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Yahoo
2 days ago
- Business
- Yahoo
WTS Q1 Earnings Call: Tariffs, Supply Chain Strategy, and Cautious Outlook Shape Results
Water management manufacturer Watts Water (NYSE:WTS) reported revenue ahead of Wall Street's expectations in Q1 CY2025, but sales fell by 2.3% year on year to $558 million. Its non-GAAP profit of $2.37 per share was 11.3% above analysts' consensus estimates. Is now the time to buy WTS? Find out in our full research report (it's free). Revenue: $558 million vs analyst estimates of $547.8 million (2.3% year-on-year decline, 1.9% beat) Adjusted EPS: $2.37 vs analyst estimates of $2.13 (11.3% beat) Adjusted EBITDA: $119.8 million vs analyst estimates of $110.1 million (21.5% margin, 8.8% beat) Operating Margin: 15.7%, down from 16.9% in the same quarter last year Organic Revenue fell 2.1% year on year (6.4% in the same quarter last year) Market Capitalization: $8.17 billion Watts Water's first quarter results were shaped by the impact of tariffs, ongoing supply chain adjustments, and weakness in European markets. CEO Bob Pagano attributed the 2% organic sales decline primarily to fewer shipping days and ongoing challenges in Europe, while highlighting incremental contributions from the I-CON acquisition. The company also benefited from productivity measures and cost controls that offset inflationary pressures. Pagano noted, 'We benefited from incremental sales from our I-CON acquisition. However, the benefit was more than offset by unfavorable foreign exchange.' The quarter also saw Watts Water continue automation and restructuring actions, including the exit from a French manufacturing facility, to drive further productivity. Looking ahead, Watts Water's guidance reflects caution around macroeconomic uncertainty, especially regarding tariffs and their impact on global demand. Management expects price increases, global sourcing actions, and accelerated onshoring of production to mitigate additional tariff costs and potential demand reduction later in the year. CEO Bob Pagano explained, 'Despite the uncertainty around the trade environment and resulting demand impacts, we are maintaining our full year organic sales and adjusted operating margin outlook.' The company anticipates ongoing softness in Europe due to continued heat pump destocking and construction market weakness, with some signs of recovery potentially emerging in the second half. Management is focused on leveraging its U.S. manufacturing base and maintaining flexibility in capital allocation to support growth opportunities. Management identified tariffs, supply chain adjustments, and regional demand trends as key drivers of the quarter's performance and outlook. Tariff management and pricing: Watts Water is proactively addressing tariff impacts through price increases, supply chain relocation, and increased U.S. manufacturing. Management emphasized its ongoing strategy of "making products in the regions for the region" to reduce exposure to tariffs, particularly those affecting components sourced from China. Productivity and cost controls: The company continues to implement automation, lean initiatives, and selective restructuring. The exit from a French facility and integration of recent acquisitions are expected to enhance productivity and reduce operational costs, supporting margins even as sales volumes face headwinds. Regional performance differences: Americas performance was described as solid, helped by U.S.-based manufacturing and pre-buying ahead of tariff-related price increases. Europe remained weak due to destocking in heat pumps and a slowdown in construction, while APMEA (Asia-Pacific, Middle East, and Africa) showed growth, partly offset by fewer shipping days in some markets. Acquisition integration: The integration of recent acquisitions, especially I-CON, is progressing ahead of schedule, with cost and revenue synergies already being realized. Management expects these businesses to contribute positively to adjusted EBITDA margins and earnings per share in 2025. Inventory and supply chain resilience: Watts Water maintains approximately three months of inventory and has secured sufficient raw material supplies, mitigating risks from supply chain disruptions and raw material shortages. Management noted ongoing efforts to diversify suppliers and maintain flexibility in the current trade environment. Watts Water's outlook for the remainder of the year is shaped by tariff impacts, regional demand softness, and its ability to offset cost pressures through operational measures. Tariff and trade environment: Management expects tariffs to remain a headwind, particularly for products with components sourced from China. The company is relying on price increases, supply chain shifts, and onshoring to offset these costs. CEO Bob Pagano cautioned that prolonged high tariffs could impact demand, especially in the second half of the year. European market challenges: The company forecasts continued weakness in Europe due to new construction slowdowns and ongoing heat pump destocking. While