Docoh
Loading...

WTS Watts Water

Participants
Tim MacPhee Treasurer, VP, IR
Robert Pagano CEO and President
Shashank Patel CFO
Jeff Hammond KeyBanc
Nathan Jones Stifel
Ryan Connors Boenning & Scattergood
Bryan Blair Oppenheimer
Mike Halloran R.W. Baird
Call transcript
Due to licensing restrictions, you must log in to view earnings call transcripts.
Operator

Ladies and gentlemen, thank you for standing by and welcome to the Watts Water Technologies' First Quarter 2020 Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speakers' presentation, there will be a question-and-answer session [Operator Instructions].

I would now like to hand the conference over to your speaker today, Timothy MacPhee, Treasurer and Vice President of Investor Relations for Watts Water. Thank you. ahead. go Please

Tim MacPhee

good earnings and Pagano, Welcome our CFO. to and Thank call. morning, With quarter our Patel, conference and Bob me first President; you Shashank everyone. today CEO are

will today's and about quarter operations performance our pandemic current in offer During Shashank the second outlook Bob insight our for discuss the discuss markets, response the of assumptions first will and the into the state liquidity. provide COVID-XX to our quarter. of call, details

related questions address the will we remarks, prepared the during covered call. to the Following information

webcast presentation, the financial Today's non-GAAP section which be presentation. found prepared reference is website. this our to to our reference information Relations Investor is can remarks. accompanied by Any throughout presentation reconciled a in in of We'll appendix the the

begin, risks during to These could call, uncertainties we that I'd this of certain numerous that statements. cause constitute results will differ forward-looking course to and everyone we subject remind materially. the make statements to that actual are comments like Before

these or the update SEC. new events For information any result with available statement, as to disclaims obligation a or risks publicly Watts' concerning future whether or of intention any Company filings forward-looking revise information, see uncertainties, otherwise. and

over I Bob. will that the call now turn With to

Robert Pagano

everyone. Thank Slide Please you, good Tim, X and morning, to turn to begin.

started, need of COVID-XX Their time unwavering crisis. heroic. the get healthcare help their the during and and truly I'd their commend we like to for commitment Before efforts first response amazing workers is people to

they never more those salute plumbers, the maintenance many We we the others so people their are the do been like scenes, teams also that has would and efforts. to work behind essential thank and the as

in their customers' affected essential customers. that by committed markets of our have been colleagues world has ensuring for significantly for my our our meeting products been this COVID-XX impacted needs to lives and is have to our want around during aspects I unwavering The are operations to manufacture heating thank degrees. available water throughout and ordeal, every been period. extraordinary Watts the this our appending the and pandemic Finally, critical team the we different support

on the in just operations I'll a markets both in an provide update minute. our

to response and timely has comprehensive. Our been COVID-XX

to early our pandemic to the spread, able learnings other were of from regions. the the China we incorporate many operations As

In of Force February, COVID-XX leaders. we established Task up made a a of cross-section functional

force and One around of policies ensure we use the task other personal the home, protective local social is employees' force from of by global the number focus temperature safety, task CDC addressed was key monitoring protocols one procedures country priority. working distancing of areas equipment, our The and governments. in which to enacted including the recommended

important that momentarily. other depth of I'll our to in several facets are speak more COVID-XX There response

and Americas. for COVID-XX headwinds China in the from negatively the had the we COVID-XX with impacted first by our range estimate performance the early in As in was and quarter $XX February. from first $XX We provided million, Europe the million given to quarter in-line solid financials, later were about sales

proactive expectations top Adjusted cost operating of actions some line exceeded the as mitigated softness. margin

in noted February. full year second minutes. as a the we withdrawing a assumptions challenging release, of to first on quarter very be our review And you Shashank evening's of the expected have in global results will quarter in as second details effect significant will press pandemic quarter The have are is worldwide businesses. few may last the we our impact outlook in provided

next to best. usually many ship predominantly limited is the said rely beyond on our that We at quarter. insight the is and quarter beyond leading indicators forecast a business times We book for ability next

outlook. indicators at temporarily prudent those that our of we suspend it length believe the to this point regarding COVID-XX, is uncertainty given impact However, XXXX full and are lagging and

