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WTS Watts Water

Filed: 4 May 21, 4:26pm

Exhibit 99

FOR IMMEDIATE RELEASE

Contact:

Timothy M. MacPhee

Treasurer, Vice President – Investor Relations

Telephone:

(978) 689-6201

Fax:

(978) 794-0353

WATTS WATER TECHNOLOGIES REPORTS FIRST QUARTER 2021 RESULTS

Reported sales of $413 million increased 8%; organic sales increased 4%

GAAP operating margin of 14.4% and adjusted operating margin of 14.5%; both up 190 bps

GAAP EPS of $1.23 and adjusted EPS of $1.24; both up 31%

Amended and extended existing credit facility in the second quarter; enhanced financial flexibility

Increasing 2021 full year outlook

*Performance relative to comparable first quarter in 2020

North Andover, Mass., May 4, 2021 -- Watts Water Technologies, Inc. (NYSE: WTS) today announced results for the first quarter of 2021.

Chief Executive Officer Robert J. Pagano Jr. commented, “I want to thank all our employees and especially those involved in manufacturing, supply chain and logistics for their efforts in delivering a strong first quarter. The team overcame notable challenges in striving to meet our customer needs. Sales in all three regions exceeded our expectations. Drivers included an unexpected positive impact from this year’s freezing weather in the South-Central U.S. as well as higher sales in APMEA in the current quarter due to COVID-19’s impact last year.  The higher sales, coupled with continued cost actions, drove solid operating margin expansion. Given our first quarter performance and current expectations for the second quarter, we are revising upward our outlook for the full year 2021.”  

A summary of first quarter results is as follows:

First Quarter

    

Earnings Summary

 

(In millions, except per share information)

    

2021

    

2020

    

% Change

  

Sales

$

413.3

$

382.6

 

8

%

Net income

41.7

32.0

 

30

%

Diluted net income per share

$

1.23

$

0.94

 

31

%

Special items (1)

0.01

0.01

 

Adjusted earnings per share (1)

$

1.24

$

0.95

 

31

%


(1)Special items and adjusted earnings per share represent non-GAAP financial measures. For a reconciliation of GAAP to non-GAAP items please see the tables attached to this press release.

First Quarter Financial Highlights

Sales of $413 million increased 8% on a reported basis and 4% organically. The sales increase was primarily related to the positive impact from the severe freezing weather in the South-Central United States, estimated to be 3% of incremental sales in the first quarter of 2021, and higher sales in Asia-Pacific, Middle East and Africa (“APMEA”) in the first quarter of 2021 compared to the first quarter of 2020, which was negatively impacted by COVID-19. Acquired sales totaled approximately $4 million in the quarter and foreign exchange contributed approximately $13 million year over year.  Both reported and adjusted operating margin increased 190 basis points.


Regional Performance:

Americas

oSales of $273 million increased 4% on a reported basis and were up 3% organically as growth in plumbing and electronics was partially offset by lower heating and hot water and water quality product sales.  Acquisitions and foreign exchange contributed 1% to sales. The sales attributable to the freezing weather in the South-Central United States added approximately 4% to sales in the quarter.  
oOperating margin increased by 130 basis points on a reported basis and 110 basis points on an adjusted basis, as benefits from volume, pricing, productivity and cost actions were partially offset by inflation and incremental growth investments.  

Europe

oSales of $123 million increased 12% on a reported basis, including a 10% positive foreign exchange impact, and a 2% organic increase. Strength in the plumbing and HVAC product platforms was partially offset by continued softness in drains.  
oOperating margin increased 350 basis points on both a reported and adjusted basis driven by volume, price productivity and cost actions that were partially offset by inflation.  

