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NORTH ANDOVER, Mass.--(BUSINESS WIRE)--Nov 2, 2022--
Watts Water Technologies, Inc. (NYSE: WTS) – one of the world’s leading manufacturers and providers of plumbing, heating and water quality products and solutions – today announced results for the third quarter of 2022.
Chief Executive Officer Robert J. Pagano Jr. commented, “Our third quarter results exceeded our expectations and represent a third quarter record for sales, operating margin and EPS. Double-digit organic sales growth was due to strong execution in the Americas and a solid rebound in APMEA. Due to the strength of our third quarter, we are again increasing our full-year 2022 outlook. We now expect organic revenue growth of 11% to 12% and adjusted operating margin expansion of 190 to 210 basis points, compared to last year. Our performance is a direct result of our employees’ unwavering focus on serving our customers. I want to thank all of our dedicated employees for their outstanding efforts and commitment to Watts. I would also like to acknowledge our Southern Florida colleagues who have suffered tremendous losses in the wake of Hurricane Ian. Our Fort Myers facility did not sustain significant damage, however we are providing support to our employees who were impacted by this disaster.”
Mr. Pagano concluded, “We remain focused on our customers and delivering on our commitments for 2022, which include increasing our investments related to our Smart and Connected strategy and factory automation. We are monitoring the softening global economic indicators and are confident our experienced team is well positioned to handle these challenging macro-economic conditions.”
A summary of third quarter financial results is as follows:
Third Quarter Ended
September 25,
September 26,
(In millions, except per share information)
2022
2021
% Change
Sales
$
487.8
$
455.0
7
%
Net income
58.7
46.4
27
%
Diluted net income per share
$
1.75
$
1.37
28
%
Special items (1)
0.04
0.02
Adjusted earnings per share (1)
$
1.79
$
1.39
29
%
(1)
Special items and adjusted earnings per share represent non-GAAP financial measures. For a reconciliation of GAAP to non-GAAP items please see the tables attached to this press release.
Third Quarter Financial Highlights
Third quarter 2022 performance relative to third quarter 2021
Regional Performance
Americas
Europe
Asia-Pacific, Middle East and Africa (“APMEA”)
Cash Flow and Capital Allocation
For a reconciliation of GAAP to non-GAAP items and a statement regarding the usefulness of these measures to investors and management in evaluating our operating performance, please see the tables attached to this press release.
Watts Water Technologies, Inc. will hold a live webcast of its conference call to discuss third quarter 2022 results on Thursday, November 3, 2022, at 9:00 a.m. EDT. This press release and the live webcast can be accessed by visiting the Investor Relations section of the Company's website at www.wattswater.com. Following the webcast, the call recording will be available at the same address until November 3, 2023.
Watts Water Technologies, Inc., through its subsidiaries, is a world leader in the manufacture of innovative products to control the efficiency, safety, and quality of water within residential, commercial, and institutional applications. Watts’ expertise in a wide variety of water technologies enables us to be a comprehensive supplier to the water industry.
This Press Release includes “forward-looking statements” as defined in the Private Securities Litigation Reform Act of 1995, including statements relating to expected full-year 2022 results, our ability to manage challenging macro-economic conditions, and improvements in operating cash flow and free cash flow throughout 2022. These forward-looking statements reflect our current views about future events. You should not rely on forward-looking statements because our actual results may differ materially from those predicted as a result of a number of potential risks and uncertainties. These potential risks and uncertainties include, but are not limited to: the effectiveness, the timing and the expected savings associated with our cost-cutting actions, restructuring and transformation programs and initiatives; current economic and financial conditions, which can affect the housing and construction markets where our products are sold, manufactured and marketed; shortages in and pricing of raw materials and supplies; our ability to compete effectively; changes in variable interest rates on our borrowings; inflation; failure to expand our markets through acquisitions; failure to successfully develop and introduce new product offerings or enhancements to existing products; failure to manufacture products that meet required performance and safety standards; foreign exchange rate fluctuations; cyclicality of industries where we market our products, such as plumbing and heating wholesalers and home improvement retailers; environmental compliance costs; product liability risks; changes in the status of current litigation; the risks and uncertainties relating to the COVID-19 pandemic and the war in Ukraine; supply chain and logistical disruptions or labor shortages and workforce disruptions that could negatively affect our supply chain, manufacturing, distribution, or other business processes; and other risks and uncertainties discussed under the heading “Item 1A. Risk Factors” and in Note 15 of the Notes to the Consolidated Financial Statements in our Annual Report on Form 10-K for the year ended December 31, 2021, filed with the SEC, as well as risk factors disclosed in our subsequent filings with the SEC. We undertake no duty to update the information contained in this Press Release, except as required by law.
