• 4th Quarter Sales: $540 million, down 1% reported, down 5% organically.
• Full Year Sales: $2.25 billion, up 10% reported, down 1% organically.
• Adjusted Operating Margin: 16.8% for Q4, up 100 basis points; 17.7% for the full year, down 10 basis points.
• Adjusted EPS: $2.05 for Q4, up 4%; $8.86 for the full year, up 7%.
• Free Cash Flow: $332 million for the full year, up 18%, with a conversion rate of 114%.
• America's Segment Margin: Increased 160 basis points to 21.8% in Q4.
• Europe Segment Margin: Decreased 480 basis points to 10.2% in Q4.
• APMEA Segment Margin: Increased 480 basis points to 17.5% in Q4.
• Net Debt to Capitalization Ratio: Negative 13% at year-end.
• Net Leverage Ratio: Negative 0.4% at year-end.

• Warning! GuruFocus has detected 6 Warning Signs with PFLT.

Release Date: February 11, 2025

For the complete transcript of the earnings call, please refer to the full earnings call transcript.

Positive Points

• Watts Water Technologies Inc (NYSE:WTS) achieved record full-year sales, operating income, earnings per share, and free cash flow in 2024.
• The company generated a record free cash flow of $332 million, an 18% increase with a conversion rate of 114%.
• Strategic acquisition of Icon Systems is expected to expand digital offerings and provide growth opportunities in the institutional market.
• The introduction of the Nexa intelligent water management solution has received positive customer feedback and is expected to drive future growth.
• Watts Water Technologies Inc (NYSE:WTS) has a strong balance sheet, providing flexibility for future investments and strategic acquisitions.

Negative Points

• Organic sales decreased by 1% in 2024, largely due to weakness in the European market.
• The adjusted operating margin decreased by 10 basis points, impacted by acquisition dilution and volume de-leverage in Europe.
• Europe's sales, representing approximately 20% of the business, are expected to remain weak, with continued heat pump destocking impacting earnings.
• The company anticipates a decline in multi-family starts due to elevated interest rates, affecting less than 10% of total sales.
• Watts Water Technologies Inc (NYSE:WTS) expects sales to range between down 3% to up 2% in 2025, with significant challenges in the European market.

Q & A Highlights

Q: Can you elaborate on the 80/20 actions and their impact on sales and margins? Are these actions expected to continue into 2026? A: Bob Pagano, President and CEO: The 80/20 actions have been part of our strategy for years, focusing on improving margins by eliminating low-margin products. This year, we highlighted it due to the larger impact from the Bradley acquisition. These are mostly break-even products, and while there might be some carryover into next year, the significant impact is expected to be in 2025.

Q: How is Watts Water Technologies planning to handle the new 25% tariffs on aluminum and steel imposed by the US administration? A: Bob Pagano, President and CEO: We plan to offset the impact of these tariffs by raising prices. We have a strong track record of passing on costs to customers and intend to continue this approach to mitigate the impact of tariffs.

Q: Can you provide more details on the integration of the Icon acquisition and its impact on your digital strategy? A: Bob Pagano, President and CEO: The Icon acquisition is EBITDA neutral and was acquired at a favorable multiple. It enhances our digital capabilities, particularly in correctional facilities, and aligns with our Nexa platform. We see opportunities to leverage Icon's technology across our portfolio.

Q: What is the outlook for the European market, and how will restructuring efforts impact margins? A: Bob Pagano, President and CEO: We expect continued weakness in Europe, particularly in the first half of 2025, due to heat pump destocking and market uncertainties. Our restructuring efforts, including the closure of a facility in France, aim to improve margins by reducing fixed costs and optimizing our footprint.

Q: How is the Nexa platform being received by customers, and what are the expectations for its growth? A: Bob Pagano, President and CEO: Nexa has been well-received since its launch, with positive feedback and customer testimonials highlighting its value. While current sales are minimal, we expect it to grow as more products integrate into the platform, enhancing our smart and connected offerings.

For the complete transcript of the earnings call, please refer to the full earnings call transcript.