APMEA

oSales of $18 million increased 76% on a reported basis, including net acquired sales of 23% and a positive foreign exchange impact of 10%.  Organically sales increased 43% relative to the first quarter of 2020 as sales during the first quarter of 2020 declined by 23% due to COVID-19, providing an easier comparison.  In addition, commercial valve sales into China continued to be strong during the first quarter of 2021.
oOperating margin increased by approximately 1,400 basis points on a reported basis and 1,550 basis points on an adjusted basis. Reported and adjusted operating margin expanded from increased volume, both third party and intercompany, as well as from cost actions and productivity, which were partially offset by inflation and incremental investments.

Cash Flow and Capital Allocation

For the first quarter of 2021, operating cash flow was $34 million and net capital expenditures were $2 million, resulting in free cash flow of $32 million. In the comparable period last year, operating cash flow was negative $1 million and net capital expenditures were $7 million, resulting in free cash flow of negative $8 million. Free cash flow improved primarily due to better working capital management, incremental profit and reduced net capital spending.    

Effective March 30, 2021, the Company successfully extended its credit facility for an additional four years through March 2026. The Company’s balance sheet remains strong, with a net debt to EBITDA ratio of (0.1x) as of March 28, 2021.

The Company repurchased approximately 31,000 shares of Class A common stock at a cost of $3.8 million during the first quarter.

Mr. Pagano concluded, “Given the strong performance in the first quarter and better second quarter expectations, we have updated our full year outlook, and now anticipate that consolidated organic revenues may increase by 2% to 7% and consolidated adjusted operating margin may expand by 30 to 70 basis points, compared to last year. While encouraging, market uncertainties, including supply chain disruptions concerns, inflation and vaccine implementation outside of the United States require continued monitoring and could impact our second half performance. We maintain ample liquidity and continue to invest for the future. We have navigated the pandemic well and are a stronger, more agile company.”

For a reconciliation of GAAP to non-GAAP items and a statement regarding the usefulness of these measures to investors and management in evaluating our operating performance, please see the tables attached to this press release.

Watts Water Technologies, Inc. will hold a live webcast of its conference call to discuss first quarter 2021 results on Wednesday, May 5, 2021, at 9:00 a.m. EDT. This press release and the live webcast can be accessed by visiting the Investor Relations section of the Company's website at www.wattswater.com. Following the webcast, an archived version of the call will be available at the same address until May 5, 2022.

The Company's 2021 Annual Meeting of Stockholders will be held at 9:00 a.m. EDT on Wednesday, May 12, 2021 at the Company’s executive offices located at 815 Chestnut Street, North Andover, Massachusetts.

Watts Water Technologies, Inc., through its subsidiaries, is a world leader in the manufacture of innovative products to control the efficiency, safety, and quality of water within residential, commercial, and institutional applications. Watts’s expertise in a wide variety of water technologies enables it to be a comprehensive supplier to the water industry.


This Press Release includes “forward-looking statements” as defined in the Private Securities Litigation Reform Act of 1995, including statements relating to the impact of COVID-19 on our 2021 results; our expected revenue, organic revenue, operating margin and adjusted operating margin for full-year 2021; and our expected liquidity position for 2021. These forward-looking statements reflect our current views about future events. You should not rely on forward-looking statements because our actual results may differ materially from those predicted as a result of a number of potential risks and uncertainties. These potential risks and uncertainties include, but are not limited to: the effects of the 2017 Tax Act; the effectiveness, the timing and the expected savings associated with our cost cutting actions, restructuring and transformation programs and initiatives; current economic and financial conditions, which can affect the housing and construction markets where our products are sold, manufactured and marketed; shortages in and pricing of raw materials and supplies; our ability to compete effectively; changes in variable interest rates on our borrowings; failure to expand our markets through acquisitions; failure to successfully develop and introduce new product offerings or enhancements to existing products; failure to manufacture products that meet required performance and safety standards; foreign exchange rate fluctuations; cyclicality of industries where we market our products, such as plumbing and heating wholesalers and home improvement retailers; environmental compliance costs; product liability risks; changes in the status of current litigation; the risks and uncertainties relating to the COVID-19 pandemic; and other risks and uncertainties discussed under the heading “Item 1A. Risk Factors” and in Note 15 of the Notes to the Consolidated Financial Statements in our Annual Report on Form 10-K for the year ended December 31, 2020, filed with the SEC, as well as risk factors disclosed in our subsequent filings with the SEC. We undertake no duty to update the information contained in this Press Release, except as required by law.