WATTS WATER TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Amounts in millions, except per share information)
(Unaudited)
Third Quarter Ended
Nine Months Ended
September 25,
September 26,
September 25,
September 26,
2022
2021
2022
2021
Net sales
$
487.8
$
455.0
$
1,477.6
$
1,335.3
Cost of goods sold
269.9
261.0
821.9
767.5
GROSS PROFIT
217.9
194.0
655.7
567.8
Selling, general and administrative expenses
135.8
128.4
403.5
372.6
Restructuring
1.7
0.9
4.4
18.2
OPERATING INCOME
80.4
64.7
247.8
177.0
Other (income) expense:
Interest income
(0.2)
—
(0.3)
—
Interest expense
1.9
1.4
5.0
4.9
Other (income) expense, net
(0.1)
(0.2)
0.2
(1.0)
Total other expense
1.6
1.2
4.9
3.9
INCOME BEFORE INCOME TAXES
78.8
63.5
242.9
173.1
Provision for income taxes
20.1
17.1
60.0
47.5
NET INCOME
$
58.7
$
46.4
$
182.9
$
125.6
BASIC EPS
NET INCOME PER SHARE
$
1.76
$
1.38
$
5.46
$
3.72
Weighted average number of shares
33.4
33.7
33.5
33.8
DILUTED EPS
NET INCOME PER SHARE
$
1.75
$
1.37
$
5.43
$
3.70
Weighted average number of shares
33.5
33.9
33.7
33.9
Dividends declared per share
$
0.30
$
0.26
$
0.86
$
0.75
WATTS WATER TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Amounts in millions, except share information)
(Unaudited)
September 25,
December 31,
2022
2021
ASSETS
CURRENT ASSETS:
Cash and cash equivalents
$
219.5
$
242.0
Trade accounts receivable, less reserve allowances of $11.7 million at September 25, 2022 and
$10.3 million at December 31, 2021
257.0
220.9
Inventories, net:
Raw materials
153.1
119.4
Work in process
24.0
20.4
Finished goods
245.5
230.9
Total Inventories
422.6
370.7
Prepaid expenses and other current assets
37.7
27.9
Total Current Assets
936.8
861.5
PROPERTY, PLANT AND EQUIPMENT:
Property, plant and equipment, at cost
578.4
608.8
Accumulated depreciation
(389.3)
(408.1)
Property, plant and equipment, net
189.1
200.7
OTHER ASSETS:
Goodwill
582.5
600.7
Intangible assets, net
114.9
128.6
Deferred income taxes
3.5
3.5
Other, net
58.8
60.6
TOTAL ASSETS
$
1,885.6
$
1,855.6
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable
$
131.6
$
143.4
Accrued expenses and other liabilities
174.0
186.9
Accrued compensation and benefits
72.9
78.2
Total Current Liabilities
378.5
408.5
LONG-TERM DEBT
182.4
141.9
DEFERRED INCOME TAXES
33.8
40.5
OTHER NONCURRENT LIABILITIES
83.2
91.5
STOCKHOLDERS' EQUITY:
Preferred Stock, $0.10 par value; 5,000,000 shares authorized; no shares issued or outstanding
—
—
Class A common stock, $0.10 par value; 120,000,000 shares authorized; 1 vote per share; issued and outstanding: 27,294,207 shares at September 25, 2022 and 27,584,525 shares at December 31, 2021
2.7
2.8
Class B common stock, $0.10 par value; 25,000,000 shares authorized; 10 votes per share; issued and outstanding: 6,008,290 shares at September 25, 2022 and 6,024,290 shares at December 31, 2021
0.6
0.6
Additional paid-in capital
646.6
631.2
Retained earnings
741.4
665.9
Accumulated other comprehensive loss
(183.6)
(127.3)
Total Stockholders' Equity
1,207.7
1,173.2
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY
$
1,885.6
$
1,855.6
WATTS WATER TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Amounts in millions)
(Unaudited)
Nine Months Ended
September 25,
September 26,
2022
2021
OPERATING ACTIVITIES
Net income
$
182.9
$
125.6
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation
21.5
23.5
Amortization of intangibles
9.1
10.5
Loss on disposal and impairment of property, plant and equipment, and other
1.4
1.1
Stock-based compensation
13.2
16.8
Deferred income tax
(5.9)
(8.7)
Changes in operating assets and liabilities:
Accounts receivable
(51.0)
(49.6)
Inventories
(73.6)
(93.4)
Prepaid expenses and other assets
(4.1)
(1.8)
Accounts payable, accrued expenses and other liabilities
(7.2)
110.9
Net cash provided by operating activities
86.3
134.9
INVESTING ACTIVITIES
Additions to property, plant and equipment
(20.2)
(19.6)
Proceeds from the sale of property, plant and equipment
0.9
4.9
Net cash used in investing activities
(19.3)
(14.7)
FINANCING ACTIVITIES
Proceeds from long-term borrowings
85.0
35.0
Payments of long-term debt
(45.0)
(80.0)
Payments for tax withholdings on vested stock awards