on impact I'd trend. X, Slide have sustainable which COVID-XX's and our a end seen is our the update provide on loosen start Recently, on hopefully lockdown Now to markets like operations. we to an

been affected Europe the as Americas to through latter first have lockdowns in was impact markets quarter end by some of evidenced Our feel government-imposed and first all their until didn't feel to results. degree, March. April. the half these effects APMEA

lockdowns new end construction repair These have in markets. replacement the affected

given New and projects are being delayed potential the financing concerns. uncertainties

have in see the this date, verticals to the not restaurants We could future. in challenge hotels, and seen we direction move project but cancellations retail more like

but due believe expect de-stocking requirements. the education projects. will related healthcare pace begun Where to already are distancing a Most cash of allowed, which second at to into the vertical a we we partners markets continue have social specific end quarter. continue, started projects the with exception Many and efforts will channel slower preserve slow COVID-XX

In Europe, countries March closures in saw and in many April. we wholesale store significant key

Just online. started we to them coming recently, see back

month. As mentioned, late to days Europe started to and orders the and soften six the well. through Sales were the operationally seven work March both Americas performing last of in

operational. our activity New and continued was back from the a chain lockdowns. are and and did East see plant are Middle plants France China prior in recently Operations with March in intervention. the in by mixed supply all Italy, caused Americas below government both Zealand late up the year. We opening in The and April well APMEA Europe as emerging in Tunisia sluggishness the Americas of and in Europe Currently closures concerns combination sporadic

the Our are as expected online markets in China and plants March came improving.

have China We orders seen recover April. during

elevated to meet we during was hotline X, particularly needs. engaged about established requests the turn company our how realize I to during within healthcare vertical have vulnerable customer's that to briefly with immediate mission-critical the We you want speak project customers remained that Slide COVID-XX-related our We pandemic. pandemic. a If

and three X,XXX you'll training lunch virtual isolated, have quarter, emphasizing program. are customers for Since online our learn are trained examples and reps during slide, over January while the sales see we teams people our efforts. also completed virtual employees. X,XXX the global of engineers And and On and contractors customers, courses U.S. XX,XXX through over X,

taking expected impact cost the Slide to Moving this of have and summarizes are our on mitigate COVID-XX taken results. to X, the XXXX to we actions

Our of the reduction, the many savings from costs. discretionary quarter. during We cost reductions include initiated overheads variable factory programs and material spending flexing renegotiated first

due of severity have The XX% company. temporary have employees. crisis, the cascaded reductions of and pay reductions pay our to throughout of which XX%. pay and actions taken Also Board affected voluntary reductions directly we reports and taking base I several the Directors had have been temporary take lower of the IDirect to

initiated have deferrals force we and addition, In furloughs. in reductions merit

extremely the is and the had that fact impact our the markets that the ultimately end but necessary on employees' of impact to was on light personal our decision business. has a direct action our COVID-XX take difficult given these pandemic having the lives, In

also to We the at year. are preserve taking actions cash the end of

through to capital to planned taxes into XXXX dividend at current committed and expect planned We remain XXXX take CARES least reduce at to the and of share quarter second We Act legislation employer the repurchase XXXX. spend program maintaining advantage levels. the by FICA spending deferring our

adjust our will We changes. any actions market as meet to unforeseen needed

let our Finally on position. Slide liquidity X, current review me

and sheet restructured quarter-end. that using balance and cash we also more Since remains efficient more organization, business. profits March and Over strong from driving we've aggressively time, debt Our XXXX, at our into the have portfolio funds operations. become cash a both paid repatriated down

are Our debt strong. metrics

to use February XXXX. as expect the $XX line borrowings a $XXX to of year due covenants credit to extending renegotiated by borrow room of revolver of $XXX and pay expanding term million million ample through under it In pay $XXX it with million April, the have we to credit liquidity. facility revolver our We and well. senior loan plenty our the have notes June We off off and million we in

down. by liquidity credit our capital the expanded settled extension to also longer-term renegotiate $XX have agreement once credit the a million us revised time gives The and agreement, markets

our of to also credit ensure available as During portion a the cash next if of quarter. the needed first that a measure line down quarter, into was we drew precautionary

to first results Shashank the With and talk quarter our that, to me let about more turn Shashank? our quarter call assumptions. second over