WATTS WATER TECHNOLOGIES, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

(Amounts in millions, except per share information)

(Unaudited)

First Quarter

March 28,

March 29,

    

2021

    

2020

    

Net sales

$

413.3

$

382.6

Cost of goods sold

239.6

219.8

GROSS PROFIT

173.7

162.8

Selling, general and administrative expenses

113.8

115.0

Restructuring

0.3

OPERATING INCOME

59.6

47.8

Other (income) expense:

Interest income

(0.1)

Interest expense

2.0

3.0

Other (income) expense, net

(0.3)

0.3

Total other expense

1.7

3.2

INCOME BEFORE INCOME TAXES

57.9

44.6

Provision for income taxes

16.2

12.6

NET INCOME

$

41.7

$

32.0

BASIC EPS

NET INCOME PER SHARE

$

1.23

$

0.94

Weighted average number of shares

33.8

34.0

DILUTED EPS

NET INCOME PER SHARE

$

1.23

$

0.94

Weighted average number of shares

33.9

34.1

Dividends declared per share

$

0.23

$

0.23


WATTS WATER TECHNOLOGIES, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(Amounts in millions, except share information)

(Unaudited)

March 28,

December 31,

    

2021

        

2020

ASSETS

CURRENT ASSETS:

Cash and cash equivalents

$

225.4

$

218.9

Trade accounts receivable, less reserve allowances of $11.9 million at March 28, 2021 and
$11.1 million at December 31, 2020

238.6

197.6

Inventories, net:

Raw materials

92.5

79.6

Work in process

17.1

16.1

Finished goods

169.4

167.9

Total Inventories

279.0

263.6

Prepaid expenses and other current assets

31.6

29.4

Total Current Assets

774.6

709.5

PROPERTY, PLANT AND EQUIPMENT:

Property, plant and equipment, at cost

602.1

608.6

Accumulated depreciation

(396.3)

(396.3)

Property, plant and equipment, net

205.8

212.3

OTHER ASSETS:

Goodwill

597.3

602.4

Intangible assets, net

137.0

141.8

Deferred income taxes

4.4

4.4

Other, net

65.3

67.8

TOTAL ASSETS

$

1,784.4

$

1,738.2

LIABILITIES AND STOCKHOLDERS' EQUITY

CURRENT LIABILITIES:

Accounts payable

$

141.5

$

110.1

Accrued expenses and other liabilities

145.5

137.4

Accrued compensation and benefits

58.2

65.3

Total Current Liabilities

345.2

312.8

LONG-TERM DEBT

198.6

198.2

DEFERRED INCOME TAXES

54.3

51.1

OTHER NONCURRENT LIABILITIES

105.1

106.3

STOCKHOLDERS' EQUITY:

Preferred Stock, $0.10 par value; 5,000,000 shares authorized; no shares issued or outstanding

Class A common stock, $0.10 par value; 120,000,000 shares authorized; 1 vote per share; issued and outstanding: 27,585,082 shares at March 28, 2021 and 27,478,512 shares at December 31, 2020

2.8

2.8

Class B common stock, $0.10 par value; 25,000,000 shares authorized; 10 votes per share; issued and outstanding: 6,124,290 at March 28, 2021 and 6,144,290 at December 31, 2020

0.6

0.6

Additional paid-in capital

611.0

606.3

Retained earnings

581.0

560.1

Accumulated other comprehensive loss

(114.2)

(100.0)

Total Stockholders' Equity

1,081.2

1,069.8

TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY

$

1,784.4

$

1,738.2


WATTS WATER TECHNOLOGIES, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Amounts in millions)