(13.0)
(9.6)
Payments for finance leases
(1.4)
(1.0)
Proceeds from share transactions under employee stock plans
0.2
—
Debt issuance costs
—
(2.4)
Payments to repurchase common stock
(65.1)
(11.8)
Dividends
(29.4)
(25.5)
Net cash used in financing activities
(68.7)
(95.3)
Effect of exchange rate changes on cash and cash equivalents
(20.8)
(5.1)
(DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS
(22.5)
19.8
Cash and cash equivalents at beginning of year
242.0
218.9
CASH AND CASH EQUIVALENTS AT END OF PERIOD
$
219.5
$
238.7
WATTS WATER TECHNOLOGIES, INC. AND SUBSIDIARIES
SEGMENT INFORMATION
(Amounts in millions)
(Unaudited)
Net Sales
Third Quarter Ended
Nine Months Ended
September 25, 2022
September 26, 2021
September 25, 2022
September 26, 2021
Americas
$
349.8
$
309.1
$
1,039.6
$
889.0
Europe
113.1
124.1
370.9
383.8
APMEA
24.9
21.8
67.1
62.5
Total
$
487.8
$
455.0
$
1,477.6
$
1,335.3
Operating Income
Third Quarter Ended
Nine Months Ended
September 25, 2022
September 26, 2021
September 25, 2022
September 26, 2021
Americas
$
76.2
$
55.9
$
219.6
$
159.6
Europe
12.6
18.3
53.3
43.2
APMEA
4.1
4.2
10.7
10.8
Corporate
(12.5)
(13.7)
(35.8)
(36.6)
Total
$
80.4
$
64.7
$
247.8
$
177.0
Intersegment Sales
Third Quarter Ended
Nine Months Ended
September 25, 2022
September 26, 2021
September 25, 2022
September 26, 2021
Americas
$
2.5
$
2.5
$
7.9
$
7.4
Europe
6.2
6.7
20.2
22.9
APMEA
10.8
32.2
63.2
95.6
Total
$
19.5
$
41.4
$
91.3
$
125.9
Key Performance Indicators and Non-GAAP Measures
In this press release, we refer to non-GAAP financial measures (including adjusted operating income, adjusted operating margins, adjusted net income, adjusted earnings per share, organic sales, free cash flow, cash conversion rate of free cash flow to net income and net debt to capitalization ratio) and provide a reconciliation of those non-GAAP financial measures to the corresponding financial measures contained in our consolidated financial statements prepared in accordance with GAAP. We believe that these financial measures enhance the overall understanding of our historical financial performance and give insight into our future prospects. Adjusted operating income, adjusted operating margins, adjusted net income and adjusted earnings per share eliminate certain expenses incurred in the periods presented that relate primarily to our global restructuring programs and the related income tax impacts on these items. Management then utilizes these adjusted financial measures to assess the run rate of the Company’s operations against those of comparable periods. Organic sales growth is a non-GAAP measure of sales growth excluding the impacts of foreign exchange, acquisitions and divestitures from period-over-period comparisons. Management believes reporting organic sales growth provides useful information to investors, potential investors and others, and allows for a more complete understanding of underlying sales trends by providing sales growth on a consistent basis. Free cash flow, cash conversion rate of free cash flow to net income, and the net debt to capitalization ratio, which are adjusted to exclude certain cash inflows and outlays, and include only certain balance sheet accounts from the comparable GAAP measures, are an indication of our performance in cash flow generation and also provide an indication of the Company's relative balance sheet leverage to other industrial manufacturing companies. These non-GAAP financial measures are among the primary indicators management uses as a basis for evaluating our cash flow generation and our capitalization structure. In addition, free cash flow is used as a criterion to measure and pay certain compensation-based incentives. For these reasons, management believes these non-GAAP financial measures can be useful to investors, potential investors and others. The Company’s non-GAAP financial measures may not be comparable to similarly titled measures reported by other companies. The presentation of this additional information is not meant to be considered in isolation or as a substitute for financial measures prepared in accordance with GAAP.
