

Regionally, organic sales improved 5% in the Americas, driven by growth in plumbing, drains, boiler and water quality products. Organic sales growth increased 2% in Europe owing to continued strength in drains business. APMEA’s organic sales went up 3%.

Cost and Margins

Cost of sales went up 9% year over year to $222 million. Gross profit increased 9% year over year to $157 million. Gross margin in the reported quarter remained flat year over year at 41%. Selling, general and administrative expenses flared up to $112.8 million from $107.6 million posted in the prior-year quarter. Adjusted operating profit jumped 21% to $43.9 million in the reported quarter.

Segment Performance

Americas: Net sales increased 5% to $241 million in the reported quarter. Adjusted operating profit increased 8% to $36.4 million.

Europe: Net sales were up 17% year over year to $123 million. The segment reported adjusted operating profit of $14.9 million compared with $12.6 million recorded in the year-ago quarter.

APMEA: Net sales went up 5.9% year over year to $14 million. Adjusted operating profit jumped 40% year over year to $1.4 million.

Financial Performance

Watts Water reported cash and cash equivalents of $185 million at the end of the first quarter, down from $280 million recorded at the end of 2017. The company used $26 million of cash in operating activities during the quarter compared with cash usage of $9 million posted in the prior-year period.

Net debt was at $261.9 million as of Apr 1, 2018, up from $216.9 million as of Dec 31, 2017. Consequently, the net debt-to-capitalization ratio increased to 23.4% as of Apr 1, 2018 from 20.7% as of Dec 31, 2017.

The company repurchased around 80,000 shares of Class A common stock for $6.2 million during the first quarter.

Share Price Performance

Over the past year, Watts Water has underperformed the industry with respect to price performance. The stock has gained 12%, while the industry recorded growth of 17%.

Zacks Rank and Key Picks

Watts Water currently carries a Zacks Rank #3 (Hold).

Better-ranked stocks in the same sector include Nanometrics Incorporated (NASDAQ:NANO) , Allied Motion Technologies, Inc. (NASDAQ:AMOT) and Sensata Technologies Holding N.V. (NYSE:ST) . While Nanometrics sports a Zacks Rank #1 (Strong Buy), Allied Motion and Sensata Technologies carry a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Nanometrics has a long-term earnings growth rate of 12%. The stock has appreciated 19% in a year’s time.

Allied Motion has a long-term earnings growth rate of 16%. The company’s shares have been up 70% during the past year.

Sensata Technologies has a long-term earnings growth rate of 10.7%. Its shares have rallied 24% over the past year.

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