Watts Water Technologies, Inc. (WTS - Free Report) reported healthy fourth-quarter 2019 results, wherein the bottom line and the top line surpassed the respective Zacks Consensus Estimate. The North Andover, MA-based company achieved its goals for 2019 to drive organic sales growth and margin expansion, and continued to reinvest in future growth, especially in its smart and connected products.
On a reported basis, quarterly net income was $31.8 million or 93 cents per share compared with $32.3 million or 94 cents per share in the year-ago quarter. Better operating performances in all regions and lower net interest costs was more than offset by increased restructuring and other costs.
For 2019, net income was $131.5 million or $3.85 per share compared with $128 million or $3.73 per share in 2018. The improvement was backed by solid operating performance in the Americas and lower net interest costs, partly offset by restructuring and other costs and reduced foreign currency gains.
Fourth-quarter adjusted net income came in at $34.2 million or $1 per share compared with $30.1 million or 88 cents per share in the year-ago quarter. The bottom line surpassed the Zacks Consensus Estimate by 2 cents.
Watts Water Technologies, Inc. Price, Consensus and EPS Surprise
On a reported basis, quarterly net sales increased 3.3% year over year to $400.3 million, driven by organic growth in all regions. The top line surpassed the Zacks Consensus Estimate of $397 million. For 2019, net sales improved 2.3% year over year to $1,600.5 million.
Organic sales grew 4% year over year. Regionally, organic sales in the Americas increased 4%, led by growth in plumbing, drains, electronics, water quality and hot water products. Organic sales improved 2% in Europe owing to strength in the company’s drains and electronics businesses. Asia-Pacific, Middle East and Africa (APMEA) saw a jump of 20% with gains in China, Korea and the Middle East.
Quarterly Segment Results
Americas: Net sales increased 4.5% (including 1% from acquisition) year over year to $267.9 million in the December quarter. Adjusted operating income increased 5.8% to $45.5 million as benefits from price, volume, and productivity savings were partly offset by growth investments and inflation.
Europe: Net sales decreased 1.5% to $113.6 million, impacted by negative foreign exchange movements. The segment’s adjusted operating income was $13.4 million compared with $12.6 million in the year-ago quarter. This reflects benefit from increased price, volume and productivity including gains from restructuring programs.
APMEA: Net sales increased 17.5% to $18.8 million. Adjusted operating income came in at $3 million compared with $1.8 million in the prior-year quarter. This is supported by an increase in third party volume, better product mix, productivity and cost controls, partly offset by lower intercompany volume, growth investments and inflation.
Cost of goods sold in the fourth quarter went up 3.8% year over year to $230.2 million. Gross profit increased 2.5% to $170.1 million driven by top-line growth. Operating income was $47.3 million, up 4.2%. GAAP operating margin was up 10 basis points (bps) to 11.8%. Adjusted operating margin came in at 12.5%, up 80 bps.
Cash Flow & Liquidity
In 2019, Watts Water generated $194 million of net cash from operating activities compared with $169.4 million in 2018. As of Dec 31, 2019, the company had $219.7 million in cash and equivalents with $204.2 million of long-term debt (net of current portion), compared with the respective tallies of $204.1 million and $323.4 million a year ago.
Watts Water repurchased about 49,000 shares for $4.7 million during the quarter. It repatriated $5.5 million in cash during the quarter. For 2019, $43 million was repatriated, a majority of which was used to pay down revolving debt.
Zacks Rank & Stocks to Consider
Watts Water currently has a Zacks Rank #3 (Hold).
A few better-ranked stocks in the broader industry are Splunk Inc. (SPLK - Free Report) , Alteryx, Inc. (AYX - Free Report) and Atlassian Corporation Plc (TEAM - Free Report) , each sporting a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
Splunk topped earnings estimates in the trailing four quarters, the surprise being 74.3%, on average.
Alteryx surpassed earnings estimates in the trailing four quarters, the beat being 129.2%, on average.
Atlassian topped earnings estimates in the trailing four quarters, the surprise being 23.9%, on average.
Zacks Top 10 Stocks for 2020
In addition to the stocks discussed above, would you like to know about our 10 finest buy-and-hold tickers for the entirety of 2020?
Last year's 2019 Zacks Top 10 Stocks portfolio returned gains as high as +102.7%. Now a brand-new portfolio has been handpicked from over 4,000 companies covered by the Zacks Rank. Don’t miss your chance to get in on these long-term buys.
Access Zacks Top 10 Stocks for 2020 today >>