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Watts Water (WTS) Up 8.6% Since Last Earnings Report: Can It Continue?
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A month has gone by since the last earnings report for Watts Water (WTS - Free Report) . Shares have added about 8.6% in that time frame, outperforming the S&P 500.
Will the recent positive trend continue leading up to its next earnings release, or is Watts Water 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 Q1 Earnings & Revenues Top Estimates, View Up
Watts Water reported healthy first-quarter 2021 results, wherein both the bottom and the top lines beat the respective Zacks Consensus Estimate.
Net Income
On a reported basis, net income in the March quarter was $41.7 million or $1.23 per share compared with $32 million or 94 cents per share in the year-ago quarter. The improvement primarily resulted from higher operating income.
Adjusted net income was $41.9 million or $1.24 per share compared with $32.3 million or 95 cents per share in the prior-year quarter. Also, the bottom line beat the Zacks Consensus Estimate by 23 cents, delivering a surprise of 22.8%.
Revenues
On a reported basis, quarterly net sales grew 8% year over year to $413.3 million. The growth reflects the positive impact of the freezing weather in the South-Central United States. Also, the top line surpassed the consensus estimate of $388 million. Organic sales increased 4% year over year.
Segment Results
Americas: Net sales grew 4% year over year to $272.8 million. Organic sales increased 3%, as growth in plumbing and electronics was partially offset by lower heating and hot water and water quality product sales. Adjusted operating income improved 10.7% to $48.5 million.
Europe: Net sales increased 11.5% year over year to $122.9 million, including a positive impact of 10% from foreign exchange fluctuations. Organic sales were up 2%, as strength in the plumbing and HVAC product platforms was partially offset by softness in drains. Adjusted operating income was $19.5 million, up 42.3% year over year, driven by volume, price productivity and cost actions.
APMEA: Net sales improved 76% to $17.6 million. This includes net acquired sales of 23% and a positive foreign exchange impact of 10%. Organic sales increased 43%. Commercial valve sales in China continued to be strong during the quarter. Adjusted operating income came in at $2.6 million against a negative $0.1 million in the prior-year quarter. The improvement was driven by increased volume, both third-party and intercompany, as well as from cost actions and productivity.
Other Details
Cost of goods sold was $239.6 million compared with $219.8 million in the year-ago quarter. Gross profit improved to $173.7 million from $162.8 million. Operating income was $59.6 million, up 24.7%. GAAP operating margin was up 190 basis points (bps) to 14.4%. Adjusted operating margin was 14.5%, up 190 bps.
The company incurred $0.3 million in restructuring costs. It repurchased about 31,000 shares for $3.8 million during the quarter.
Cash Flow & Liquidity
During the first quarter of 2021, Watts Water generated $33.9 million of net cash from operations against cash utilization of $0.9 million in the year-ago quarter. Free cash flow was $31.9 million against a negative $8.4 million, driven by better working capital management, incremental profit and reduced net capital spending.
As of Mar 28, 2021, the company had $225.4 million in cash and cash equivalents with $198.6 million of long-term debt. This compares with the respective tallies of $218.9 million and $198.2 million at the end of the previous quarter.
2021 Outlook Raised
Thanks to the strong performance in the first quarter with better second-quarter expectations, the company has raised the outlook for full-year 2021. It now expects total organic revenues to increase 2% to 7%. Adjusted operating margin is anticipated to expand 30-70 bps year over year.
How Have Estimates Been Moving Since Then?
It turns out, estimates review have trended upward during the past month. The consensus estimate has shifted 36.92% due to these changes.
VGM Scores
Currently, Watts Water has a nice Growth Score of B, a grade with the same score on the momentum front. However, the stock was allocated a grade of D on the value side, putting it in the bottom 40% 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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Watts Water (WTS) Up 8.6% Since Last Earnings Report: Can It Continue?
A month has gone by since the last earnings report for Watts Water (WTS - Free Report) . Shares have added about 8.6% in that time frame, outperforming the S&P 500.
Will the recent positive trend continue leading up to its next earnings release, or is Watts Water 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 Q1 Earnings & Revenues Top Estimates, View Up
Watts Water reported healthy first-quarter 2021 results, wherein both the bottom and the top lines beat the respective Zacks Consensus Estimate.
Net Income
On a reported basis, net income in the March quarter was $41.7 million or $1.23 per share compared with $32 million or 94 cents per share in the year-ago quarter. The improvement primarily resulted from higher operating income.
Adjusted net income was $41.9 million or $1.24 per share compared with $32.3 million or 95 cents per share in the prior-year quarter. Also, the bottom line beat the Zacks Consensus Estimate by 23 cents, delivering a surprise of 22.8%.
Revenues
On a reported basis, quarterly net sales grew 8% year over year to $413.3 million. The growth reflects the positive impact of the freezing weather in the South-Central United States. Also, the top line surpassed the consensus estimate of $388 million. Organic sales increased 4% year over year.
Segment Results
Americas: Net sales grew 4% year over year to $272.8 million. Organic sales increased 3%, as growth in plumbing and electronics was partially offset by lower heating and hot water and water quality product sales. Adjusted operating income improved 10.7% to $48.5 million.
Europe: Net sales increased 11.5% year over year to $122.9 million, including a positive impact of 10% from foreign exchange fluctuations. Organic sales were up 2%, as strength in the plumbing and HVAC product platforms was partially offset by softness in drains. Adjusted operating income was $19.5 million, up 42.3% year over year, driven by volume, price productivity and cost actions.
APMEA: Net sales improved 76% to $17.6 million. This includes net acquired sales of 23% and a positive foreign exchange impact of 10%. Organic sales increased 43%. Commercial valve sales in China continued to be strong during the quarter. Adjusted operating income came in at $2.6 million against a negative $0.1 million in the prior-year quarter. The improvement was driven by increased volume, both third-party and intercompany, as well as from cost actions and productivity.
Other Details
Cost of goods sold was $239.6 million compared with $219.8 million in the year-ago quarter. Gross profit improved to $173.7 million from $162.8 million. Operating income was $59.6 million, up 24.7%. GAAP operating margin was up 190 basis points (bps) to 14.4%. Adjusted operating margin was 14.5%, up 190 bps.
The company incurred $0.3 million in restructuring costs. It repurchased about 31,000 shares for $3.8 million during the quarter.
Cash Flow & Liquidity
During the first quarter of 2021, Watts Water generated $33.9 million of net cash from operations against cash utilization of $0.9 million in the year-ago quarter. Free cash flow was $31.9 million against a negative $8.4 million, driven by better working capital management, incremental profit and reduced net capital spending.
As of Mar 28, 2021, the company had $225.4 million in cash and cash equivalents with $198.6 million of long-term debt. This compares with the respective tallies of $218.9 million and $198.2 million at the end of the previous quarter.
2021 Outlook Raised
Thanks to the strong performance in the first quarter with better second-quarter expectations, the company has raised the outlook for full-year 2021. It now expects total organic revenues to increase 2% to 7%. Adjusted operating margin is anticipated to expand 30-70 bps year over year.
How Have Estimates Been Moving Since Then?
It turns out, estimates review have trended upward during the past month. The consensus estimate has shifted 36.92% due to these changes.
VGM Scores
Currently, Watts Water has a nice Growth Score of B, a grade with the same score on the momentum front. However, the stock was allocated a grade of D on the value side, putting it in the bottom 40% 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.