Why Is Watts Water (WTS) Up 2.9% Since the Last Earnings Report?

It has been about a month since the last earnings report for Watts Water Technologies, Inc. WTS. Shares have added about 2.9% in that time frame, outperforming the market.

Will the recent positive trend continue leading up to the stock's next earnings release, or is it 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 Beats Q1 Earnings and Sales Estimates

Watts Water Technologies reported first-quarter 2017 adjusted earnings of $0.65 per share, a 14% year-over-year improvement driven by strong productivity, lower interest expense and a favorable tax rate. Earnings surpassed the Zacks Consensus Estimate of $0.60.

On a reported basis, including special items, Watts Water’s earnings were $0.63 per share in the quarter, up 34% year over year from $0.47 recorded in the year-ago quarter.

Total revenue inched up 0.9% year over year to $347.2 million in the quarter, marginally beating the Zacks Consensus Estimate of $346 million. Organic sales edged down 1% in the quarter compared with the year-ago quarter.

Regionally, organic sales decreased in the Americas and APMEA 2% and 10%, respectively; partially offset by 1% organic growth in Europe. The Americas sales were impacted by lower heating and hot water product sales and headwinds in the retail sector. APMEA sales were adversely affected by anticipated product rationalization. Europe saw growth in drains and electronics products.

Cost and Margins

Cost of sales declined 2.7% year over year to $203.4 million. Gross profit increased 6.4% to $143.8 million. Gross margin in the reported quarter expanded 210 basis points (bps) to 41.4%. Selling, general and administrative expenses went down 4.9% to $107.6 million from $102.6 million in the prior-year quarter.

Adjusted operating profit went up 3% to $38.4 million in the reported quarter. Adjusted operating margin advanced 30 bps to 11.1%.

Segment Performance

Americas: Net sales climbed 2.9% to $228.7 million in the reported quarter. Adjusted operating profit increased 1.8% to $33.6 million.

EMEA: Net sales decreased 3% year over year to $104.9 million. Adjusted operating profit went up 23.5% to $12.6 million from $10.2 million in the prior-year quarter.

Asia Pacific: Net sales remained flat year over year at $13.6 million. The segment reported adjusted operating profit of $1 million compared to $2.4 million recorded in the year-ago quarter.

Financial Performance

Watts Water had cash and cash equivalents of $287 million at the end of first-quarter 2017 compared with $338.4 million at the end of 2016. The company recorded cash used for operating activities of $9.1 million in the reported quarter compared with cash usage of $21.9 million recorded in the year-ago quarter.

Watts Water repurchased 69,000 shares of Class A common stock for $4.4 million during the quarter.

How Have Estimates Been Moving Since Then?

Following the release, investors have witnessed a downward trend in fresh estimate. There has been two revisions lower for the current quarter.

Watts Water Technologies, Inc. Price and Consensus

 

Watts Water Technologies, Inc. Price and Consensus | Watts Water Technologies, Inc. Quote

VGM Scores

At this time, the stock has an average Growth Score of 'C', a grade with the same score on the momentum front. Charting a somewhat similar path, 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 'C'. If you aren't focused on one strategy, this score is the one you should be interested in.

Based on our scores, the stock is equally suitable for momentum, value and growth investors.

Outlook

While estimates have been broadly trending downward for the stock, the magnitude of these revisions has been net zero. Interestingly, the stock has a Zacks Rank #3 (Hold). We are expecting an inline return from the stock in the next few months.

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