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Why Is Watts Water (WTS) Down 4.4% 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 4.4% in that time frame, outperforming 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 catalysts.
Watts Water Q1 Earnings Top Estimates
Watts Water reported adjusted earnings of 1.63 per share in first-quarter 2022, which increased 31% on a year-over-year basis and beat the Zacks Consensus Estimate by 17.3%.
The company’s quarterly net sales rose 12% year over year to $463.2 million. The top line surpassed the consensus estimate by 4.4%. Organic sales increased 14% year over year.
Amid pandemic-induced supply chain woes, double-digit organic growth in all regions and increased productivity initiatives boosted Watts Water’s performance.
Segment Results
Americas: Net sales increased 15% year over year to $314 million. Organic sales rose 14% on the back of double-digit growth across all major product lines. Acquisitions contributed 1% to the segment’s top line. Adjusted operating income was up 70 bps year over year to 18.5%, driven by increased price, volume and productivity initiatives.
Europe: Net sales moved up 6% year over year to $130 million, including an unfavorable foreign exchange impact of 8%. Organic sales were up 14%, with growth in the Fluid Solutions and Drains platforms. Adjusted operating income was up 120 bps year over year to 17.1%, driven by increased price, volume and productivity initiatives.
Asia-Pacific, Middle East and Africa: Net sales increased 10% to $19.4 million. Organic sales moved up 13% from growth in all major regions. Adjusted operating margin was up 30 bps to 14.8%, benefiting from volume and productivity initiatives amid inflationary pressure.
Other Details
Gross profit increased 14.3% year over year to $198.6 million. Operating income was $71.5 million, up 20%. Selling, general and administrative expenses increased 10.8% year over year to $126.1 million in the prior-year quarter.
GAAP operating margin was up 100 bps to 15.4%. The adjusted operating margin was 15.7%, up 120 bps.
The company repurchased 293,000 shares for nearly $42.9 million during the first quarter.
Cash Flow & Liquidity
In the first quarter, Watts Water used $2 million of cash from operating activities compared with $33.9 million of cash generated in the prior-year quarter.
Free cash out flow was $7.6 million, down from $31.9 million of free cash flow reported in the previous year quarter. The downtick stemmed from the company’s decision to boost inventories in response to a solid demand environment amid protracted supply chain challenges.
As of Mar 27, 2022, the company had $226.8 million in cash and cash equivalents with $202 million of long-term debt compared with the respective tallies of $242 million and $141.9 million as of Dec 31, 2021.
Outlook
For second-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 15.1% and 15.5%, with adjusted margin growth of 20-60 bps.
For full-year 2022, Watts Water expects organic sales growth to be in the range of 3-8%. The adjusted operating margin is now estimated to be between 14.5% and 14.9%, with adjusted margin growth of between 20 bps and 60 bps. Earlier, the company had guided the adjusted operating margin to be between 14.3% and 14.7%, with adjusted margin growth of between 0 bps and 40 bps.
How Have Estimates Been Moving Since Then?
It turns out, estimates revision have trended upward during the past month.
VGM Scores
At this time, 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 4.4% 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 4.4% in that time frame, outperforming 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 catalysts.
Watts Water Q1 Earnings Top Estimates
Watts Water reported adjusted earnings of 1.63 per share in first-quarter 2022, which increased 31% on a year-over-year basis and beat the Zacks Consensus Estimate by 17.3%.
The company’s quarterly net sales rose 12% year over year to $463.2 million. The top line surpassed the consensus estimate by 4.4%. Organic sales increased 14% year over year.
Amid pandemic-induced supply chain woes, double-digit organic growth in all regions and increased productivity initiatives boosted Watts Water’s performance.
Segment Results
Americas: Net sales increased 15% year over year to $314 million. Organic sales rose 14% on the back of double-digit growth across all major product lines. Acquisitions contributed 1% to the segment’s top line. Adjusted operating income was up 70 bps year over year to 18.5%, driven by increased price, volume and productivity initiatives.
Europe: Net sales moved up 6% year over year to $130 million, including an unfavorable foreign exchange impact of 8%. Organic sales were up 14%, with growth in the Fluid Solutions and Drains platforms. Adjusted operating income was up 120 bps year over year to 17.1%, driven by increased price, volume and productivity initiatives.
Asia-Pacific, Middle East and Africa: Net sales increased 10% to $19.4 million. Organic sales moved up 13% from growth in all major regions. Adjusted operating margin was up 30 bps to 14.8%, benefiting from volume and productivity initiatives amid inflationary pressure.
Other Details
Gross profit increased 14.3% year over year to $198.6 million. Operating income was $71.5 million, up 20%. Selling, general and administrative expenses increased 10.8% year over year to $126.1 million in the prior-year quarter.
GAAP operating margin was up 100 bps to 15.4%. The adjusted operating margin was 15.7%, up 120 bps.
The company repurchased 293,000 shares for nearly $42.9 million during the first quarter.
Cash Flow & Liquidity
In the first quarter, Watts Water used $2 million of cash from operating activities compared with $33.9 million of cash generated in the prior-year quarter.
Free cash out flow was $7.6 million, down from $31.9 million of free cash flow reported in the previous year quarter. The downtick stemmed from the company’s decision to boost inventories in response to a solid demand environment amid protracted supply chain challenges.
As of Mar 27, 2022, the company had $226.8 million in cash and cash equivalents with $202 million of long-term debt compared with the respective tallies of $242 million and $141.9 million as of Dec 31, 2021.
Outlook
For second-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 15.1% and 15.5%, with adjusted margin growth of 20-60 bps.
For full-year 2022, Watts Water expects organic sales growth to be in the range of 3-8%. The adjusted operating margin is now estimated to be between 14.5% and 14.9%, with adjusted margin growth of between 20 bps and 60 bps. Earlier, the company had guided the adjusted operating margin to be between 14.3% and 14.7%, with adjusted margin growth of between 0 bps and 40 bps.
How Have Estimates Been Moving Since Then?
It turns out, estimates revision have trended upward during the past month.
VGM Scores
At this time, 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.