Shashank Patel

no Please I Slide basis over to of underlying down have quarter's down organically. results first as which the could how quarter last million remainder changed reported therefore the $XXX Bob. on of markets months Sales the turn the and the comparative and about were comments Thanks, X% out. will XXXX of dramatically are brief Obviously, X% a only to play three indication X, two make some results. consolidated shows

Organically, by the million to sales million a COVID-XX. impacted $XX were to estimate $XX headwind due

weaker year-over-year by decreased driven million Euro roughly sales exchange Foreign X%. by a or $X primarily

quarter one of accounted February, by last mentioned incremental As X% first Acquisitions were in compared negatively sales both the approximately and less as workday year. Americas million sales the year-over-year. to by of $X.X for impacted Europe impacted which

productivity price investments sales up than recent of adjusted compared per Despite was Adjusted offset to XX and last $X.XX. share to were inflation. X% loss margin up as and incremental earnings was flat actions cost XX.X% year points volume drop basis profit as operating the adjusted more operating and

which cost the the some and than mentioned, we greater basis tax Bob As base, XX.X% primarily higher effective in the adjusted are our from timely reflected to impact XXXX. to took relates of non-deductible in XX first items results. XXXX rate actions is of tax points The quarter reduce

Our of was negative free negative cash first million last $X $XX flow for year. the as quarter in quarter the million compared to

to due improvement flow working cash better The management. capital was

conversion income goal net Our or the free is at drive year. flow XXX% cash to of for more

million. During at XXX,XXX common our $XX.X of shares the of we stock approximately purchased cost quarter, a

quarterly the and We that. the will expect second after of the to suspend our for share reevaluate program repurchase program remainder quarter

X, was on other impact results. COVID-XX just our regional a In high-level of few first Slide total, quarter On our in-line with make would the I expectations. Again, estimated comments. sales

more significant. As to expected, APMEA impact the was

driving With APMEA's the volume which less in combination and absorption, of affected third intercompany plant party lower turn profits.

a and and Europe's price favorable by flat declined to posted productivity than as offset cost productivity organic reasonably investment more were strong spend. from volume slightly Americas margin gains due adjusted despite actions. The the and loss operating sales quarter pricing

Slide second general XX our about operating outlook. provides quarter assumptions

second that challenging We we anticipate very will quarter. quarter. a the expect move as We slowly through recover activity

in see May. So assuming the June, the as markets starting during lockdowns May up open improvement trough to and mandated end April we begin and with

estimating and channel second for to and level be rate our XXXX. quarter. down earlier, quarter Given market The the which XX% lower sales that to April for feedback the from quarter below ultimately the determine order of partners mentioned the XX%, Bob return sales rates second will we're markets sales at

with the is high-single-digits adjusted operating to out in to quarter the margin dramatic our savings the levels be drop plant The programs, high quarterly lower estimate from the second quarter. on going cost absorption second our Even in for we to drop-through during would expected the mid volume. significantly due volume impact

Bob agreement XXXX. through we refinanced February mentioned, and it extended our As credit

rate of expect are we swap than losses we incur paying to quarter first interest in have interest expense and second debt quarter sequentially the XXXX. are amortize. Current under the versus We agreement higher to rates more cost $X the about million additional market and old

are We with effective should million planning use approximate to funds repatriate debt. XX.X% in rate quarter. line pay year. to of those the of the intend by the end majority $XX We The to approximately last of the quarter second down tax

year headwind rate. Foreign exchange Euro-Dollar a exchange to would quarter when the given be the current second of compared last

let call that me we Bob Q&A. begin with the So turn Bob? to over before

Robert Pagano

Thanks, your to I'd questions. Shashank. around speed been Slide certainly COVID-XX is the discussion the which address XX, like we has before has our lives and of disruption On affected summarize our commerce globe. enormous pandemic The unprecedented. causing

structure being on in our experienced to reacted we needs our management and responsive Our navigate team, have these has company through to with cost our demand. changing turbulent market people's help With customers' focusing urgency, recalibrated decisiveness times. safety, our fiscally

through While the economic The proactively positioned capitalized based conditions. we take and difficult, developments COVID-XX well necessary to to underlying more and monitor is on daily these make measures conditions. continue company predicting it well market will challenging make uncertainties future,

are enhance to our flow We taking actions to cash balance further strong sheet. optimize our

strategy are a on address but many and future, product focus especially market for in continuing we challenges, know the portfolio. Finally, we long-term to won't We invest connected smart by the we near-term our lose must leader. our

