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WTS Watts Water

Participants
Timothy MacPhee Vice President, Investor Relations & Treasurer
Bob Pagano Chief Executive Officer and President
Shashank Patel Chief Financial Officer
Nathan Jones Stifel
Jeff Hammond KeyBanc Capital
Bryan Blair Oppenheimer
Brian Lee Goldman Sachs
Joe Giordano Cowen
Walter Liptak Seaport
Call transcript
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Operator

Ladies and gentlemen, thank you for standing by, and welcome to the Watts Water Technologies Fourth Quarter 2020 Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question-and-answer session. [Operator Instructions] Please be advised that today's conference is being recorded. [Operator Instructions] I would now like to turn the conference over to your speaker today, Timothy MacPhee, Treasurer and Vice President, Investor Relations. you. Thank ahead. go Please

Timothy MacPhee

good year Welcome XXXX and quarter our and full Earnings morning, you, to everyone. fourth Thank Conference Call.

results are full CFO. Shashank a our an on our today for Shashank will priorities as year, provide me Bob expectations year outlook update and XXXX quarter and President XXXX. fourth Joining you as CEO, review Patel, discuss our our of of for Bob detailed overview provide market financial analysis well will our and the past Pagano, and this year.

Following our can will accompanied address Today's to the related by during questions of found is be covered the prepared remarks, section webcast which we the website. Investor information presentation, in a slide our call.

prepared information in non-GAAP remarks. Any refer will presentation. to We reference is GAAP measure to our financial the the relevant appendix the to these throughout reconciled to slides

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

update information revise whether these of For that, I information, publicly call to The to the company forward-looking over see available any disclaims future Bob. concerning any our or as obligation or a the otherwise. With with statements, intention filings risks, result events SEC. new or will turn

Bob Pagano

presentation, customers' were business of the world. Their to being morning, XXXX changing to and and the want global met so move Tim, thoughts XXXX, will since proactively everyone's pandemic good to by patience. ensure start the confident This dynamics environment, in past I experienced make continued employees Please expressing constantly also year forward. expectations the in team updated grateful this to our everyone. start unwavering some and report our I'll our provide team adapt offer efforts past has my inclusion to and turn the X reflections I'm to around earnings initiatives XXXX. you, on Thank our and nimbly slide customer continue accelerate to to gratitude the and to and in has equity deepest meet been out social our continue needs tested was business of governance on our that diversity, environmental, year. able and and and to this strategy. I'm our progress Watts' in I'm to to endurance that our manage pleased dedication we

communities supported by improved from leading and customers following local were sustainability our and Our evaluations that the several impacted we performance rating pandemic. ESG agencies,

our formed know, well you areas, we working this As product programs to with In first and key XXXX, portfolio diversity, the Conservation, to believe Water survey, ESG We've dovetails diversity & identified employee our this three which macro our Energy equity Efficiency focus Safety with and global framework. we aligned inclusion groups we launched and initiatives. is development themes. Regulation, relevant effort. deployed lead also and training focus

a challenges. response enacted COVID-XX we company, a As comprehensive to

country-specific protocols and in was Through workplace met safety taskforce, CDC the priority. exceeded employee remains emphasized safety First, COVID-XX requirements. and that our other our or we

insights our customers' offer learning any in Secondly, business, aid which to new given needs. set We We focus customers, to urgent in with early to online the provided customer healthcare customer essential we we a hotline our continue tools up pandemic are we expanded stay maintained customers areas our and an a and of to library with very product into address focus. to with usage. great has training us invest development And in touch requirements.

these Clearly, first actions well starting structural very quarter discretionary of as The proactively in These late took was XXXX. we XXXX. as costs. Regarding margin in a short-term address totality the income a our operating our XXXX XXXX of cost us headwinds. positive the at to our in performance, the top-line aggressive helped long-term The levels some million short-term actions maintain actions actions headwind operating cost are of $XX despite XXXX. of impact

in debt, Smart product cash down our repatriation agreements, putting prioritized debt on the aggressively & we and development invested We sheet in cash managing levels as liquidity and the by operating increased existing our our working extending XX%, solid free pandemic new by through strategy. down strategic also company Connected XXXX by strengthened footing balance flow. subsides. We and flow capital, paying We and paying over financing

and spending capital We capital We balanced our fund than growth productivity. in XXXX to continued allocation strategy. more invested XX%

to we Australian the the continue QX small bolt-on in Group and TDG fourth or quarter, new and acquisitions. invest discuss product I'll development, Detection Valve Group in acquired two momentarily. which made We in We The

our we and programs. Finally, sustained repurchase dividends share

the was circumstances and we Given faced, successful company. a for our challenges XXXX year

