Watts Water (WTS) Up 0.5% Since Last Earnings Report: Can It Continue?
It has been about a month since the last earnings report for Watts Water (WTS). Shares have added about 0.5% in that time frame, outperforming the S&P 500.
Will the recent positive trend continue leading up to its next earnings release, or is Watts Water due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important drivers.
Watts Water Q2 Earnings Beat Estimates
Watts Water reported second-quarter 2023 adjusted earnings per share (EPS) of $2.34, which increased 11% on a year-over-year basis and beat the Zacks Consensus Estimate by 14.2%.
The company’s quarterly net sales rose 1% year over year to $532.8 million. The top line surpassed the Zacks Consensus Estimate by 0.5%. Organic sales were flat year over year.
The company’s performance benefited from higher revenue growth in Asia-Pacific, the Middle East and Africa (APMEA) and Europe amid rising inflation.
Segment Results
Americas: Net sales decreased 2% year over year to $367 million. Organic sales also decreased 2% due to tougher year-over-year comparisons. Adjusted operating income was up 210 basis points (bps) year over year to 24.9%, driven by increased price and productivity initiatives, partly offset by inflation and higher investments.
Europe: Net sales were up 6% year over year to $136 million, including a favorable foreign exchange impact of 1%. Organic sales were up 5%, owing to solid price realization. Adjusted operating income was down 10 bps year over year to 16.2%, owing to inflationary impact and reduced volume.
APMEA: Net sales increased 33% to $30 million. Organic sales moved up 5% from the Middle East and Australia. The unfavorable foreign exchange impact was 6%. Adjusted operating margin was up 250 bps to 18.2%, due to increased trade and affiliate sales volume, along with increased price and productivity.
Other Details
Gross profit increased 6% year over year to $252.8 million. Selling, general and administrative expenses decreased 6% year over year to $150.8 million. Operating income was $100.4 million, up 5% year over year.
GAAP operating margin was up 60 bps to 18.8%. The adjusted operating margin was 19.5%, up 100 bps year over year.
Cash Flow & Liquidity
For the six months that ended Jun 25, 2023, Watts Water generated $100.5 million of cash from operating activities compared with $44.9 million in the prior-year period.
For the six months that ended Jun 25, 2023, the free cash flow was $88.9 million compared with $32.6 million in the prior-year period. The increase was due to higher net income and reduced working capital investment.
The company repurchased 24,000 shares for $4 million in the second quarter.
As of Jun 25, 2023, the company had $291.9 million in cash and cash equivalents with $98 million of long-term debt compared with the respective figures of $311.8 million and $147.8 million as of Mar 26, 2023.
Guidance
For third-quarter 2023, the company expects organic sales to decrease 3% to rise 1%. The adjusted operating margin is estimated to rise between 16% and 16.5%, with the adjusted margin projected to decline in the range of 80 bps-30 bps. The company expects the free cash flow performance to be positive.
For 2023, Watts Water expects organic sales to be down 2% to increase 2% compared with the previous guidance of down 5% to increase 2%. The adjusted operating margin is now estimated to be between 16.7% and 17.3% compared with the previous guidance of 15.7%-16.3%. The adjusted margin is expected to rise between 30 bps and 90 bps.
How Have Estimates Been Moving Since Then?
It turns out, estimates revision have trended upward during the past month.
The consensus estimate has shifted 7.63% due to these changes.
VGM Scores
Currently, Watts Water has a nice Growth Score of B, though it is lagging a bit on the Momentum Score front with a C. Following the exact same course, the stock was allocated a grade of C on the value side, putting it in the middle 20% for this investment strategy.
Overall, the stock has an aggregate VGM Score of B. If you aren't focused on one strategy, this score is the one you should be interested in.
Outlook
Estimates have been trending upward for the stock, and the magnitude of these revisions looks promising. It comes with little surprise Watts Water has a Zacks Rank #2 (Buy). We expect an above average return from the stock in the next few months.
Performance of an Industry Player
Watts Water is part of the Zacks Instruments - Control industry. Over the past month, Badger Meter (BMI), a stock from the same industry, has gained 1.5%. The company reported its results for the quarter ended June 2023 more than a month ago.
Badger Meter reported revenues of $175.86 million in the last reported quarter, representing a year-over-year change of +27.6%. EPS of $0.76 for the same period compares with $0.57 a year ago.
Badger Meter is expected to post earnings of $0.74 per share for the current quarter, representing a year-over-year change of +21.3%. Over the last 30 days, the Zacks Consensus Estimate remained unchanged.
Badger Meter has a Zacks Rank #2 (Buy) based on the overall direction and magnitude of estimate revisions. Additionally, the stock has a VGM Score of C.
Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report
Watts Water Technologies, Inc. (WTS) : Free Stock Analysis Report
Badger Meter, Inc. (BMI) : Free Stock Analysis Report
