Watts Water Technologies, Inc. WTS reported third-quarter 2024 adjusted earnings per share (EPS) of $2.03 compared with $2.04 in the prior-year quarter. The bottom line topped the Zacks Consensus Estimate by 2%.

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The company’s quarterly net sales rose 8% year over year to $543.6 million. The top line surpassed the Zacks Consensus Estimate by 0.9%. Organic sales were down 9% year over year.

Higher revenue growth in the Asia-Pacific, the Middle East and Africa (APMEA) and the Americas contributed to the company's performance despite economic headwinds and soft European results.

Americas: Net sales rose 14% year over year to $400 million, while organic sales dipped 3%. Synergies from the Bradley and Josam acquisitions contributed $59 million to total sales, marking 17% growth. Organic sales were slightly down due to adjustments in project timelines and inventory management in the wholesale channel as lead times normalized. Adjusted operating margin decreased 260 basis points (bps) year over year to 21.9% due to inflation, accretive investments and the dilutive impact of the Bradley acquisition, partly offset by increased price realization.

Europe: Net sales plunged 11% year over year to $107 million. Favorable forex movements added a modest 1% to reported sales. Organic sales were down 12% due to challenges within the fluid solutions product line, especially in the OEM channel, where government incentives for energy projects were reduced and heat pumps destocking. Adjusted operating margin was up 20 bps year over year to 10.6% due to favorable product mix and productivity initiatives, which helped to counterbalance inflationary impacts and volume challenges.

APMEA: Net sales increased 10% to $36 million and 8% organically. Key growth drivers included strong demand across China, New Zealand and the Middle East, offset by a slight sales dip in Australia. Favorable forex movements further enhanced reported sales by 2%. Adjusted operating margin expanded 130 bps to 18.5%, driven by volume leverage and productivity initiatives, which counteracted inflationary pressures, acquisition-related dilution from Enware and accretive investments.

Other Details

Gross profit increased 9.6% year over year to $257.1 million. Selling, general and administrative expenses increased 8.2% to $159 million. Operating income was $93.2 million, up 7% year over year.

Operating margin decreased 20 bps to 17.1%. The adjusted operating margin was 17.1%, down 90 bps year over year.

Cash Flow & Liquidity

For the nine months that ended Sept. 29, 2024, Watts Water generated $221.6 million of cash from operating activities compared with $200.9 million in the prior-year period.

For the nine months that ended Sept. 29, 2024, free cash flow was $204.2 million compared with $181.9 million in the year-ago period. The increase was due to acquisitions, which strengthened the company's overall cash flow profile.

The company repurchased 26,000 shares for $4.9 million in the third quarter.

As of Sept. 29, 2024, the company had $303.9 million in cash and cash equivalents with $211.8 million of long-term debt compared with the respective figures of $279.4 million and $258.7 million as of June 30, 2024. Management expects normal seasonal trends to lead to strong operating cash flow and free cash flow in the fourth quarter.

2024 Guidance Revised

The company has adjusted its full-year financial outlook, raising the midpoint of its operating margin forecast by 20 bps and narrowing its sales guidance. Reported sales are expected to grow 9% to 10%, with organic sales anticipated to decline 1% to 2%. The projected full-year operating margin is between 17.2% and 17.4%, while the adjusted operating margin is expected to be between 17.5% and 17.7%, reflecting a decrease of 10-30 bps.

Earlier, it anticipated reported sales to increase in the band of 7-12% for the fiscal year. Organic sales growth was expected to range from a decrease of 4% to an increase of 1%.The full-year adjusted operating margin was projected to be between 17.1% and 17.7%, implying a decline of 70 bps to an improvement of 10 bps year over year.

WTS’ Zacks Rank

Watts Water currently has a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Performance of Other Companies

Iridium Communications IRDM reported EPS of 21 cents for the third quarter of 2024, beating the Zacks Consensus Estimate by 5%. The company incurred a loss of 1 cent per share in the prior-year quarter.

Shares of IRDM have lost 20.4% in the past year. 

Seagate Technology Holdings STX reported first-quarter fiscal 2025 non-GAAP earnings of $1.58 per share, beating the Zacks Consensus Estimate by 6.8% and coming toward the high end of management’s guidance of $1.40 per share (+/- 20 cents). The company reported a non-GAAP loss of 22 cents per share in the year-ago quarter. 

Shares of STX have gained 46.1% in the past year. 

Western Digital Corporation WDC reported first-quarter fiscal 2025 non-GAAP earnings of $1.78 per share, surpassing the Zacks Consensus Estimate by 2.3%. The company incurred a loss of $1.76 per share in the prior-year quarter.

Shares of WDC have gained 66.9% in the past year.

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