Next, I'll priorities review our XXXX. key for

In geographically One to We'll drive to drive continue help sessions organically safety our virtual mentioned, promote customer social new As or online practices. introductions investments. employee continue fund number & one proper both Smart & customers, performance training to and solutions, programs XXXX, a over look meetings. is sessions, through our our training to reps, product long-term over XXXX to portfolio. delivered incremental for increase and training This XXXX. including we'll Connected and I to expand In we for XXXX, enhance safe XX% order previously Watts either our initiative XXX,XXX to distancing priority. Learn hygiene and is opportunities regions, customer through in acquisition. Lunch connectivity. in into new We'll further Productivity We'll contractors through to expand represented expanding elicit engineers continue expected continue and will feedback

and with still both from Americas, on the to then, quickly talk how most take our Also, are XXXX's or XXXX. reach expectations see effectively how many depressed is in GDP vaccine. internal is expanding grow for elections in year's deployment approved we in We earnings updated two expected vary vaccine markets perspective, the some briefly been data forecasts residential been the are regions herd commercial views turn mixed to about all are the to disseminated plans countries by market-shaping call. and market key levels, process macro our in been be and we the can preliminary this on What major have our In From up opt people of uncertain gave crystallized, when a population during behind at immunity, operating November how depends we new broader the X% let's our our has vaccines finalized has unknowns construction and submarkets. higher. markets the the Now effective begun. have industry and namely and can macro have published. us, important still US Since which

higher And anticipating looks residential New approximately housing homeowner starts in persistently the construction general of growth the and growth housing driving on starts, XXXX. X%. single-family into be LIRA expected income rate positive low single-family continue and in job index anticipated mid replacement repair single-digit spending spend demographics, interest steady rates, to with and with to growth to increasing projects is in XXXX, high

construction and confidence construction US growth expects still overall including industry In end many to industry will very Also, be a The non-resi However, new The results decrease Construction Outlook, X% difficult We the construction released year multifamily Consensus expected are XXXX. starts that a challenged. all contractors the that by markets. decline indicators, their be mid-single-digits which non-residential, growth its indexes divergent latest market. in over recently portending concluded data released construction dependent construction on for based prospects in we anticipate AIA the ABI, in market are recently to XXXX non-residential see in survey decline firms XXXX. on AGC spend semiannual about XXXX. X,XXX will in in

getting homebuilding grow activity energy in unemployment all we with region, enter support, should are flat. the industry subsidies various XXXX. more in government new Germany in channels, activity GDP are in funded expected impact to In pocket and the may Asia there impacting continue programs provide to projects In markets Project and in us Italy, the is Existing protecting which economy the in during and grow quarter employment that and reduction expire this and to in due France, feedback segment from projects we being X% to air home March, as is the Drains in second down continue with wholesaler concerns the continue we we least the up anticipating non-residential Given the be recovery In is at our significantly. challenged. indicators be expected multifamily Government second is see of construction pandemic. over XXXX. In are yearend the marine starts the also construction Europe, commercial and year new finished, are sponsored the markets to forecasted starting but we China near-term to regions. expect are lumpy and overall are in business, could quarter starting through mixed. there. in Pacific

Middle to being range, Finally, energy GDP adverse demand. than a and grow influenced East is in issues the likely expected little more geopolitical slower and regions other so by X%

where be XXXX, to started Please to When smart for in business our our on to connected competencies strategic we the we slide connected like possible. pipeline little an transforming their units plan. I'd turn Today, provide Electronics development and but of product businesses, and portfolio in or to strategic transform update and Now, capabilities deep digitally we initiatives. clear Watts smart portfolio had our and of way goals our a realized Tekmar product in evaluating X. each potential has the

that ensuring importantly, connections deployed most Additionally, scalable created we a and have robust, for a are that businesses, mandate dedicated our with and our secure. has team

shipped to XX,XXX we XX% started have the connected people to resources products. added XX resources, a and products more exclusively devices primary With of enhance exceeded products smart value goal our XXXX. our connected these smart in we provide The we over connected Cumulatively, globally, smart connected on is initiative customers. have than and selling and increase since working

will system. operational Plus the IntelliStation like in meaningful water efforts systems detection AERCO systems and with that enhance our PVI like areas. Safety to data our backflow focusing activities. like product are These our customer efficiency further can our levels digital Energy instruments. our Century us we following like the Scientific the boilers and leveraging provide key products. on own mixing hygiene, Leak service HF and ultimately products our Water begin performance, heaters. regulation, We discharge

services. of subscription and towards still product In pathways slide We're continued achieving connected highlight total and XXXX, and were addition, connected On X, a solutions our product in the smart In Watts of by smart XX% share our see two larger sales our represent focused XXXX. connected me of sales on to let solutions. we sales. and goal smart mid-teens

another as notification the a services previously, mutual TDG our We to quarter, the or annually. called mentioned products. into we a provides The approximate TDG in We suite for due approved commercial pain fourth made multifamily company interested TDG key and smart factory multifamily products for and water costs Detection detection welcome I Watts. to wireless leak As were million offering acquisition overall Group, a $X and in and that to products rising small Sales point building being buildings. owners, commercial are connected insurance team bundle addressing leaks. Their of TDG.