(Unaudited)

Three Months Ended

March 28,

March 29,

    

2021

    

2020

OPERATING ACTIVITIES

Net income

$

41.7

$

32.0

Adjustments to reconcile net income to net cash provided by (used in) operating activities:

Depreciation

8.0

7.6

Amortization of intangibles

3.8

3.8

Loss on disposal and impairment of property, plant and equipment, and other

0.6

Stock-based compensation

2.9

3.6

Deferred income tax

4.3

3.9

Changes in operating assets and liabilities:

Accounts receivable

(44.0)

(20.6)

Inventories

(18.8)

(12.7)

Prepaid expenses and other assets

(4.6)

(4.6)

Accounts payable, accrued expenses and other liabilities

40.0

(13.9)

Net cash provided by (used in) operating activities

33.9

(0.9)

INVESTING ACTIVITIES

Additions to property, plant and equipment

(4.9)

(8.9)

Proceeds from the sale of property, plant and equipment

2.9

1.4

Net cash used in investing activities

(2.0)

(7.5)

FINANCING ACTIVITIES

Proceeds from long-term borrowings

20.0

70.0

Payments of long-term debt

(20.0)

Payments for tax withholdings on vested stock awards

(9.2)

(7.7)

Payments for finance leases

(0.4)

(0.5)

Payments to repurchase common stock

(3.8)

(14.7)

Dividends

(7.8)

(8.0)

Net cash (used in) provided by financing activities

(21.2)

39.1

Effect of exchange rate changes on cash and cash equivalents

(4.2)

(5.0)

INCREASE IN CASH AND CASH EQUIVALENTS

6.5

25.7

Cash and cash equivalents at beginning of year

218.9

219.7

CASH AND CASH EQUIVALENTS AT END OF PERIOD

$

225.4

$

245.4


WATTS WATER TECHNOLOGIES, INC. AND SUBSIDIARIES

SEGMENT INFORMATION

(Amounts in millions)

(Unaudited)

Net Sales

First Quarter

    

March 28, 2021

    

March 29, 2020

Americas

$

272.8

$

262.4

Europe

122.9

110.2

APMEA

17.6

10.0

Total

$

413.3

$

382.6

Operating Income

First Quarter

    

March 28, 2021

    

March 29, 2020

Americas

$

48.5

$

43.4

Europe

19.5

13.7

APMEA

2.3

(0.1)

Corporate

(10.7)

(9.2)

Total

$

59.6

$

47.8

Intersegment Sales

First Quarter

    

March 28, 2021

    

March 29, 2020

Americas

$

2.5

$

2.4

Europe

7.6

4.1

APMEA

26.3

13.6

Total

$

36.4

$

20.1


Key Performance Indicators and Non-GAAP Measures

In this press release, we refer to non-GAAP financial measures (including adjusted operating income, adjusted operating margins, adjusted net income, adjusted earnings per share, organic sales, free cash flow, cash conversion rate of free cash flow to net income and net debt to capitalization ratio, EBITDA, and net debt to EBITDA ratio) and provide a reconciliation of those non-GAAP financial measures to the corresponding financial measures contained in our consolidated financial statements prepared in accordance with GAAP. We believe that these financial measures enhance the overall understanding of our historical financial performance and give insight into our future prospects. Adjusted operating income, adjusted operating margins, adjusted net income and adjusted earnings per share eliminate certain expenses incurred and benefits recognized in the periods presented that relate primarily to our global restructuring programs, footprint optimization costs, and the related income tax impacts on these items. Management then utilizes these adjusted financial measures to assess the run-rate of the Company’s operations against those of comparable periods. Organic sales growth is a non-GAAP measure of sales growth excluding the impacts of foreign exchange, acquisitions and divestitures from period-over-period comparisons. Management believes reporting organic sales growth provides useful information to investors, potential investors and others, and allows for a more complete understanding of underlying sales trends by providing sales growth on a consistent basis. Free cash flow, cash conversion rate of free cash flow to net income, the net debt to capitalization ratio, and net debt to EBITDA ratio which are adjusted to exclude certain cash inflows and outlays, or expenses (to arrive at EBITDA), and include only certain balance sheet accounts from the comparable GAAP measures, are an indication of our performance in cash flow generation and also provide an indication of the Company's relative balance sheet leverage to other industrial manufacturing companies. These non-GAAP financial measures are among the primary indicators management uses as a basis for evaluating our cash flow generation and our capitalization structure. In addition, free cash flow is used as a criterion to measure and pay certain compensation-based incentives. For these reasons, management believes these non-GAAP financial measures can be useful to investors, potential investors and others. The Company’s non-GAAP financial measures may not be comparable to similarly titled measures reported by other companies. The presentation of this additional information is not meant to be considered in isolation or as a substitute for financial measures prepared in accordance with GAAP.