there are some indications that demand could stabilize later in the year, management remains cautious and has built conservative assumptions into its guidance. Capital allocation and productivity: Watts Water plans to maintain capital allocation flexibility, including a recently announced 21% dividend increase. Continued investment in automation, lean initiatives, and restructuring—such as the French facility exit—are central to its strategy for protecting margins and supporting long-term growth. In the coming quarters, the StockStory team will be monitoring (1) the effectiveness of Watts Water's tariff mitigation strategies and supply chain adjustments, (2) trends in European demand, particularly any recovery in the construction and heat pump markets, and (3) the continued integration and performance of acquisitions like I-CON. Progress on cost controls, price realization, and capital allocation decisions will also be notable signposts for sustained profitability. Watts Water Technologies currently trades at a forward P/E ratio of 26.4×. Is the company at an inflection point that warrants a buy or sell? The answer lies in our full research report (it's free). Donald Trump's victory in the 2024 U.S. Presidential Election sent major indices to all-time highs, but stocks have retraced as investors debate the health of the economy and the potential impact of tariffs. While this leaves much uncertainty around 2025, a few companies are poised for long-term gains regardless of the political or macroeconomic climate, like our Top 5 Growth Stocks for this month. This is a curated list of our High Quality stocks that have generated a market-beating return of 183% over the last five years (as of March 31st 2025). Stocks that made our list in 2020 include now familiar names such as Nvidia (+1,545% between March 2020 and March 2025) as well as under-the-radar businesses like the once-micro-cap company Tecnoglass (+1,754% five-year return). Find your next big winner with StockStory today. Error in retrieving data Sign in to access your portfolio Error in retrieving data Error in retrieving data Error in retrieving data Error in retrieving data
Business Wire
07-05-2025
- Business
- Business Wire
Watts Water Technologies Reports First Quarter 2025 Results
NORTH ANDOVER, Mass.--(BUSINESS WIRE)--Watts Water Technologies, Inc. (NYSE: WTS) – through its subsidiaries, one of the world's leading manufacturers and providers of plumbing, heating and water quality products and solutions – today announced results for the first quarter of 2025. Chief Executive Officer Robert J. Pagano Jr. said, 'We had a solid start to the year with our first quarter results exceeding expectations as we achieved record adjusted operating income, adjusted operating margin and adjusted EPS. (1) I would like to thank our dedicated employees who continued to execute well against a challenging backdrop.' Mr. Pagano continued, 'We are proactively responding to the dynamic trade environment by leveraging our global sourcing strategy, driving incremental productivity within our operations and implementing appropriate pricing actions. We expect that our strategic vertical integration, with manufacturing close to our customers, will continue to be an advantage for us. We have a proven track record of successfully navigating inflation and supply chain challenges and we are confident in our ability to continue delivering on commitments to stakeholders. Given the macro uncertainty, we are maintaining our full year 2025 organic sales and adjusted operating margin outlook. (1) Our balance sheet remains strong, and our solid cash flow generation should continue to support our capital allocation priorities as we create sustainable long-term value.' A summary of first quarter financial results is as follows: ___________________________ (1) Expand First Quarter Financial Highlights First quarter 2025 performance relative to first quarter 2024 Sales of $558 million decreased 2% on a reported and organic basis. Incremental acquisition sales within the Americas were $5 million and contributed 1% to reported growth. Organic sales declined due to fewer shipping days across all regions, which drove an approximate 3% decline, as well as continuing market weakness and destocking in Europe. Unfavorable foreign exchange movements decreased sales by $6 million, or 1%. Operating margin decreased 120 basis points on a reported basis and increased 80 basis points on an adjusted basis. Operating margin was unfavorably impacted by the increase in restructuring charges, partially offset by a reduction in acquisition-related charges. Adjusted operating margin increased primarily due to favorable price, productivity and cost actions which more than offset volume deleverage from fewer shipping days, weakness in Europe and inflation. Regional Performance Americas Sales of $418 million were flat on a reported basis and declined 1% on an organic basis, primarily due to fewer shipping days, which drove an approximate 3% decline that more than offset price realization. The acquisition of