Watts Water (WTS) Fourth Quarter Earnings Best Estimates, Revenue Up Year-over-Year – February 10, 2022

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Watts Water Technologies, Inc. (WTS Free Report) released impressive results in the fourth quarter of 2021, in which net income and top income exceeded their respective Zacks consensus estimate.

Amid pandemic-induced supply chain challenges, double-digit growth across all regions, along with increased productivity initiatives and the economic recovery drove Watts Water’s performance. The company focuses on developing new products while enhancing productivity to fund long-term investments. Its robust operating teams have continued to meet the needs of its customers despite the challenges of market demand.

Net revenue

On a reported basis, net income for the quarter was $40.1 million or $1.18 per share, compared to $29.2 million or 86 cents per share in the year-ago quarter. The improvement is mainly due to the year-over-year revenue expansion.

Adjusted net income was $48 million or $1.42 per share, compared to $38.9 million or $1.15 per share in the prior year quarter. The net result beat Zacks’ consensus estimate by 8 cents, delivering a surprise 6%.

In 2021, net income on a reported basis was $165.7 million or $4.88 per share, compared to $114.3 million or $3.36 per share in 2020. Adjusted net income for the year was $187 million or $5.52 per share, down from $132 million or $3.88 per share. in 2020.

Watts Water Technologies, Inc. Price, Consensus, and EPS Surprise

Revenue

On a reported basis, quarterly net sales increased 17.5% year-over-year to $473.9 million, driven by double-digit growth across all regions. Revenue exceeded the consensus estimate of $453 million. Organic sales increased 18% year over year.

In 2021, net sales totaled $1,809.2 million, compared to $1,508.6 million in 2020. Organic sales for the full year increased by 17%.

Sector results

Americas: Net sales increased 20.4% year over year to $318.3 million. Organic sales increased by 19% thanks to broad-based growth across all major product lines. Favorable currency movements and acquisitions combined for 1%. Adjusted operating profit improved 12.9% to $51.8 million. However, adjusted operating margin decreased by 110 basis points (bps) to 16.3% as the benefits of price, volume, cost reduction measures and productivity initiatives were offset by inflation, additional growth investments, incentives and business standardization costs.

Europe: Net sales increased 11.4% year over year to $133.6 million, including an unfavorable foreign exchange impact of 4%. Organic sales increased 15%, with growth on both the Fluid Solutions and Drains platforms. Adjusted operating profit was $21 million, up 25% year-over-year, driven by increased pricing, volume and productivity initiatives.

Asia-Pacific, Middle East and Africa: Net sales increased 15.2% to $22 million, of which 2% was due to the positive currency impact. Organic sales increased 13% on growth in all major regions. Adjusted operating income was $3.7 million, compared to $3.4 million in the prior year quarter, benefiting from volume, productivity initiatives and higher intercompany volume.

Other details

Cost of goods sold increased to $274.6 million from $234.2 million in the prior year quarter. Gross profit increased from $169.2 million to $199.3 million. Operating profit was $62.6 million, up 15.1%. GAAP operating margin decreased by 30 basis points to 13.2%. Adjusted operating margin was 13.4%, down 20 basis points.

The company repurchased nearly 23,000 shares for about $4.2 million during the fourth quarter. In 2021, it repurchased nearly 110,000 shares for $16 million to offset dilution from its stock compensation programs.

Cash flow and liquidity

In 2021, Watts Water generated $180.8 million in cash from operating activities, compared to $228.8 million a year ago. Free cash flow during the same period totaled $159.2 million, down from $187.2 million. The year-over-year decrease is primarily attributable to a proactive decision to increase inventory in response to strong market demand amid continued supply chain challenges. However, it was partially offset by lower capital expenditures.

As of December 31, 2021, the company had $242 million in cash and cash equivalents with $141.9 million in long-term debt, compared to counts of $218.9 million and $198.2 million, respectively. for the period of the previous year.

Outlook

Watts Water has released the financial outlook for the first quarter of 2022 and full year 2022.

For the first quarter of 2022, the company expects organic sales growth in the range of 5-10%. Adjusted operating margin should increase between 14% and 14.5%, with adjusted margin growth stable at -50 basis points.

For the full year 2022, Watts Water expects organic sales growth of between 3% and 8%. Adjusted operating margin is expected to increase between 14.3% and 14.7%, with adjusted margin growth between 0 and 40 basis points.

Zacks Ranking and Stocks to Consider

Watts Water currently has a Zacks rank of #3 (Hold).

Some top-ranked stocks in the broader industry are Allied Motion Technologies Inc. (AMOT free report), Badger Meter, Inc. (BMI free report) and Progress Software Corporation (PRGS Free Report), each sporting a Zacks Rank #1 (Strong Buy). You can see the full list of today’s Zacks #1 Rank stocks here.

Zacks’ consensus estimate for Allied Motion’s earnings for next year has been revised up 10.1% in the past 60 days.

Allied Motion recorded a four-quarter earnings surprise of 46.2% on average. It returned 12.7% last year. AMOT forecasts long-term earnings growth of 10%.

The Zacks consensus estimate for current-year earnings from Badger Meter has been revised up 9.5% in the past 60 days.

Badger Meter recorded a four-quarter earnings surprise of 14% on average. The stock has lost 2.8% over the past year.

Zacks’ consensus estimate for Progress Software’s earnings for the current year has been revised up 1.5% over the past 60 days.

Progress Software recorded a four-quarter earnings surprise of 26.8% on average. The stock has gained 6.2% over the past year. PRGS forecasts long-term earnings growth of 2%.

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