TABLE 1

RECONCILIATION OF GAAP "AS REPORTED" TO THE "ADJUSTED" NON-GAAP

EXCLUDING THE EFFECT OF ADJUSTMENTS FOR SPECIAL ITEMS

(Amounts in millions, except per share information)

(Unaudited)

CONSOLIDATED RESULTS

First Quarter

    

March 28,

    

March 29,

    

2021

2020

Net sales

$

413.3

$

382.6

Operating income - as reported

$

59.6

$

47.8

Operating margin %

 

14.4

%  

 

12.5

%  

Adjustments for special items:

 

  

 

  

Restructuring

 

0.3

 

Footprint optimization

0.4

Total adjustments for special items

$

0.3

$

0.4

Operating income - as adjusted

$

59.9

$

48.2

Adjusted operating margin %

 

14.5

%  

 

12.6

%  

Net income - as reported

$

41.7

$

32.0

Adjustments for special items - tax effected:

 

  

 

  

Restructuring

0.2

Footprint optimization

 

0.3

Total adjustments for special items - tax effected

$

0.2

$

0.3

Net income - as adjusted

$

41.9

$

32.3

Diluted earnings per share - as reported

$

1.23

$

0.94

Adjustments for special items

 

0.01

 

0.01

Diluted earnings per share - as adjusted

$

1.24

$

0.95


TABLE 2

SEGMENT INFORMATION - RECONCILIATION OF GAAP "AS REPORTED" TO THE "ADJUSTED" NON-GAAP

EXCLUDING THE EFFECT OF ADJUSTMENTS FOR SPECIAL ITEMS

(Amounts in millions)

(Unaudited)

First Quarter

First Quarter

 

March 28, 2021

March 29, 2020

 

    

Americas

    

Europe

    

APMEA

    

Corporate

    

Total

    

Americas

    

Europe

    

APMEA

    

Corporate

    

Total

 

 

Net sales

$

272.8

 

122.9

 

17.6

 

 

413.3

$

262.4

 

110.2

 

10.0

 

 

382.6

Operating income (loss) - as reported

$

48.5

 

19.5

 

2.3

 

(10.7)

 

59.6

$

43.4

 

13.7

 

(0.1)

 

(9.2)

 

47.8

Operating margin %

 

17.8

%  

15.9

%  

13.0

%  

  

 

14.4

%  

 

16.5

%  

12.4

%  

(1.0)

%  

  

 

12.5

%

Adjustments for special items

$

 

0.3

 

 

0.3

$

0.4

 

 

 

 

0.4

Operating income (loss) - as adjusted

$

48.5

 

19.5

 

2.6

 

(10.7)

 

59.9

$

43.8

 

13.7

 

(0.1)

 

(9.2)

 

48.2

Adjusted operating margin %

 

17.8

%  

15.9

%  

14.5

%  

  

 

14.5

%  

 

16.7

%  

12.4

%  

(1.0)

%  

  

 

