Watts Water Technologies, Inc WTS reported adjusted earnings of 2.11 per share in second-quarter 2022, increasing 43% on a year-over-year basis and beating the Zacks Consensus Estimate by 29.5%.
The company’s quarterly net sales rose 13% year over year to $527 million. The top line surpassed the consensus estimate by 7.8%. Organic sales increased 16% year over year.
Amid pandemic-induced supply chain woes, double-digit organic growth in the Americas and synergies from acquisitions boosted Watts Water’s performance. However, unfavorable forex translations affected sales by $18 million.
Watts Water Technologies, Inc. Price, Consensus and EPS Surprise
Watts Water Technologies, Inc. price-consensus-eps-surprise-chart | Watts Water Technologies, Inc. Quote
Americas: Net sales increased 22% year over year to $376 million. Organic sales also rose 22% on double-digit growth across all major product lines. Adjusted operating income was up 510 basis points (bps) year over year to 22.8%, driven by increased price, volume and productivity initiatives.
Europe: Net sales were down 7% year over year to $128 million, including an unfavorable foreign exchange impact of 12% and exit from Russia. Organic sales were up 5%, with growth in the Fluid Solutions and Drains platforms. Adjusted operating income was down 80 bps year over year to 16.3%, owing to lower volume and inflationary impact.
Asia-Pacific, Middle East and Africa: Net sales decreased 1% to $23 million. Organic sales moved up 3% from growth in China and Australia. The unfavorable foreign exchange impact was 4%. Adjusted operating margin was down 220 bps to 15.7%, affected by lower volume and inflationary pressure.
Gross profit increased 20% year over year to $239.2 million. Selling, general and administrative expenses decreased 9% year over year to $141.6 million in the prior-year quarter. Operating income was $95.9 million, up 82%.
GAAP operating margin was up 690 bps to 18.2%. The adjusted operating margin was 18.5%, up 360 bps.
Cash Flow & Liquidity
For six months ended Jun 26, 2022, Watts Water generated $44.9 million of cash from operating activities compared with $73.2 million cash generated in the prior-year quarter.
Free cash flow was $33 million, down from $65 million of free cash flow reported in the prio year’s quarter. The downtick stemmed from the company’s decision to boost inventories in response to a solid demand environment amid protracted supply chain challenges.
The company repurchased 140,000 shares for $18.2 million in the second quarter. For the first six months of 2022, the company repurchased 434,000 shares worth $61 million.
As of Jun 26, 2022, the company had $230 million in cash and cash equivalents with $202.2 million of long-term debt compared with the respective tallies of $226.8 million and $202 million as of Mar 27, 2022.
For third-quarter 2022, the company expects organic sales growth to be in the range of 5-10%. The adjusted operating margin is estimated to rise between 14.5% and 15%, with adjusted margin growth of 10-60 bps.
For full-year 2022, Watts Water expects organic sales growth to be in the range of 8-11% compared with the earlier range of 3-8%. The adjusted operating margin is now estimated to be between 15.4% and 15.9%, with adjusted margin growth of between 110 bps and 160 bps. Earlier, the company had guided the adjusted operating margin to be between 14.5% and 14.9%, with adjusted margin growth of between 20 bps and 60 bps.
Zacks Rank & Stocks to Consider
Watts Water currently has a Zacks Rank #3 (Hold).
Some other top-ranked stocks from the broader technology sector worth consideration are Cadence Design Systems CDNS, Intuit INTU and Badger Meter BMI. Cadence and Badger Meter sports a Zacks Rank #1 (Strong Buy), while Intuit carries a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank stocks here.
The Zacks Consensus Estimate for BMI’s 2022 earnings is pegged at $2.30 per share, up 7% in the past 60 days. Badger Meter’s earnings beat the Zacks Consensus Estimate in three of the preceding four quarters, with the average being 12.6%. Shares of BMI have lost 3.4% of their value in the past year.
The Zacks Consensus Estimate for Cadence’s 2022 earnings is pegged at $4.11 per share, up 5.7% in the past 60 days. The long-term earnings growth rate is anticipated to be 17.7%.
CDNS earnings beat the Zacks Consensus Estimate in the last four quarters, the average being 9.8%. Shares of CDNS have increased 19.9% in the past year.
The Zacks Consensus Estimate for Intuit’s fiscal 2022 earnings is pegged at $11.72 per share, rising 0.2% in the past 60 days. The long-term earnings growth rate is anticipated to be 15.6%.
Intuit’s earnings beat the Zacks Consensus Estimate in three of the last four quarters, the average being 16.8%. Shares of INTU have lost 13.4% in the past year.
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