TABLE 1
RECONCILIATION OF GAAP "AS REPORTED" TO "AS ADJUSTED" NON-GAAP
EXCLUDING THE EFFECT OF ADJUSTMENTS FOR SPECIAL ITEMS
(Amounts in millions, except per share information)
(Unaudited)
CONSOLIDATED RESULTS
Third Quarter Ended
Nine Months Ended
September 25,
September 26,
September 25,
September 26,
2022
2021
2022
2021
Net sales
$
487.8
$
455.0
$
1,477.6
$
1,335.3
Operating income - as reported
$
80.4
$
64.7
$
247.8
$
177.0
Operating margin %
16.5
%
14.2
%
16.8
%
13.3
%
Adjustments for special items:
Restructuring
$
1.7
$
0.9
$
4.4
$
18.2
Operating income - as adjusted
$
82.1
$
65.6
$
252.2
$
195.2
Adjusted operating margin %
16.8
%
14.4
%
17.1
%
14.6
%
Net income - as reported
$
58.7
$
46.4
$
182.9
$
125.6
Adjustments for special items - tax effected:
Restructuring
$
1.3
$
0.7
$
3.3
$
13.5
Net income - as adjusted
$
60.0
$
47.1
$
186.2
$
139.1
Diluted earnings per share - as reported
$
1.75
$
1.37
$
5.43
$
3.70
Adjustments for special items
0.04
0.02
0.10
0.40
Diluted earnings per share - as adjusted
$
1.79
$
1.39
$
5.53
$
4.10
TABLE 2
SEGMENT INFORMATION - RECONCILIATION OF GAAP "AS REPORTED" TO "AS ADJUSTED" NON-GAAP
EXCLUDING THE EFFECT OF ADJUSTMENTS FOR SPECIAL ITEMS
(Amounts in millions)
(Unaudited)
Third Quarter Ended
Third Quarter Ended
September 25, 2022
September 26, 2021
Americas
Europe
APMEA
Corporate
Total
Americas
Europe
APMEA
Corporate
Total
Net sales
$
349.8
113.1
24.9
—
487.8
$
309.1
124.1
21.8
—
455.0
Operating income (loss) - as reported
$
76.2
12.6
4.1
(12.5)
80.4
$
55.9
18.3
4.2
(13.7)
64.7
Operating margin %
21.8
%
11.2
%
16.5
%
16.5
%
18.1
%
14.7
%
19.1
%
14.2
%
Adjustments for special items
$
0.4
1.3
—
—
1.7
$
—
0.9
—
—
0.9
Operating income (loss) - as adjusted
$
76.6
13.9
4.1
(12.5)
82.1
$
55.9
19.2
4.2
(13.7)
65.6
Adjusted operating margin %
21.9
%
12.3
%
16.5
%
16.8
%
18.1
%
15.5
%
19.1
%
14.4
%
Nine Months Ended
Nine Months Ended
September 25, 2022
September 26, 2021
Americas
Europe
APMEA
Corporate
Total
Americas
Europe
APMEA
Corporate
Total
Net sales
$
1,039.6
370.9
67.1
—
1,477.6
$
889.0
383.8
62.5
—
1,335.3
Operating income (loss) - as reported
$
219.6
53.3
10.7
(35.8)
247.8
$
159.6
43.2
10.8
(36.6)
177.0
Operating margin %
21.1
%
14.4
%
15.9
%
16.8
%
18.0
%
11.3
%
17.1
%
13.3
%
Adjustments for special items
$
0.8
3.7
(0.1)
—
4.4
$
(0.7)
18.8
0.1
—
18.2
Operating income (loss) - as adjusted
$
220.4
57.0
10.6
(35.8)
252.2
$
158.9
62.0
10.9
(36.6)
195.2
Adjusted operating margin %
21.2
%
15.4
%
15.8
%
17.1
%
17.9
%
16.2
%
17.4
%
14.6
%
TABLE 3
SEGMENT INFORMATION - RECONCILIATION OF REPORTED NET SALES TO ORGANIC SALES
(Amounts in millions)
(Unaudited)
Third Quarter Ended
Americas
Europe
APMEA
Total
Reported net sales September 25, 2022
$
349.8
$
113.1
$
24.9
$
487.8
Reported net sales September 26, 2021
309.1
124.1