I-CON contributed $5 million of incremental sales, or 1% to reported growth. Segment margin increased 130 basis points as benefits from price realization, productivity and cost actions more than offset inflation and volume deleverage. Europe Sales of $108 million decreased 12% on a reported and 9% on an organic basis. Sales declined as a result of lower volumes due to fewer shipping days and continued heat pump and wholesale channel destocking. Unfavorable foreign exchange movements decreased reported sales by 3%. Segment margin decreased 180 basis points as volume deleverage and inflation more than offset benefits from price and productivity. APMEA Sales of $32 million increased 9% on a reported basis and 13% on an organic basis. Sales increased due to growth in China, Australia and the Middle East, which was partly offset by a decline in New Zealand, primarily driven by fewer shipping days. Unfavorable foreign exchange movements decreased sales by 4%. Segment margin decreased 70 basis points as benefits from higher sales and productivity were more than offset by inflation and sales mix. Cash Flow and Capital Allocation For the first quarter of 2025, operating cash flow was $55.2 million and net capital expenditures were $9.6 million, resulting in free cash flow of $45.6 million. In the comparable period last year, operating cash flow was $45.6 million and net capital expenditures were $9.0 million, resulting in free cash flow of $36.6 million. Operating and free cash flow increased primarily due to lower income tax payments. Sequential improvement in operating and free cash flow is expected throughout 2025 due to normal seasonality. On May 5, 2025, the Company announced a 21% increase in quarterly dividend payments, increasing the quarterly payments from $0.43 cents per share to $0.52 cents per share beginning in June 2025. The Company repurchased approximately 19,000 shares of Class A common stock at a cost of $3.9 million during the first quarter of 2025. Approximately $141 million remains available under the stock repurchase program authorized in 2023. There is no expiration date for this program. Full Year 2025 Outlook The Company is maintaining its previous full year organic sales and midpoint of adjusted operating margin outlook. Reported sales are expected to range between -2% to +3% and organic sales to range from -3% to +2%. Full year operating margin is expected to be between 16.7% and 17.3%, or down 60 basis points to flat, and adjusted operating margin is expected to be between 17.7% and 18.3%, or flat to up 60 basis points. The full year outlook incorporates estimated tariff impact and actions as of May 7, 2025. Further 2025 planning assumptions are included in the first quarter earnings materials posted in the Investor Relations section of our website at 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 first quarter 2025 results on Thursday, May 8, 2025 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 Following the webcast, the call recording will be available at the same address until May 7, 2026. The Company's 2025 Annual Meeting of Stockholders will be held at 9:00 a.m. EDT on Wednesday, May 21, 2025 at the Company's executive offices located at 815 Chestnut Street, North Andover, Massachusetts. 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 2025 financial results, including organic sales growth and adjusted operating margin, future dividends, our strategy, investments, the benefits from recent acquisitions, improvements in operating and free cash flow throughout 2025, our ability to manage geo-political uncertainty and current market conditions and return of capital to stockholders. 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 imposition of or changes to tariff rates and related impacts to our business and the broader market; the effectiveness, timing and expected savings associated with our cost-cutting actions, restructuring and initiatives; integration of acquired businesses in a timely and cost-effective manner, retention of supplier and customer relationships and key employees, and the ability to achieve synergies and cost savings in the amounts and within the time frames currently anticipated; 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 and costs; changes in the status of current litigation; the war in Ukraine and other global crises; 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 16 of the Notes to the Consolidated Financial Statements in our Annual Report on Form 10-K for the year ended December 31, 2024, filed with the Securities and Exchange Commission ('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 BALANCE SHEETS (Amounts in millions, except share information) (Unaudited) March 30, 2025 2024 ASSETS CURRENT ASSETS: Cash and cash equivalents $ 336.8 $ 386.9 Trade accounts receivable, less reserve allowances of $12.5 million at March 30, 2025 and $11.9 million at December 31, 2024 301.1 253.2 Inventories, net: Raw materials 150.4 141.9 Work in process 20.1 16.9 Finished goods 248.6 233.3 Total Inventories 419.1 392.1 Prepaid expenses and