We expect the come crisis, to out company. this a stronger other of end

open for operator, the line please questions. that, With

Operator

Your KeyBanc. question Instructions] Jeff from first [Operator you. with Hammond comes Thank

Your line is open.

Jeff Hammond

hear me? you Can

Shashank Patel

can. we Yes,

Robert Pagano

can We now.

Jeff Hammond

great. Okay,

presentation. your in You really gave a color good

You you any sales rates? April just Europe? in what saw XX% big XX% expectation. Can your you actually to talk gave the if there disparities about And America North between run is and

Robert Pagano

at XX%. look Pacific seen and XX% in XX% in the Americas quarter-to-date, and reduction you Asia When Europe Yes. about about we've about

Pacific's Asia was China up which good. number, inside However, is X% of actually

East were Zealand the for Middle New and month. basically However, close

what APMEA that's the brought So overall numbers. down

and Europe it they see You could in a worse virus, little hit harder. the hit them

that's why we're I So activity. that seeing think

Jeff Hammond

Okay. you And then in the think just the on range. math, run kind I that XX% if decrementals, it's of

think to year, is go you right QX about the As of through that the to kind and start decremental beyond?

Shashank Patel

it's progresses. Yes. to It's but as second year to range, range. the are less, that And XX% range XX% volume closer in XX% declines hopefully, decrement the the that It's in that quarter. XX% to closer

Jeff Hammond

just you're your Okay, any of the stoppages great. non-res side? you then of can work on And mandatory terms what about just beyond talk kind finally, seeing cancellations deferrals order or in in book

Robert Pagano

We've seen push Yes. deferrals out. we've not is cancellations. seen What

So the and point know, is that I of as just And Coast uncertainty places think like the West lot there. is there the happening of new basically down shut out you a requirements a distancing Northeast social because were construction from of view. out

of we're marketplace. the activity the in So seeing that's kind

Jeff Hammond

so much guys. Thanks Okay.

Robert Pagano

Thanks, Jeff.

Shashank Patel

Thank you.

Operator

comes Your Nathan next from Jones question Stifel. of

is open. line Your

Nathan Jones

Good everyone. morning,

Robert Pagano

Nathan. morning, Good

Nathan Jones

a you bit covered I late if something little your apologize I I ask on. Bob. in was getting comments, opening

between on quarter. think in replacement channel, is second So us any you destocking decline XX-odd in what decline in percent can Is color revenue, the there you construction guys have you new revenue? split here give inventory the and the the in the decline

Robert Pagano

difficult see lot Yes, activity. because saw we that's of really a to

lot I our portfolio, etc., we people as plumbers, right look think talk and a replacement. there multifamily is you issue on in plumbers, When homes, in now. again, on well XX% work and in as error, continuing, our a anybody they repair is when big channels, repair don't of going discussion But material emergency local the unless a want a the there's at is to replace.

ordering wholesalers, and given less. think we the smaller. especially They're why that's we're smaller to our the this tell, I seeing uncertainty. less they're But shock from So can system,

So think think in board this pretty we time, across the it's again, and the May. destocking point at will I much end in

that everybody starts seeing June, up and we're So May, it of in come and in of these out other construction April opening we'll once end all the markets.

Nathan Jones

a part would a two-thirds I these in point back reasonable guess the think get mean, the revenue replacement at is of once I that and economy I revenue normalized here has Is running with the portfolio's decline, fairly rate. more here. the given decline things my expectation? replacement a of on significant we level fairly that be of open Okay. that again quickly of and kinds again snaps market. replacement, to

Robert Pagano

it sure is code-driven put be still plumbing I building think is. or at, I only important Whether have look hotel and good full, you Yes, need more repair mean, a to now. XX% can off one has occupant maintenance. even make they a to you right and is going

think I is again, your So assumption accurate.