This via right that and side brands enabled gas how everyday create what systems of the solution bringing of return about and equipment can developed a and customer for you a the challenges. excited is document and remain This service line. combines equipment allows FloPro-MD is industry. the address our Smart procedures. capabilities and to we read report related to connected mobile increases Dormont The if We combine example to the on to gas identify of Bluetooth to consumption, On slide, initial app. be will a technicians our service by need Watts leverages or another single gas & reduces efficiency Tekmar quickly Connected or it's far a repair in connector device the to gas proprietary in-house an that during future Dormont may to good manufacturing disturbances pressure calls user single flow with experience. and and installers provide expertise multiple FloPro-MD our of problem and start-up and installers maintenance Electronics the utilized solutions Watts see

for the full results will offer and Shashank outlook our review for XXXX. and year, our quarter Shashank? fourth Now,

Shashank Patel

but of turn highlights were sales X, up X% morning, Thank than fourth and X%, offset results. year-over-year. sales were a everyone. our acquired good net slide were Organic Reported Please and to Bob, quarter which $XXX more million sales foreign tailwind. exchange down you, by

I a divestiture, of driven XX% anticipated. the final each net regulations, income profit review translated of will or top versus basis tax which repatriation. higher reporting better million, into XX.X%, up $X effective approximated sales, the XXX foreign favorable Adjusted adjusted were experienced adjusted XX.X%. European operating of benefits related tax an offset last America from tax productivity compared Europe included of positive incremental a The foreign lower reliability was While million anticipated increase, from region $X.XX GAAP operating versus election, effective as year. provided million a million expense, aggressive and foreign totaled $X.XX the in operating actions, the new tax Benefits lower in a and margin cost to earnings summary, controls $X.X growth points $XX recently we sales quarter. and better resulting quarter momentarily. lower a savings, operations organic tax adjusted results. tax investments. primarily to share regional Acquired sales, to year American benefit than $X.XX restructuring from translation. The share, volume exchange and EPS last including cash productivity an currency increased issued $X Investments XX% increased quarter. line was than reduced received than last $X.XX from as per primarily regulations credits. more by and cost in from driven In rate charge and and Adjusted and and growth opportunity of the net drove rate by declined performances of tax on a rate year. tax

products the more reported slide and sales added X%, HVAC Moving sales approximately plumbing heating to exchange to in by drains, offset and were water approximately acquisition by with X. Americas, the please product Together, by and positive and than TDG in results, certain dollar being in reductions turn hot to foreign Organically, water, the to sales decreased X% sales. movements quality, X% the In million. $XXX driving to Canadian down regional growth year-over-year. more than expanded Adjusted Americas to was for savings reduction operating $X XX.X%. slightly cost in adjusted $XX margin Americas profit and million. year. the volume margin increase than the Overall, increased with previous which incremental points The actions We the the anticipated, better approximately X% basis more than made positive cost by sales productivity, line. operating million investments. quarter were investments bottom driven XX offset and electronic

down markets restructuring France points, than basis sales quarter. cost more and both primarily Adjusted investments. OEM which in Scandinavia, growth with a and marine strength the in and wholesale and a lower the solutions being basis, top by more Italy was performed stronger were performance By and by From government drain and increased market. million with $XXX in saw sales including plumbing, X% foreign being up a drain operating reduced OEM Organically, continued electronics, are in marine driven offset solid a in million, were offset exchange in than the energy was especially we markets. commercial sales by mainly driven electronics in we and with drains. Europe's actions delivered expected. higher saw as was perspective, operating year-over-year. X%, of restructuring and down productivity, plumbing savings supporting sales better savings Italy by Europe, on approximately into strong sales reported commercial X% XX% applications HVAC which by to better-than-expected softness, In sales due Turning by fluid flat year. and profit of down. euro we had from Scandinavia operating in sales $XX was XX% increased growth region, sales benefits saw a partially platform wholesale, decline growth XXX saw the into programs. Germany summary, France subsidized and Adjusted softness offset OEMs line continued last market. increase offset into wholesale In the volume Europe margin over to drains Germany, along that than the

more offsetting million, on decline offset sales be productivity fourth continued quarter $X.X growth intercompany reported New Australia partially lower datacenters movements favorable and organic X% East basis, nominal volume, volume operating with in organic Middle last APMEA's saw points Now valve of probably to China, the China, XXX $XX China organic strong. let's investments. Sales operating by and cost within XX% million in and was into offset of where Outside in declines commercial adjusted an versus Zealand. double-digit controls, third-party by acquired up growth of profit and X%, X%. double-digit exchange with We sales Adjusted review margin up up driven than of approximated growth high foreign results. year basis net a sales X%

So impacts me Slide X, other regions are of while growth, results. to let COVID. speak the the APMEA China with year continued still saw dealing full On

billion, organic XXXX, decrease X%, on reported effect attributable $X.X reported basis. down sales X% of driven sales of primarily was For The a an COVID-XX. were by to the decline

