Watts Water (WTS) Q3 Earnings Beat Estimates, Revenues Up Y/Y
Watts Water Technologies, Inc WTS reported third-quarter 2023 adjusted earnings per share (EPS) of $2.04, which increased 14% on a year-over-year basis and beat the Zacks Consensus Estimate by 11.5%.
The company’s quarterly net sales rose 3% year over year to $504 million. The top line surpassed the Zacks Consensus Estimate by 0.2%. 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.
Watts Water Technologies, Inc. Price, Consensus and EPS Surprise
Watts Water Technologies, Inc. price-consensus-eps-surprise-chart | Watts Water Technologies, Inc. Quote
Segment Results
Americas: Net sales remained flat year over year to $351 million. Organic sales increased 1% amid tougher year-over-year comparisons. Adjusted operating income was up 260 basis points (bps) year over year to 24.5%, driven by increased price realization, favorable product mix and productivity, partly offset by inflation and higher investments.
Europe: Net sales were up 6% year over year to $120 million, including a favorable foreign exchange impact of 7%. Organic sales were down 1%, owing to a decline in sales of drain products. Adjusted operating income was down 190 bps year over year to 10.4%, owing to inflationary impact and reduced volume.
APMEA: Net sales increased 33% to $33 million. Organic sales moved up 1% from the Middle East and Australia. The unfavorable foreign exchange impact was 4%. Adjusted operating margin increased 70 bps to 17.2% due to increased trade and affiliate sales volume, along with increased price and productivity.
Other Details
Gross profit increased 8% year over year to $234.4 million. Selling, general and administrative expenses decreased 8% year over year to $146.9 million. Operating income was $87.1 million, up 8% year over year.
GAAP operating margin increased 80 bps to 17.3%. The adjusted operating margin was 18%, up 120 bps year over year.
Cash Flow & Liquidity
For the nine months that ended Sep 24, 2023, Watts Water generated $200.9 million of cash from operating activities compared with $86.3 million in the prior-year period.
For the nine months that ended Sep 24, 2023, the free cash flow was $181.9 million compared with $67 million in the year-ago period. The increase was due to higher net income and reduced working capital investment.
The company repurchased 22,000 shares for $4 million in the third quarter.
As of Sep 24, 2023, the company had $362.7 million in cash and cash equivalents with $98.2 million of long-term debt compared with the respective figures of $291.9 million and $98 million as of Jun 25, 2023.
Guidance
For fourth-quarter 2023, the company expects organic sales to decrease 6% to 1%. The adjusted operating margin is estimated to rise between 15% and 15.6%, with the adjusted margin projected to increase in the range of 70 bps-130 bps. The company expects the free cash flow performance to be seasonally strong.
For 2023, Watts Water expects organic sales to be flat compared with the previous guidance of down 2% to increase 2%. The adjusted operating margin is now estimated to be between 17.6% and 17.7% compared with the previous guidance of 6.7% and 17.3%. The adjusted margin is expected to rise between 120 bps and 130 bps.
Zacks Rank & Stocks to Consider
Watts Water currently has a Zacks Rank #3 (Hold).
Some better-ranked stocks in the broader technology space are Asure Software ASUR, Flex FLEX and Wix.com WIX. Each stock presently sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
The Zacks Consensus Estimate for Asure Software’s 2023 EPS has increased 5.9% in the past 60 days to 54 cents.
Asure Software’s earnings beat the Zacks Consensus Estimate in all the last four quarters, the average being 676.4%. Shares of ASUR have surged 51% in the past year.
The Zacks Consensus Estimate for Flex’s 2023 EPS has gained 3.6% in the past 60 days to $2.56. Flex’s long-term earnings growth rate is 12.4%. Shares of FLEX have gained 21% in the past year.
The Zacks Consensus Estimate for Wix’s 2023 EPS has increased 0.3% in the past 60 days to $3.36.
Wix’s earnings beat estimates in all the trailing four quarters, delivering an average surprise of 319.3%. Shares of WIX have rallied 3.2% in the past year.
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