Nathan Jones

quantify did going the out And you cost what is number forward?

Shashank Patel

piece here the talked is total same we the that So of is approximately $XX million. which at end QX. A obviously about, reductions of the

is So the there second happens a of that $XX that in quarter. larger million portion

Nathan Jones

Okay. Thanks very on. it pass I'll much.

Robert Pagano

you. Thank

Operator

& question Connors next Boenning of Ryan from Your Scattergood. comes

is Your line open.

Ryan Connors

replace understand prior Hope Great, Wanted on of well. thanks for repair of everyone's taking to that kind with question. kind and follow question on buckets better here. clarify and my just the

fit a being - a about it's of how a of even bucket Where an remodeling new you've remodeling. restaurant So all or in but or remainder. into not third, sort the construction, you sort not not and impacted? being does new where of business replace seen hotel, got and Which It's a it's of repair you repair. talk then type emergency some they're that household, have sort that would construction, a fall that

Robert Pagano

Yes.

would just But fixed. being inside the So saw if if under new right, replacement, it's again, maybe fall the construction We that, brand with just addition, happening of - April on if board. here. early it strategically look just repair in a across on, it's new it's depending you that

we restaurants, look hotels both some markets it's to our it of less just of term, some in just short buildings, business. that of office more call But mean at are let's and hit, apt if that I think of get XX% probably the the a those. So combination than you that's

an people need But doesn't to still, than in repaired. there going codes be as think And I upgrade. opportunity said to still before. is more to earlier, for I they'll continue It force ever to be are

look new and this energy in water and things strategic to those of you core going conservation, critical world. safety are our when and all So regulation, efficiency, be at of quality

forward - right? in that's monitor issues strategy, requirements I as be. that's So go connected to and to going sure at we there what determine call I whether to Because, also our So product important is people going the less how important look also making - really there's forward. be system, going

So again, looking at, very where we're and watching that's we're closely.

Ryan Connors

Yes.

Just part talk concerns been these those systems, that offices there's some talk you just on monitoring that. longer positive, you of - type been lot connected Legionella that mean, Bob, in thing? as about of those that just spend could seeing things reopening about stagnant that about even connected guess been of is for like strategy. particular. a but more strategy, that is a I the kind the Or now? the Is and demand point, I know and hotels those and that we and there for Legionella of buildings, has in of talked that's things if I term water's it whatnot things a are

Robert Pagano

seminars doing a cetera. engineers, on with of we're exactly Well, that our lot customers, et

So their buildings, restaurants for systems. the and when buildings start once we issues, Legionella how have other while, they need diseases to et some start cetera. in proper way to up, sit to they're you and idle everything to do prevent know with going pipes and and And and else, they a up believe

But So be closely. again, could again, for monitoring that we're it an us. very opportunity

Ryan Connors

one last me, from I if could. one then And it. Got

a renegotiating you comment of elaborate sort can? contracts. extent to release mechanics a made You please materials is on Or that that? Can about in the of you press the

Shashank Patel

Shashank. it's Ryan, Look, Yes. so

a stingless typically those. know, go all on especially have bit commodities little and comp we we long as on So down, gone

nine we're and got six also, those contract reductions, a to negotiating let's lower we volume prices to And lower as as in is have contracts, well, the back with as go oil. but over we some the having even as is well in on the volume so place, going at freight fact going three challenge say, are material price on unique harder forward luck months, in we next, some the we It's down. prices contracts months, on because months. decreases negotiate So we're that's

Ryan Connors

it. Got

Okay. Thanks time. your for

Shashank Patel

you. Thank

Operator

comes from Your Blair next with question Oppenheimer. Bryan

is line open. Your

Bryan Blair

you're Good staying Hope everyone. morning, safe.

Shashank Patel

Good morning.

