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Why Is Watts Water (WTS) Down 5.8% Since Last Earnings Report?
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It has been about a month since the last earnings report for Watts Water (WTS - Free Report) . Shares have lost about 5.8% in that time frame, underperforming the S&P 500.
Will the recent negative trend continue leading up to its next earnings release, or is Watts Water due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important drivers.
Watts Water Q2 Earnings Top Estimates
Watts Water reported adjusted earnings of 2.11 per share in second-quarter 2022, increasing 43% on a year-over-year basis and beating the Zacks Consensus Estimate by 29.5%.
The company’s quarterly net sales rose 13% year over year to $527 million. The top line surpassed the consensus estimate by 7.8%. Organic sales increased 16% year over year.
Amid pandemic-induced supply chain woes, double-digit organic growth in the Americas and synergies from acquisitions boosted Watts Water’s performance. However, unfavorable forex translations affected sales by $18 million.
Segment Results
Americas: Net sales increased 22% year over year to $376 million. Organic sales also rose 22% on double-digit growth across all major product lines. Adjusted operating income was up 510 basis points (bps) year over year to 22.8%, driven by increased price, volume and productivity initiatives.
Europe: Net sales were down 7% year over year to $128 million, including an unfavorable foreign exchange impact of 12% and exit from Russia. Organic sales were up 5%, with growth in the Fluid Solutions and Drains platforms. Adjusted operating income was down 80 bps year over year to 16.3%, owing to lower volume and inflationary impact.
Asia-Pacific, Middle East and Africa: Net sales decreased 1% to $23 million. Organic sales moved up 3% from growth in China and Australia. The unfavorable foreign exchange impact was 4%. Adjusted operating margin was down 220 bps to 15.7%, affected by lower volume and inflationary pressure.
Other Details
Gross profit increased 20% year over year to $239.2 million. Selling, general and administrative expenses decreased 9% year over year to $141.6 million in the prior-year quarter. Operating income was $95.9 million, up 82%.
GAAP operating margin was up 690 bps to 18.2%. The adjusted operating margin was 18.5%, up 360 bps.
Cash Flow & Liquidity
For six months ended Jun 26, 2022, Watts Water generated $44.9 million of cash from operating activities compared with $73.2 million cash generated in the prior-year quarter.
Free cash flow was $33 million, down from $65 million of free cash flow reported in the prio year’s quarter. The downtick stemmed from the company’s decision to boost inventories in response to a solid demand environment amid protracted supply chain challenges.
The company repurchased 140,000 shares for $18.2 million in the second quarter. For the first six months of 2022, the company repurchased 434,000 shares worth $61 million.
As of Jun 26, 2022, the company had $230 million in cash and cash equivalents with $202.2 million of long-term debt compared with the respective tallies of $226.8 million and $202 million as of Mar 27, 2022.
Outlook
For third-quarter 2022, the company expects organic sales growth to be in the range of 5-10%. The adjusted operating margin is estimated to rise between 14.5% and 15%, with adjusted margin growth of 10-60 bps.
For full-year 2022, Watts Water expects organic sales growth to be in the range of 8-11% compared with the earlier range of 3-8%. The adjusted operating margin is now estimated to be between 15.4% and 15.9%, with adjusted margin growth of between 110 bps and 160 bps. Earlier, the company had guided the adjusted operating margin to be between 14.5% and 14.9%, with adjusted margin growth of between 20 bps and 60 bps.
How Have Estimates Been Moving Since Then?
It turns out, fresh estimates have trended upward during the past month.
The consensus estimate has shifted 5.63% due to these changes.
VGM Scores
Currently, Watts Water has an average Growth Score of C, though it is lagging a bit on the Momentum Score front with a D. 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.
Outlook
Estimates have been trending upward for the stock, and the magnitude of these revisions looks promising. It comes with little surprise Watts Water has a Zacks Rank #2 (Buy). We expect an above average return from the stock in the next few months.