Free with which related $X.XX Foreign had was was million that per operating the we operating a It the while There impact our adjusted decremental still XX% operations more XXXX, accounts adjusted in management, rate working during increase new These by full XXX%. year-over-year. tax to In prior over to increase pandemic we in increased product the million, exchange effective result in year investments investments funding cash decline which and on XXX% specifically XXXX. development, an roughly were better $XX capital XXXX. XXXX, a million positive the sales the $XXX XX.X% of factory Adjusted incremental over in XX% flow from due investing aggressive adjusted XXXX. reinvestment lower repurchases, especially cash mitigate earnings margin in flow returned over driven to decrease actions, by the offset in equates X% productivity. and was versus effect total, important totaled we factoring is were shareholders Adjusted receivable. to share cost an invested $XX $X a key currency was operating for while partially XXXX favorable maintained and year. margin, share Free form declined translation. to volume volume. the in full flow XXXX, note projects in decline, conversion XX% expansion was of and free XXXX, XX% million We $XX of and In was for ratio. able acquisitions of year year. dividends flat X% of this million decline cash sales but capacity foreign still good profit year. the through A We lower in

During debt by XXXX, down we also million. $XXX paid

is used Our negative net repatriations compared cash We operations ratio at now down at debt. pay and X.X% as a prior year-end, the positive to debt year. to X% capitalization in to from

sheet in our Our to substantial to continues capital excellent shape allocation priorities. balance be provides and address flexibility

personal challenges costs, and and year Given noteworthy. manage and we the Bob characterized faced as strengthen a XXXX, would COVID balance maintain I margins the with our our was sheet many operating ability successful, agree. proactively in to environment in down

considered discuss we Slide general preparing our let's on X, in the Now framework XXXX outlook.

we Consistent the pocket First, potential focal until starting us and pandemic We air quarter continue we the we presently government we'll pay determine approximately well drive that that new affect East these include costs repair/replace. reach we In of the investments could look Middle column the are for especially Smart monitor. strategy. and timing immunity. cost $XX strategy, let's the going mentioned Its are air length non-residential long-term took Europe. on in travel our in XXXX, could $XX will the the with ongoing continue this business. will herd pocket headwind construction are & middle costs impact that to Pacific as provide Asia a that These the Of XXXX. in as discretionary There believe incentives, that impact be evolution reinvest return our expected point XXXX. to and will second geopolitical of headwinds. and COVID-XX million at expect and could multi-family of We to will of and business, concerns the in growth MARCOM. reductions, million Connected the impact incrementally themes actions several of to our

and and especially election results in proposals and place, take been policy Commodity US will the significant. stimulus increases. further sort have fiscal in out, and steel, future potential the With new behind time regarding copper administration inflation, transition tax new us to especially a

in substantial and also We experienced logistics, have insurance. cost packaging increases

help have mitigate We current to increases announced cost the price increases.

Now anticipated continue tailwinds, looking to XXXX. residential construction single-family should at grow in

introductions, our should We incremental product as within new factory & our from including drive function. walls cost on productivity benefit in through benefit with One actions to performance well intend to improvement Watts additional Connected as year. expect savings continuous efforts last we initiatives from Smart additional We the SGA And products. taken

is As coming discussed, sheet our XXXX. balance exceptionally strong into

pursue flexibility the business, meets transaction inorganic and financial assuming growth to opportunities have criteria. our to strategic the We a augment

the the Lastly, full global induced COVID the of to may X% our that from major With economies to organically, XX, down in have lows assumptions. review XXXX. recover continue our that Americas to outlook provided estimate from range for year in are expected XXXX. XXXX we We sales slide let's flat backdrop, On of XXXX. recession

Sales Americas XXXX, suspended should $X We were TDG year. to operating in increased with increase margin costs last compared million down savings expect initiatives the addition acquisition. of about with may by productivity and cost adjusted incremental be that offsetting the the

better to year-over-year decline half decline consolidated from flat anticipate sales adjusted APMEA, may are of should be also Organically, reintroduced for decline For down may a million intercompany forecasting volume grow by also Overall, to be for anticipate Americas. first organic organic sales may half XXXX. that to as range the basis, Europe, sales as acquisition. from year. X% $X we Adjusted against similar approximately down AVG operating We margin flat. may in expect margin year-over-year. to Sales organic Watts expect we reasons from operating In X% from expected X% perspective. we to to level XXXX the X% increase the a we expenses on the get sales and some than is second

XX incremental last Also, $XX due be is non-residential We an decremental lower This and impact million, will we by comp multifamily of the and markets actions. cost XX operating estimate volume, $XX to headwinds quarter year. as margins mentioned. we've will half COVID be air second due major We slow the our anticipate second adjusted easier the challenged to construction may pocket have new which and by basis driven savings, investments are down with points. million being to offset million, along XXXX $XX the general incremental primarily time/cost inflation, of restructuring price productivity of partially

