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Watts Water (WTS) Q1 Earnings & Revenues Top Estimates, View Up

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Watts Water Technologies, Inc. WTS reported healthy first-quarter 2021 results, wherein both the bottom and the top lines beat the respective Zacks Consensus Estimate.

Net Income

On a reported basis, net income in the March quarter was $41.7 million or $1.23 per share compared with $32 million or 94 cents per share in the year-ago quarter. The improvement primarily resulted from higher operating income.

Adjusted net income was $41.9 million or $1.24 per share compared with $32.3 million or 95 cents per share in the prior-year quarter. Also, the bottom line beat the Zacks Consensus Estimate by 23 cents, delivering a surprise of 22.8%.

Watts Water Technologies, Inc. Price, Consensus and EPS Surprise

Watts Water Technologies, Inc. Price, Consensus and EPS Surprise
Watts Water Technologies, Inc. Price, Consensus and EPS Surprise

Watts Water Technologies, Inc. price-consensus-eps-surprise-chart | Watts Water Technologies, Inc. Quote

Revenues

On a reported basis, quarterly net sales grew 8% year over year to $413.3 million. The growth reflects the positive impact of the freezing weather in the South-Central United States. Also, the top line surpassed the consensus estimate of $388 million. Organic sales increased 4% year over year.

Segment Results

Americas: Net sales grew 4% year over year to $272.8 million. Organic sales increased 3%, as growth in plumbing and electronics was partially offset by lower heating and hot water and water quality product sales. Adjusted operating income improved 10.7% to $48.5 million.

Europe: Net sales increased 11.5% year over year to $122.9 million, including a positive impact of 10% from foreign exchange fluctuations. Organic sales were up 2%, as strength in the plumbing and HVAC product platforms was partially offset by softness in drains. Adjusted operating income was $19.5 million, up 42.3% year over year, driven by volume, price productivity and cost actions.

Asia-Pacific, Middle East and Africa: Net sales improved 76% to $17.6 million. This includes net acquired sales of 23% and a positive foreign exchange impact of 10%. Organic sales increased 43%. Commercial valve sales in China continued to be strong during the quarter. Adjusted operating income came in at $2.6 million against a negative $0.1 million in the prior-year quarter. The improvement was driven by increased volume, both third-party and intercompany, as well as from cost actions and productivity.

Other Details

Cost of goods sold was $239.6 million compared with $219.8 million in the year-ago quarter. Gross profit improved to $173.7 million from $162.8 million. Operating income was $59.6 million, up 24.7%. GAAP operating margin was up 190 basis points (bps) to 14.4%. Adjusted operating margin was 14.5%, up 190 bps.

The company incurred $0.3 million in restructuring costs. It repurchased about 31,000 shares for $3.8 million during the quarter.

Cash Flow & Liquidity

During the first quarter of 2021, Watts Water generated $33.9 million of net cash from operations against cash utilization of $0.9 million in the year-ago quarter. Free cash flow was $31.9 million against a negative $8.4 million, driven by better working capital management, incremental profit and reduced net capital spending.

As of Mar 28, 2021, the company had $225.4 million in cash and cash equivalents with $198.6 million of long-term debt. This compares with the respective tallies of $218.9 million and $198.2 million at the end of the previous quarter.

2021 Outlook Raised

Thanks to the strong performance in the first quarter with better second-quarter expectations, the company has raised the outlook for full-year 2021. It now expects total organic revenues to increase 2% to 7%. Adjusted operating margin is anticipated to expand 30-70 bps year over year.

Zacks Rank & Stocks to Consider

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

Some better-ranked stocks in the broader industry are Vicor Corporation VICR, Cogent Communications Holdings, Inc. CCOI and Western Digital Corporation WDC, each sporting a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Vicor delivered a trailing four-quarter earnings surprise of 80.6%, on average.

Cogent delivered a trailing four-quarter earnings surprise of 29%, on average.

Western Digital delivered a trailing four-quarter earnings surprise of 26.3%, on average.

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