other current assets 50.5 51.3 Total Current Assets 1,107.5 1,083.5 PROPERTY, PLANT AND EQUIPMENT: Property, plant and equipment, at cost 713.0 691.6 Accumulated depreciation (455.4) (436.8) Property, plant and equipment, net 257.6 254.8 OTHER ASSETS: Goodwill 760.5 715.0 Intangible assets, net 251.6 235.0 Deferred income taxes 38.9 36.4 Other, net 84.6 72.3 TOTAL ASSETS $ 2,500.7 $ 2,397.0 LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES: Accounts payable $ 158.2 $ 148.0 Accrued expenses and other liabilities 229.2 190.8 Accrued compensation and benefits 62.1 79.1 Total Current Liabilities 449.5 417.9 LONG-TERM DEBT 197.2 197.0 DEFERRED INCOME TAXES 10.9 10.9 OTHER NONCURRENT LIABILITIES 70.9 63.3 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, 27,428,385 shares at March 30, 2025 and 27,366,685 shares at December 31, 2024 2.7 2.7 Class B common stock, $0.10 par value; 25,000,000 shares authorized; 10 votes per share; issued and outstanding, 5,953,290 shares at March 30, 2025 and December 31, 2024 0.6 0.6 Additional paid-in capital 702.0 696.2 Retained earnings 1,229.6 1,184.8 Accumulated other comprehensive loss (162.7) (176.4) Total Stockholders' Equity 1,772.2 1,707.9 TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 2,500.7 $ 2,397.0 Expand WATTS WATER TECHNOLOGIES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (Amounts in millions) (Unaudited) Segment Earnings and Non-GAAP Financial Measures In this press release, segment earnings is our GAAP performance measure used by our chief operating decision-maker ('CODM') to assess and evaluate segment results. Segment earnings exclude the impact of non-recurring and unusual items, such as restructuring costs, acquisition-related costs and gain or loss on sale of assets. The CODM uses segment earnings for insight into underlying trends comparing past financial performance with current performance by reporting segment on a consistent basis. Segment margin is defined as segment earnings divided by segment revenue. We refer to non-GAAP financial measures (including adjusted operating income, adjusted operating margin, adjusted net income, adjusted diluted earnings per share, organic sales, organic sales growth, 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 these financial measures enhance the overall understanding of our historical financial performance and give insight into our future prospects. Adjusted operating income, adjusted operating margin, adjusted net income and adjusted diluted earnings per share eliminate certain expenses incurred and benefits recognized in the periods presented that relate primarily to our global restructuring programs, acquisition-related costs, gain or loss on sale of assets and the related income tax impacts on these items and tax adjustment 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 and organic sales growth are non-GAAP measures of sales and sales growth excluding the impacts of foreign exchange, acquisitions and divestitures from period-over-period comparisons. Management believes reporting organic sales and 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 and 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. March 30, March 31, 2025 2024 Net sales $ 558.0 $ 570.9 Operating income $ 87.7 $ 96.7 Operating margin % 15.7 % 16.9 % Adjustments for special items: Restructuring $ 17.3 $ 1.2 Acquisition-related costs 1.1 7.0 Gain on sale of asset — (1.1) Total adjustments for special items $ 18.4 $ 7.1 Adjusted operating income $ 106.1 $ 103.8 Adjusted operating margin % 19.0 % 18.2 % Net income $ 74.0 $ 72.6 Adjustments for special items - tax effected: Restructuring $ 13.0 $ 0.9 Acquisition-related costs 0.8 5.2 Gain on sale of asset — (0.8) Tax adjustment items (8.3) — Total adjustments for special items - tax effected $ 5.5 $ 5.3 Adjusted net income $ 79.5 $ 77.9 Diluted earnings per share $ 2.21 $ 2.17 Restructuring 0.39 0.03 Acquisition-related costs 0.02 0.15 Gain on sale of asset — (0.02) Tax adjustment items (0.25) — Adjusted diluted earnings per share $ 2.37 $ 2.33 Expand TABLE 2 SEGMENT INFORMATION - RECONCILIATION OF SEGMENT EARNINGS TO CONSOLIDATED OPERATING INCOME - GAAP (Amounts in millions) (Unaudited) TABLE 3 SEGMENT INFORMATION - RECONCILIATION OF NET SALES TO NON-GAAP ORGANIC SALES (Amounts in millions) (Unaudited) First Quarter Ended Americas Europe APMEA Total Net sales March 30, 2025 $ 418.1 $ 108.4 $ 31.5 $ 558.0 Net sales March 31, 2024 418.8 123.3 28.8 570.9 Dollar change $ (0.7) $ (14.9) $ 2.7 $ (12.9) Net sales % (decrease) increase (0.2) % (12.1) % 9.4 % (2.3) % Foreign exchange impact 0.3 % 2.9 % 3.8 % 1.1 % Acquisition impact (1.2) % — % — % (0.9) % Organic sales (decrease) increase (1.1) % (9.2) % 13.2 % (2.1) % Expand TABLE 4 (Amounts in millions) (Unaudited) TABLE 5 RECONCILIATION OF LONG-TERM DEBT (INCLUDING CURRENT PORTION) TO NET DEBT AND NET DEBT TO CAPITALIZATION RATIO (Amounts in millions) (Unaudited) TABLE 6 2025 FULL YEAR OUTLOOK – RECONCILIATION OF NET SALES GROWTH TO ORGANIC SALES GROWTH AND OPERATING MARGIN TO ADJUSTED OPERATING MARGIN (Unaudited)