Now XXXX. key consider inputs a other few to for

We million expect expense million. the corporate costs be to be for Interest should roughly $XX year. about $XX

tax XX%. should future Our in support to reinvest for should be million XXXX continue is growth Depreciation and systems new range we approximate approximately amortization adjusted effective rate for million spending the will facilities, development, to our in as product will $XX productivity. and Capital which be year. $XX manufacturing and expected the

income. greater We XXX% of free net equal flow expect or to continue conversion to cash to than drive

rate EPS X.XX rate is euro-US the sales are the our a exchange impacted XXXX. our by and by X.XX the movement that rate, in every Please annual of foreign for euro-dollar exchange We average up approximately $X $X.XX million, impacted are down or dollar $X.XX. full assuming in for versus year European annual recall

should share the $XX approximate year. We expect our count for million

consider Finally, a items QX. to for few

$X will QX flattish operating in year. compared Acquired the We the year full easier first to Europe last last from Americas margin QX, approximate X% due and up likely to be see QX million range COVID in our APMEA. quarter we should line organically, million in down with impact experiencing sales sales to in sales negative APMEA with Americas $X.X slightly QX and million estimate growth organic the QX year. and $X.X X%, comps in For as

of rate investments XXXX. approximate of incremental quarter compared offset incremental effective $X exchange given investments $X expect to tailwind We restructuring rates savings. anticipate current million adjusted as QX, to be first million be XX%. foreign will a should QX. The in the The in would about tax We $X million by of

transition XXXX for as a year So overall, see the company. we

the our and to time, taking During be continue before our are margin pressure over and to summarize the opportunities, our of back future, empower end drive affected, to forward. we moving discussion opportunity people adversely this markets we Bob growth to With that, to I'll customer to on this deepen call relationships, but our many Q&A. expect turn putting Bob? expansion our may organic for invest us

Bob Pagano

XX and controlling successfully slide year. let We environment. given The to to turn the delivering Please challenges our results adapt we the me discussion. through were summarize by to economic navigated COVID very team by a Shashank. pandemic, could, many Thanks, what trying able caused the strong

the they through free XXXX. the Connected Timing should Our the critical for efficiencies reduce broad guarded. vaccine to strong and We multi-family new gain momentum, remains see in Productivity restore the plan help for market grow continue gained products starting indicators industry cash XXXX current performance We system watch a normalcy expect outlook will we given one deliver to to in Smart and investments. and fund second to XXXX. construction starts is continue dissemination and of flow. markets. continue the and to and uncertainty some year quarter, challenging in of lack and non-residential

bolt-on build geographic and our the customer strengthen affects remain vaccination reach how As that prioritizing construction add closely capital develops sentiment in and further expand acquisitions markets. in scale. the process deployment, always, core, our monitoring COVID that disciplined and reinvestment how we'll We'll technology our to be

still on control experienced can the very our while With and long-term in execute Given issues strategy. on that, XXXX line what our operator, near-term XXXX, please team focusing open performance, in work our confident growth COVID will we the through questions. I'm for

Operator

Stifel. Nathan first you. Jones question with comes Thank from Instructions] [Operator Your

open. is line Your

Nathan Jones

everyone. Good morning,

Bob Pagano

Good morning, Nathan.

Shashank Patel

Nathan. Hi,

Nathan Jones

carryover $XX incremental bit comments you Can there. level XXXX, your Maybe going to savings versus million Bob, on to to end out capabilities Thanks to cost of actions a little made from costs digits that expectations your put you revenue million color whether Shashank, all cost more with. finer during to or down very a are given $XX much maintain that? to XXXX, mid-single in that expectations costs in couple market a need point be net about just start savings for the planning XXXX just returning of for you very take questions then structural side the in low XXXX. the a more rebound in of here talk on And the returning are XXXX? you temporary elections, potential remarks, few just took in detail of cost on in more helpful. a that's that what

Shashank Patel

obviously, the then $X some period, $XX which which And subsidies, and $XX included kind there pieces miscellaneous million. metering and is onwards. actions million, one And is the variable first and what of hopefully April up, once going are the six primarily that from about we Travel in costs are that second So But be $X that's of had temporary metering be in the one-time. is. back of about up of time headwind travel is September through million million got coming months, COVID. based in cost it's things on was million, it's again And costs Obviously, there back, We light be the from MARCOM. what Europe were and another and that budget. that cuts in the we'll million, $X be headwind, MARCOM those pay six $X is, we've which the open is May of starting of top cost and on again will line months, that's made about going because to to of China, about the like $XX other in we're coming million government we'll meter. that primarily the

restructuring out were restructuring the the $XX savings. million cost XXXX, side, about of million On $XX in

that partially and a restructuring was Now -- savings.

the and million $XX there's million, on $XX million we incremental saved then had. we another we actions the in top $XX took roughly XXXX last of million us So year, that that get $XX

Nathan Jones

Okay.