Robert Pagano

to Same Bryan. Thanks. you,

Bryan Blair

Thank you.

you region, mid up by break Following Can out your we quarter second guide. margin segments? across should to that on your high-single-digit expect what

Shashank Patel

XX strongest of we good points. well. so region, we So are relatively price as good the up America the was margin had basis and performance had performance we there

some the were of in And proactive we cost actions, our action.

that So to helped as quarter well. the first

In that Americas. the margin we So drove the were the in in actually first soft quarter. Europe, expansion

obviously, and affected then APMEA. And got in we then the - third

Now, as quarter basically we operating the think about on though, mid we the to high-single-digits said margin. second

the declines, With to we're volume talking XX% about XX%.

most We pretty all down, and APMEA volume's across they because see affected, well be much decline But margin will expect Europe. the affected with in in get the similar will their the to as margin intercompany piece. the be going regions. Americas decline as volume

Bryan Blair

you Got color total. also structural offer be versus it. the region? the breakout And helpful. by I would expected for there said cost savings can $XX additional on in any And year million you think variable

Shashank Patel

Yes.

total $XX in is what second have million about structural Just head we savings piece first, that count, we annual to related realized piece, does take piece than is XXXX. The which the structural approximately of talked about. XX% the the

APMEA. the part, a for Europe, more far Europe. the split in we're about X% in and versus of that's Americas, Rough do and split. about most XX% then to the of other Americas be as get in cost little going savings, We As XX% in savings the the bit the regional

Bryan Blair

key metrics move further Okay. And into tracking is you're And and back action needed? what next we as additional if what the action's through XQ would to warranted come determine the if are half?

Robert Pagano

all normal orders. talking at partners, watch that We channel and daily, watch we've things certainly to we and continue looking all we been our for a for while. leading indicators, understanding that Well, the permits, look to

all pent-up see thing as et whether we're running, we're asking demand, we to and cetera. costs. what's Every this But surge of every up piece, come our to some I teams region. more country single important, our there's single back review think at looking single every see in

think to we continue importantly across how of out And have watch to it's come We and triggered the aggressive when in. want detailed We to right most plans look. gate, start the went these board. continuing the back indicators. So we see is and year. contingency leading those we'll they We're online. shutdowns the We immediately, quickly

Bryan Blair

Got it. the color. Appreciate

Robert Pagano

Thanks, Bryan.

Shashank Patel

you. Thank

Operator

you. Thank

Your with Mike question next Halloran from R.W. Baird. comes

Your line is open.

Mike Halloran

guys. morning, Good

Shashank Patel

Good morning.

Mike Halloran

of it's a So two-fold here. kind question

scale strong market got Obviously, leadership some You've some fragmentation. and advantages. sizable very

a sheet. in liquidity's spot very strong good Your balance

question some products, two-fold how R&D the about how et that you group with of is, to spend, widen thinking So the one, versus about comp disparity thinking are potential the connected cetera? the you're your

balancing is, should together? And and of then are how need with for guys we piece and how the to short-term second things offense, management invest kind of it all you continuing those the play wrapped think about

Robert Pagano

Well, said investing and I we've you products I our on know, attention as new water time and is the conservation. and think been as with quality a we've focusing been doing efficiency, safety Mike, years. last what regulation, several over earlier, energy lot And

are going this to All economy. those really important new be in of

because and going really be and you even we more connected just said, organizations like monitor to smart maintenance things critical not to products and And react. on people need the are to rely

our like million. on going we as that investments. We So And that. down had that about areas by we're very going you plan down, ratchet But cutting aggressive to we're XX%. slightly We a we're R&D, emerging is investments to markets. probably were at in really $XX take when our look where of cut

our now, smart are than any the to back on connected on all that not not it's that's Right ever. and important at costs because But cutting need probably more we emerging product, markets come we that.

I view. that's of overall from strategic at look an point how So that

Shashank Patel

And the just on a R&D. note

actually spend at quarter. R&D all about know, X.X% you first X%. As XXXX We're in was the in

side. So smart on we're the connected continuing and focus that

Mike Halloran

Thank you.

Robert Pagano

Thanks, Mike.

Operator

I Pagano will now to turn call remarks. at over time. this closing back are for further Bob There no questions the

Robert Pagano

your with earnings Thank taking our Have continued at appreciate today. time to August. Take safe day, interest We join the us early again and look and forward in stay and speaking care. for great Watts, you call in to a you second healthy. quarter