Watts Water (WTS) Tops Q2 Earnings Estimates, Raises 2021 Outlook
Watts Water Technologies, Inc. WTS reported solid second-quarter 2021 results, wherein both the bottom line and the top line surpassed their respective Zacks Consensus Estimate. Robust operating momentum and higher sales across all regions favored the North Andover, MA-based company’s quarterly results.
Net Income
On a reported basis, net income in the June quarter was $37.5 million or $1.11 per share compared with $20.2 million or 59 cents per share in the year-ago quarter. The improvement primarily resulted from solid top-line growth.
Adjusted net income was $50.1 million or $1.48 per share compared with $25.2 million or 74 cents per share in the prior-year quarter. Also, the bottom line beat the Zacks Consensus Estimate by 19 cents, delivering a surprise of 14.7%.
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 surged 37.9% year over year to $467 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 $424 million. Organic sales increased 32.1% year over year.
Segment Results
Americas: Net sales grew 29.4% year over year to $307.1 million. Organic sales increased 27.9% as a result of the global economic recovery. Adjusted operating income improved 53.5% to $54.5 million. The improvement was mainly driven by volume, pricing, productivity and restructuring savings. However, it was partially offset by incremental investments and normalized costs.
Europe: Net sales surged 55.3% year over year to $136.8 million, including a positive impact of 14% from foreign exchange fluctuations. Organic sales were up 41.3%. Adjusted operating income was $23.3 million, up 161.8% year over year, driven by volume, pricing, productivity and cost actions.
Asia-Pacific, Middle East and Africa: Net sales improved 75% to $23.1 million. This includes acquired sales of 14% and a positive foreign exchange impact of 10%. Organic sales increased 51% on solid growth in China and New Zealand as well as due to the global economic recovery. Adjusted operating income came in at $4.1 million compared with $1.7 million in the prior-year quarter. The improvement was driven by increased affiliate volume as well as cost actions and productivity initiatives.
Other Details
Cost of goods sold was $266.9 million compared with $203.8 million in the year-ago quarter. Gross profit improved to $200.1 million from $134.9 million. Operating income was $52.7 million, up 70%. GAAP operating margin was up 210 basis points (bps) to 11.3%. Adjusted operating margin was 14.9%, up 380 bps.
The company incurred $17 million in restructuring costs. It repurchased nearly 31,000 shares for $4 million during the quarter.
Cash Flow & Liquidity
In the first six months of 2021, Watts Water generated $73.2 million of net cash from operations compared with $47.3 million in the year-ago period. Free cash flow for the same period totaled $65.1 million, up from $25 million, driven by higher net income and lower net capital expenditures.
As of Jun 27, 2021, the company had $240.1 million in cash and cash equivalents with $191.5 million of long-term debt.
2021 Outlook Updated
Thanks to the robust performance in the second quarter, which included restructuring and other charges related to French facility exit, Watts Water has raised full-year 2021 outlook. It now expects total organic revenues to increase 10% to 14% versus the prior outlook of 2% to 7%. Adjusted operating margin is anticipated to expand 100-150 bps year over year compared with the previous guidance of 30-70 bps. The company expects better third-quarter performance on the back of year-over-year incremental sales and margin improvement.
Although market adversities seem to have relaxed to some extent, the company is closely tracking supply chain challenges, non-residential new construction activity and other macroeconomic phenomena. It is focused on addressing the lingering near-term impact of the COVID-19 pandemic while remaining committed to its long-term strategic priorities in this hour of crisis.
Zacks Rank & Other Stocks to Consider
Watts Water currently carries a Zacks Rank #2 (Buy).
Some other top-ranked stocks in the broader industry are Clearfield, Inc. CLFD, Transcat, Inc. TRNS and Sensata Technologies Holding plc ST. While Clearfield sports a Zacks Rank #1 (Strong Buy), Transcat and Sensata carry a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank stocks here.
Clearfield delivered a trailing four-quarter earnings surprise of 49%, on average.
Transcat delivered a trailing four-quarter earnings surprise of 49.9%, on average.
Sensata delivered a trailing four-quarter earnings surprise of 13.2%, on average.
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