So net restructuring, XXXX? in about temporary versus even you're

Shashank Patel

statement, That's a fair yes.

Nathan Jones

belt correlation and Just your you and typical with and Bob. GDP about there? of you was seeing repair repair wounded, one the typical months wouldn't not three quarter side talked some bit potentially that more maybe updated thoughts sheets last between a customers' I correlation. balance replace and on see another were know this, there the replace under Any there that recovery, concern

Bob Pagano

Yes.

side really occupancy XX% are some think the of hotels, which business; I the cetera. et of markets, I in and their think the the hotels troubled restaurant is

think, happening, break/fix projects of cash I And is get continuing started the Overall, want that I overall, they because everybody to and and they that side. that to think much trying continued but as can. Certainly, maintenance builders is quarter. they're their defer existing positive get paid saw residential So complete to constrained, side going. we the they're as in

of our we're year, biggest So the seeing part the primarily I second the continuing business. of is really of And as the the and concern nonresidential half -- in starts expected. our the in given in think that multifamily lack starts,

Nathan Jones

curve create believe just this you might demand? demand permanently shift Do some pent-up that to does this the Or right?

Bob Pagano

is markets, just tell to on think I think that's tough pushed pent-up to right to it's Yes, be it to cash get some be But until demand again, great that. question there'll willing I and their the going troubled a they flow because others, back. those spent. be That's parts, in

again, think, that's mixed. I So

Nathan Jones

Thanks on. pass very it much. I'll

Bob Pagano

Thanks.

Shashank Patel

Thanks.

Operator

Please Hammond Capital. comes question Jeff from next KeyBanc ahead. go with Your

Jeff Hammond

Hey, good morning guys.

Shashank Patel

morning, Good Jeff.

Bob Pagano

Good morning, Jeff.

Jeff Hammond

not So clarification multifamily? are robust just multifamily. would looking but be or it's single-family, I certainly as fairly be to thought are know, you assuming for I what stable. as on a What it you going at

Bob Pagano

I'm about as they're index at multifamily loan XX%. in What to a the going QX is that QX. looking I my similar expecting said is to forecasting -- said, in look Well, prepared construction, And and overall for when down origination comments, be QX, document in is, X%. we're was most down be basically we volume at originations, multifamily, that concerned

is point Jeff, construction are time. Permits is slow at in new started, they everybody again, really this but completing, down. what So

not time employed pockets, Dodge the to the index, a in now, ABI, the some that's sitting portending see particular we're that discussing plumbers, in while, right pocket labor that City. air You Momentum Talking in also all some there's and are air about. in they're on seeing partners, York bench trades, those that and for cetera, unionized they're first New channel talking a the softness et

So the And that's minus going But is we're concerned to overall think second that in up started year those I of mixed X%. particular are being A into that the lot I is finished. stuff really that be of half things most the think about. challenged.

Jeff Hammond

like midpoint at Okay. temp I got EBIT from $XX your the volume it then and $XX you've guidance, you of so bridge, million. investments down And at headwind if of some had million I baked And seems And is then, $XX back, in. guess look coming million costs structural of savings.

or if bridge, the something missing favorable or other know savings in don't else mix -- I'm I So,

Shashank Patel

Yes.

Jeff, not it's insignificant. mix is So --

inflation, of we all inflation packaging big about and So is other freight The sorts from right? piece and commodities stuff. and talked

a So year. this headwind inflation significant is

point to decrements Now combat try price points obviously, is which margins, to other that's XX the the of to volume. so it. of probably driven XX we on But is basis degradation the piece got margin you made, the some the by the that,

Jeff Hammond

you then what inflationary price this, in year an typically Okay. of like do realize? kind And

Bob Pagano

that. to more on the get increases price X% in on realizing aggressive January. of and implemented X% to X%, team And pushing We X% even to plan we we're

we're So that's an looking and area that at. hard, we're that's what pushing

Jeff Hammond

Okay. the you in last I total are growth of connected kind to high the XX% acquisitions? organic one of about bolt-on take and if CAGR. kind terms XX% little versus It products. And on looks teens like technology a on are How of now you thinking business, XX% that growth kind of to then put your these

Bob Pagano

focused products. transforming on existing has more be again, a organically become the will first that We're cannibalize strategy digitization I And both. think of But it's combination products. to more and our important. going whole

investment it them. is products focus our think significant our we'll bolt-ons of the to existing now, what's and take majority and our but driving So do electronify is I right small

Jeff Hammond

lot. a Thanks Okay.

Bob Pagano

Thanks.

Operator

comes Oppenheimer. question Bryan next go ahead. from Blair with Please Your

Bryan Blair

Good morning, Thanks. guys.

Bob Pagano

Bryan. morning, Good

Shashank Patel

morning, Good Bryan.