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Why Is Watts Water (WTS) Down 5.8% Since Last Earnings Report?
It has been about a month since the last earnings report for Watts Water (WTS - Free Report) . Shares have lost about 5.8% in that time frame, underperforming the S&P 500.
Will the recent negative trend continue leading up to its next earnings release, or is Watts Water due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important drivers.
Watts Water Q2 Earnings Top Estimates
Watts Water reported adjusted earnings of 2.11 per share in second-quarter 2022, increasing 43% on a year-over-year basis and beating the Zacks Consensus Estimate by 29.5%.
The company’s quarterly net sales rose 13% year over year to $527 million. The top line surpassed the consensus estimate by 7.8%. Organic sales increased 16% year over year.
Amid pandemic-induced supply chain woes, double-digit organic growth in the Americas and synergies from acquisitions boosted Watts Water’s performance. However, unfavorable forex translations affected sales by $18 million.
Segment Results
Americas: Net sales increased 22% year over year to $376 million. Organic sales also rose 22% on double-digit growth across all major product lines. Adjusted operating income was up 510 basis points (bps) year over year to 22.8%, driven by increased price, volume and productivity initiatives.
Europe: Net sales were down 7% year over year to $128 million, including an unfavorable foreign exchange impact of 12% and exit from Russia. Organic sales were up 5%, with growth in the Fluid Solutions and Drains platforms. Adjusted operating income was down 80 bps year over year to 16.3%, owing to lower volume and inflationary impact.
Asia-Pacific, Middle East and Africa: Net sales decreased 1% to $23 million. Organic sales moved up 3% from growth in China and Australia. The unfavorable foreign exchange impact was 4%. Adjusted operating margin was down 220 bps to 15.7%, affected by lower volume and inflationary pressure.
Other Details
Gross profit increased 20% year over year to $239.2 million. Selling, general and administrative expenses decreased 9% year over year to $141.6 million in the prior-year quarter. Operating income was $95.9 million, up 82%.
GAAP operating margin was up 690 bps to 18.2%. The adjusted operating margin was 18.5%, up 360 bps.
Cash Flow & Liquidity
For six months ended Jun 26, 2022, Watts Water generated $44.9 million of cash from operating activities compared with $73.2 million cash generated in the prior-year quarter.
Free cash flow was $33 million, down from $65 million of free cash flow reported in the prio year’s quarter. The downtick stemmed from the company’s decision to boost inventories in response to a solid demand environment amid protracted supply chain challenges.
The company repurchased 140,000 shares for $18.2 million in the second quarter. For the first six months of 2022, the company repurchased 434,000 shares worth $61 million.
As of Jun 26, 2022, the company had $230 million in cash and cash equivalents with $202.2 million of long-term debt compared with the respective tallies of $226.8 million and $202 million as of Mar 27, 2022.
Outlook
For third-quarter 2022, the company expects organic sales growth to be in the range of 5-10%. The adjusted operating margin is estimated to rise between 14.5% and 15%, with adjusted margin growth of 10-60 bps.
For full-year 2022, Watts Water expects organic sales growth to be in the range of 8-11% compared with the earlier range of 3-8%. The adjusted operating margin is now estimated to be between 15.4% and 15.9%, with adjusted margin growth of between 110 bps and 160 bps. Earlier, the company had guided the adjusted operating margin to be between 14.5% and 14.9%, with adjusted margin growth of between 20 bps and 60 bps.
How Have Estimates Been Moving Since Then?
It turns out, fresh estimates have trended upward during the past month.
The consensus estimate has shifted 5.63% due to these changes.
VGM Scores
Currently, Watts Water has an average Growth Score of C, though it is lagging a bit on the Momentum Score front with a D. 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.
Outlook
Estimates have been trending upward for the stock, and the magnitude of these revisions looks promising. It comes with little surprise Watts Water has a Zacks Rank #2 (Buy). We expect an above average return from the stock in the next few months.