12.6

%


TABLE 3

SEGMENT INFORMATION - RECONCILIATION OF REPORTED NET SALES TO ORGANIC SALES

(Amounts in millions)

(Unaudited)

First Quarter

 

    

Americas

    

Europe

    

APMEA

    

Total

 

 

Reported net sales March 28, 2021

$

272.8

$

122.9

$

17.6

$

413.3

Reported net sales March 29, 2020

 

262.4

 

110.2

 

10.0

 

382.6

Dollar change

$

10.4

$

12.7

$

7.6

$

30.7

Net sales % increase

 

4.0

%  

 

11.5

%  

 

76.0

%  

 

8.0

%

Increase due to foreign exchange

 

(0.4)

%  

 

(9.8)

%  

 

(10.0)

%  

 

(3.4)

%

Increase due to acquisition/divestiture, net

 

(0.5)

%  

 

%  

 

(22.8)

%  

 

(0.9)

%

Organic sales increase

 

3.1

%  

 

1.7

%  

 

43.2

%  

 

3.7

%


TABLE 4

RECONCILIATION OF NET CASH PROVIDED BY (USED IN) OPERATIONS TO FREE CASH FLOW

(Amounts in millions)

(Unaudited)

Three Months Ended

 

March 28,

March 29,

 

    

2021

    

2020

 

 

Net cash provided by (used in) operations - as reported

$

33.9

$

(0.9)

Less: additions to property, plant, and equipment

 

(4.9)

 

(8.9)

Plus: proceeds from the sale of property, plant, and equipment

 

2.9

 

1.4

Free cash flow

$

31.9

$

(8.4)

Net income - as reported

$

41.7

$

32.0

Cash conversion rate of free cash flow to net income

 

76.5

%  

 

(26.3)

%


TABLE 5

RECONCILIATION OF LONG-TERM DEBT (INCLUDING CURRENT PORTION) TO NET DEBT AND NET DEBT TO CAPITALIZATION RATIO

(Amounts in millions)

(Unaudited)

    

March 28,

    

December 31,

 

2021

2020

 

 

Current portion of long-term debt

$

$

Plus: Long-term debt, net of current portion

 

198.6

 

198.2

Less: Cash and cash equivalents

 

(225.4)

 

(218.9)

Net debt

$

(26.8)

$

(20.7)

Net debt

$

(26.8)

$

(20.7)

Plus: Total stockholders' equity

 

1,081.2

 

1,069.8

Capitalization

$

1,054.4

$

1,049.1

Net debt to capitalization ratio

 

(2.5)

%  

 

(2.0)

%


TABLE 6

RECONCILIATION OF TRAILING TWELVE MONTHS NET INCOME TO EBITDA AND NET DEBT TO EBITDA RATIO

(Amounts in millions)

(Unaudited)

    

Trailing Twelve Months

through March 28, 2021

Net income - as reported

$

123.9

Plus: Interest expense, net

 

12.1

Plus: Income taxes

 

56.4

Plus: Depreciation

31.7

Plus: Amortization

15.2

Earnings before interest, taxes, depreciation and amortization (EBITDA)

$

239.3

March 28,

2021

Gross debt

$

198.6

Less: Cash and cash equivalents

 

(225.4)

Net debt

$

(26.8)

Net debt to EBITDA ratio (net debt divided by trailing twelve months EBITDA)

 

(0.1x)


TABLE 7

2021 FULL YEAR OUTLOOK - RECONCILIATION OF REPORTED NET SALES TO ORGANIC SALES AND OPERATING MARGIN TO ADJUSTED OPERATING MARGIN

(Unaudited)

Total Watts

Full Year

2021 Outlook

    

Approximately

Net Sales

Reported net sales growth

2.7% to 7.7%

Forecasted impact of acquisition

-0.70%

Organic sales growth

2.0% to 7.0%

Operating Margin

Operating margin growth

10 to 50 bps

Forecasted restructuring / other costs

~20 bps

Adjusted operating margin growth

30 to 70 bps