Bryan Blair

lot parts basis year. XX progression in versus XX that year? and Is for on points set margins You've moving second of the or first given a the the thinking the color quarterly half terms the billing down to about on level expectations of impact to and what's throughout then

Shashank Patel

Yes.

so – think the the I took early, Bryan, got happened we half. a bulk we actually we obviously lot – in of so March, actions second the of started but started them cost

not that margin lot of So half. therefore, second you is a in degradation, expansion, think when about the

when and last we're QX, an from quarter first the gave we the guidance, in took still actions we getting we said of because benefit quarter, why kind flattish in of that's standpoint, first benefit year of and that operating the the we QX. The margin didn't have

your versus lower be point, with second So – the is going around margins XXXX. more half operating to weighted to

Bryan Blair

PVI Anything AERCO sales fourth and trends offer the your Got this visibility can you what's base for year? more through current early into XXXX? in it. reads, color. on case Appreciate guess quarter and I the And given market boiler expectation

Bob Pagano

see platform, quarter, which our high-single we is to heaters, they HHWS Well, and down were the quarter the year. as first digits into coming we're water boilers and mid in complete of similar this

their demand. was of area by hit if in pent-up most which last That last that's first saw first et you And us. a were So the an some There education recall restaurants, year, we quarter in year, they hotels, cetera. was quarter strength. the spending lot surprised

in in the comp particular we've boiler tougher So first in a AERCO got our quarter. side

Bryan Blair

tax item, transition/policies there? Got the section of XXXX of assume of monitoring I policy, what's a you watch planning XXXX more US Outside radar on team's framework. which it. government in is And the have

Bob Pagano

watching certainly energy stimulus discussions infrastructure. efficiency and the on proposal happens with especially if there's we're that type Well, that, on what

a about now in where time. and certainly, action participants, roads of haven't But lot So in we that. but And Obviously, an of I seen an and area industry time, a But a area. education area on they're there's lot airports, talk, key that's point have focused we at right really it's this rather point that's right this at other not pushing healthcare, we, much focused we're social with I would hopeful. can. talking infrastructure, on we unknown but talk that's now, bridges. on think mean, an are and again,

Bryan Blair

That into thinking have your optimistic scenario, term, through that reset the we back a that package near definitely makes and that assume spending in place direction? in meaningfully could come is XXXX Or case If that the over should potential expectations? there would sense. an half we take do lift our the

Bob Pagano

definitely then year But would significant XXXX. point time. the I in I at it'd this very late and into think in think more don't be again, it's

Bryan Blair

Okay. Thank you.

Bob Pagano

Thanks.

Operator

Your next from Brian ahead. Goldman go comes Sachs. Lee question Please with

Brian Lee

from guys. morning. Hey price actions. around questions. just one Maybe earlier Thanks a for the an taking Good follow-up

the targeting about market base the to for to out case Just as you're you with XXXX, X% think you're price/cost X%. X%, to dynamics, maybe X%

Just to X% of price are two? your you balance cost. neutral XXXX? into is sort it baked Or for a the what's of point able to for case X%, base net or get understand price/cost to the actually you model trying If

Shashank Patel

Yes.

X% through rate. realization X% the price we that be for inflation that So a the progress thinking X% those go as have that's us offset though, because to the year, guys it. at we depending That's again. commodities take of the look, looking And we're rest productivity, it's and side place usually about with through you to the might price it's we on this X% the inflation. how and one. of locks we at now, on end way in June, way Obviously, commodities the Bob and know, But mentioned, with

Brian Lee

that then dynamic? price/cost you gets And the on neutral Okay. to net

Shashank Patel

yes. Collectively,

Brian Lee

on helpful. pocket. a air I color Fair maybe then bit the enough. guess And All right, more that's

this You guys timing, the to calling and have drivers the can a a terms discussion of through kind of that weaker visibility sort might as you stand as percent to and any QX have of non-res and but XXXX? you you at is point? what been And normalize around but that pretty here are multifamily construction? we of detailed us today move Or new back half, air in shelving this exposure – give you XXXX a out then timeframe, of you're sense how for even here as pocket kind

Shashank Patel

Dodge air length if usually, a all you So XX-month momentum, second started of in first, have right, X ABI, turning they taking And pocket, quarter. they indices, the these the lag. your on question the back to go to second negative

we take come if expect our point, up that that's that with you quarter, continue XXXX. to where and we So throughout second

But that this just don't the we those As pocket We'll of air that know have have when to in year. progress have indices XXXX, rest factored through that through we'll to turns see XXXX. in we how yet.