21.8
455.0
Dollar change
$
40.7
$
(11.0)
$
3.1
$
32.8
Net sales % increase (decrease)
13.2 %
(8.9) %
14.2 %
7.2 %
Decrease due to foreign exchange
0.2 %
15.2 %
7.8 %
4.7 %
Increase due to acquisition
(0.6) %
— %
— %
(0.4) %
Organic sales increase
12.8 %
6.3 %
22.0 %
11.5 %
Nine Months Ended
Americas
Europe
APMEA
Total
Reported net sales September 25, 2022
$
1,039.6
$
370.9
$
67.1
$
1,477.6
Reported net sales September 26, 2021
889.0
383.8
62.5
1,335.3
Dollar change
$
150.6
$
(12.9)
$
4.6
$
142.3
Net sales % increase (decrease)
16.9 %
(3.4) %
7.4 %
10.7 %
Decrease due to foreign exchange
0.2 %
11.7 %
4.8 %
3.7 %
Increase due to acquisition
(0.7) %
— %
— %
(0.5) %
Organic sales increase
16.4 %
8.3 %
12.2 %
13.9 %
TABLE 4
RECONCILIATION OF NET CASH PROVIDED BY OPERATIONS TO FREE CASH FLOW
(Amounts in millions)
(Unaudited)
Nine Months Ended
September 25,
September 26,
2022
2021
Net cash provided by operations - as reported
$
86.3
$
134.9
Less: additions to property, plant, and equipment
(20.2)
(19.6)
Plus: proceeds from the sale of property, plant, and equipment
0.9
4.9
Free cash flow
$
67.0
$
120.2
Net income - as reported
$
182.9
$
125.6
Cash conversion rate of free cash flow to net income
36.6 %
95.7 %
TABLE 5
RECONCILIATION OF LONG-TERM DEBT (INCLUDING CURRENT PORTION) TO NET DEBT AND NET DEBT TO CAPITALIZATION RATIO
(Amounts in millions)
(Unaudited)
September 25,
December 31,
2022
2021
Current portion of long-term debt
$
—
$
—
Plus: Long-term debt, net of current portion
182.4
141.9
Less: Cash and cash equivalents
(219.5)
(242.0)
Net debt
$
(37.1)
$
(100.1)
Net debt
$
(37.1)
$
(100.1)
Plus: Total stockholders' equity
1,207.7
1,173.2
Capitalization
$
1,170.6
$
1,073.1
Net debt to capitalization ratio
(3.2) %
(9.3) %
TABLE 6
2022 FULL YEAR OUTLOOK - RECONCILIATION OF REPORTED NET SALES TO ORGANIC SALES GROWTH AND OPERATING MARGIN TO ADJUSTED OPERATING MARGIN GROWTH
(Unaudited)
Total Watts
Full Year
2022 Outlook
Approximately
Net Sales
Reported net sales growth
7.0% to 8.0%
Forecasted impact of acquisition / FX
4.0%
Organic sales growth
11.0% to 12.0%
Operating Margin
Operating margin growth range
170 bps to 190 bps
Forecasted restructuring / other costs
20 bps
Adjusted operating margin growth range
190 bps to 210 bps
View source version on businesswire.com:https://www.businesswire.com/news/home/20221102005750/en/
CONTACT: Diane McClintock
SVP FP&A & Investor Relations
email: investorrelations@wattswater.com
KEYWORD: IRELAND UNITED STATES UNITED KINGDOM CANADA NORTH AMERICA EUROPE MASSACHUSETTS
INDUSTRY KEYWORD: MANUFACTURING OTHER MANUFACTURING ENERGY ENGINEERING UTILITIES
SOURCE: Watts Water Technologies, Inc
Copyright Business Wire 2022.
PUB: 11/02/2022 04:30 PM/DISC: 11/02/2022 04:32 PM
http://www.businesswire.com/news/home/20221102005750/en