It has been about a month since the last earnings report for Watts Water Technologies, Inc. (WTS - Free Report) . Shares have added about 3.9% in that time frame.
Will the recent positive trend continue leading up to its next earnings release, or is WTS due for a pullback? 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 Q1 Earnings & Sales Top on Solid Volume
Watts Water Technologies delivered first-quarter 2018 adjusted earnings of 82 cents per share, up 26% year over year. This improvement was driven by strong volume, productivity, a lower tax rate and favorable foreign exchange. Earnings also surpassed the Zacks Consensus Estimate of 79 cents.
On a reported basis, Watts Water’s earnings per share improved 30% to 82 cents in the first quarter compared to 63 cents posted in the year-ago quarter. Notably, prior-year quarter includes acquisition, restructuring and transformation costs while reported quarter does not have any such adjustments.
Total revenues were up 9% year over year to $379 million in the first quarter, on the back of solid productivity initiatives. It beat the Zacks Consensus Estimate of $363 million. Organic sales were up 3% year over year.
Regionally, organic sales improved 5% in the Americas, driven by growth in plumbing, drains, boiler and water quality products. Organic sales growth increased 2% in Europe owing to continued strength in drains business. APMEA’s organic sales went up 3%.
Cost and Margins
Cost of sales went up 9% year over year to $222 million. Gross profit increased 9% year over year to $157 million. Gross margin in the reported quarter remained flat year over year at 41%. Selling, general and administrative expenses flared up to $112.8 million from $107.6 million posted in the prior-year quarter. Adjusted operating profit jumped 21% to $43.9 million in the reported quarter.
Americas: Net sales increased 5% to $241 million in the reported quarter. Adjusted operating profit increased 8% to $36.4 million.
Europe: Net sales were up 17% year over year to $123 million. The segment reported adjusted operating profit of $14.9 million compared with $12.6 million recorded in the year-ago quarter.
APMEA: Net sales went up 5.9% year over year to $14 million. Adjusted operating profit jumped 40% year over year to $1.4 million.
Watts Water reported cash and cash equivalents of $185 million at the end of the first quarter, down from $280 million recorded at the end of 2017. The company used $26 million of cash in operating activities during the quarter compared with cash usage of $9 million posted in the prior-year period.
Net debt was at $261.9 million as of Apr 1, 2018, up from $216.9 million as of Dec 31, 2017. Consequently, the net debt-to-capitalization ratio increased to 23.4% as of Apr 1, 2018 from 20.7% as of Dec 31, 2017. The company repurchased around 80,000 shares of Class A common stock for $6.2 million during the first quarter.
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed an upward trend in fresh estimates. There have been five revisions higher for the current quarter compared to one lower.
At this time, WTS has a subpar Growth Score of D. Its Momentum is doing a lot better with an A. However, the stock was also 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 D. If you aren't focused on one strategy, this score is the one you should be interested in.
The company's stock is suitable solely for momentum based on our styles scores.
Estimates have been broadly trending upward for the stock and the magnitude of these revisions looks promising. Notably, WTS has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.