XX% challenging right, total stores, marine, buildings, As we the food by the look challenged our and at Americas. lodging, we so markets, all what in represents of that air residential, and business, impacted when office multifamily, be recreation, will our markets, commercial to the that Watts pocket expect services, approximately say we of that's

Bob Pagano

on confidence heard all that's It's And Yes. point me I time. and cash the things, portion it's guys key in new one right? invest talk the from about at to this the of confidence, this their you Brian, have that. think past, in of builders construction the

the sidelines some stability So there's the for waiting just in on markets. I money think

You're hearing builders, with up double. of lumber supply prices are shortages chains

to -- looking vaccines out. point, There's we're think normalize, to for will released. some rates, this chains supply they're be I waiting interest rolled just So be so at low

watch. So will the be to of timing this it very interesting is

with some point, we way why see that's you're But happening a marketplace, not starts, and look, that's discussions. not are. us the of we're talking going things catch So and when about lot obviously, at we up the air loans doing in you're doing the pocket to

Brian Lee

guys. Thanks

Operator

Please Your ahead. with Joe Giordano Cowen. go comes question from next

Joe Giordano

Hey morning. good guys,

Bob Pagano

Joe. morning, Good

Joe Giordano

continue path Smart of Connected means associated what margin on the and standpoint percentage ratcheting the & here, uplift you that with next a higher like the years? Can from you over the talk about, as couple

Bob Pagano

products. value customer, Smart our our continue we Yes. at to to higher our try bundle I solutions, proposition than mean, proposition existing & with standard value we look to look, a so Connected as our

investing So R&D, offering customers. in they at be standard higher. general, amounts higher, the now up tend we capabilities. margins in know, But But, to scale to to and standard those SG&A value be propositions the and we're build our you margin, we're the tend significant as as given right

Joseph Giordano

How big you've end. And longer normalized restructuring we should the term, on made versus Americas? in think margin think strides potential as the Europe we then, about of Europe

Robert Pagano

Europe. inside of I think, significant we as we said, have footprint,

going there. lower be to structurally, I So margins are think

at let we point take to to in expensive, plans, you this only a people out through restructuring the continue know, We It's harder in actions. its place of and et cetera. small it's very pandemic, take take headcount gotten And freezes as turnover But lot social course. during have time.

our remember, big, that, business X/X X/X OEM is there's we to But related. monitor of general, Europe it little lower. be look in a structurally at will than business or that. about So, continue less of a And

So that in general is lower-margin business.

Shashank Patel

a XX and would months, XX, to teams that. price. the the job that, whole working last going on on margins. continue done with I And the they're proposition helped that's driving over have nice value Joe, And say

Joseph Giordano

Thanks guys. a lot

Shashank Patel

Joe. Thanks,

Bob Pagano

Thanks.

Operator

comes Your Seaport. next question from Walter from Liptak go Please ahead.

Walter Liptak

morning Good Thanks. Hey, guys.

Shashank Patel

Good Wal. morning,

Bob Pagano

Wal. morning, Good

Walter Liptak

just I wonder, to And the North with America. is largely of if to I go And of about could air wanted the wanted talk stick that growth could XXXX? rate we're that what get I a Europe. and Europe in range discussion to well clarify, you pocket the talking little bit to are more the headwinds just or low-end about, the that for

Bob Pagano

been hard this point profitable In of for time. that's business, about been challenging drains more growth talked our I that so is, about. Yeah. In our Europe, it, what's business Marine talking Shashank think this about America, in has North at us hurt, we've over businesses, general, us. is The pocket one is which in air Europe talking our abnormally we're what time. But is commercial getting slow

is our those structure we're nice low and driving managing always growth drain it's by the growth cost as we we lower in the job to way keep our plan cetera. team, So are. Shashank costs, said, and why But et Europe, done the down, guidance giving a offset But business, change.

Walter Liptak

my was the productivity. wonder on, productivity I Or kind -- there go to end, to restructuring Okay. of wanted phase restructuring you million Got another that comes is of in going with from I benefits of to savings an on the Understanding of what the productivity. factory do? machinery. back discussion you'll there XXXX, think and $XX was And can I and understanding floor, it. get

Bob Pagano

and pretty Any When of our restructure. look first looking all, productivity our continue. went are look, XXXX, at restructuring, for it. driving for restructure requires difficult, we cetera. longer, We more after Well, you teams is in other in always opportunities went always that factories, we're and hard will know, plans, et

XX% investments. there it to to both, leaner primarily we'll to Smart at looking go to that, continuing get strategy for get be continue recovery So be to teams our option. inside continue of on $XX & the will we've to And of to here, most That's ground we're capitalize coming factories. But at But We believe want We our back. why right? run importantly, productivity be And Connected investments, us that look in we're long after by the XXXX. running. will strategically ready a able we're and our hit connected million to decided always the incremental that. driving

Walter Liptak

Got you. Thank Okay. it.

Bob Pagano

Thanks, Wal.

Operator

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

Bob Pagano

continued us thank call, closing, taking day. call. time And to interest earnings in you, with quarter earnings join during for quarter great to the our safe. forward speaking Watts. for in And We today, again Thanks. your look our May. Have In appreciate first you fourth stay a

Operator

participating. Ladies and gentlemen, this concludes today's conference Thank call. you for