WTS - Earnings call transcript Q1 2019 | Watts Water Technologies, Inc.

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Operator

Good morning. My name is Mariyama and I will be your conference operator today. At this time, I would like to welcome everyone to the Watts Water Technologies, Inc. Q1 Earnings Conference Call. All lines have been placed on mute to prevent any background noise. there a remarks, session. speakers’ the will question-and-answer be After [Operator you. Instructions] Thank the like President to now would call of to Relations. Vice I and turn over Treasurer Tim Investor MacPhee,

conference. begin may your You

Tim MacPhee

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

quarter During and the on first opinion state of and offer markets. on Bob will performance the provide details overview an full will call, our his today's of quarter provide Shashank year the revisit current our outlook.

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

remarks. is financial to We will Any reference reference reconciled the presentation. the this information appendix of prepared non-GAAP presentation in our throughout

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

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

Bob Pagano

everyone. basis and the XX% APMEA. softness increased morning, with share of margin and X growth record adjusted slide note Europe and to and sales, operating delivering and earnings the briefly turn a Tim, quarter. first margin in the overview some QX points Please in XXXX per XX provide team adjusted expanded me sales you, Americas an EPS. good Organic began by We quarter. Thank in was the favorable operating solid let on by with

pricing brought replacement our and performed end repair year. Residential Regionally may and which spotty continuing during lines line sales and We invest for of in profitable of driving future. while organization, on internal shipping the prior solid top to by extra review by results the largely with expectations. delivered favorable line in in quarter growth day an including continue our line the slower see like The by Europe the Korea. strategy a a year expectations levels residential Momentum Americas a the as top that APMEA's delivering products our index driven in decelerating growth moderate details discipline are provides in the platform recent new continues a will Drains later had concerns sluggish dynamic. number that macro signal residential geopolitical growth remains quarter. signaling be Americas, region. just with data had lumpy and line continued minutes. in markets the and few together softened progresses are In in data growth growth have data the growth markets ABI Dodge softness. a finding construction growing for growth connected was productivity softness executing cost we this the as was quarter and year macro Shashank heating to the The as product over and APMEA but at This and was progresses. China anticipated. we year. weak with market the in more backdrop hindered softness a Europe indicators

and tariff situation. the We continue U.S. to trade monitor

China activity this which tariff the we U.S. in affects enacted price our regulations. is instituted not mainly is by as much intercompany Recall of into of increases second affected Europe, through For XXXX. the tariffs, purchases half issue

Shashank, turn to and for we reaffirming the line in provided February. me that, our growth more and full original outlook our call top reaffirming our With assumptions Shashank? talk in outlook. over line about let Turning to outlook, first expansion quarter we our to results margin are year with the

Shashank Patel

of results. with turn comparative growth Please Americas were X, and first Europe. in $XXX the the on basis. X% slide Bob. shows quarter’s which Thanks, to up million sales up reported X% Organically Sales were a

euro, million. driven and Foreign X%. profit million operating tariff year-over-year sales $XX increases to primarily roughly investment or by cost of than decreased basis exchange, a incremental by $XX more offset points. XX million. was and spend inflation, weaker XX.X% increased operating Price, roughly Adjusted of margin normal $X XX% Adjusted volume up productivity,

$X.XX impact in of relates XX.X% was the rate euro first last operational of the a increase items the of which The share quarter than year. by The Foreign weaker $X.XX quarter profit. tax in tax $X.X headwind effective operating of points foreign weaker unfavorable was is primarily lower and earnings driven Adjusted Favorable driven share. is The exchange increased primarily increase of million an of XX to offset over adjusted below-the-line first mostly last basis year. was to a reserves XXXX per exchange, by euro. improvements. XX% mainly year-over-year the foreign a

know, Now played turning flow slower you out for that as to cash, cash expected. period the as a is first quarter and historically

Our million operating compared cash year. free the improvement to due year. million cash in generated last as first was quarter outflow a for income, flow $XX outflow higher The the quarter to of was $XX this

for improve to cash conversion as generation achieve the expect to progresses, the expect our at and least year year. XXX% We cash

the in approximately line repatriated we which million our cash down was used to credit. $XX During quarter, of pay

capital dividends returned of of million. common in million at In in $X.X deployment quarter a purchased shareholders shares part margin to trend first and see share growth and as We our XX,XXX balanced the form addition, total, stock, approximately we In we operating continue to we XXXX. adjusted of approximately $XX cost of organic and sales, adjusted the strategy. earnings delivered to start record good share per positively. repurchases Overall, a our

continued performance We quarter. regions, the $XXX quarter were Hot fourth of the key and X% hot Adjusted slide strong the tariff volume impact from growth and operating price, points by driven million million Adjusted increase the to X, product X% up boiler a unfavorable both growth of $XX.X reported for XX.X%, products. saw water Americas the the margin valves, was costs, heat profit up Plumbing was in water a and review and driven Drains the was Water by with inflation, and investments XXX basis Margin productivity. core Americas double-digits sales of operating our a last results quality. partially over year. tempered by and platforms. Heating for mix, Turning on were start year over on XX% basis a so and up let's expansion last number Sales strong products organically. solution

review results. Sales $XXX basis reported million let's up organically. X, slide X% on were of and down to Europe's on Now X% a about

we quarter. about negatively sales quarter which will saw second be exchange From Foreign the by Fluid from growth impacted million in and Europe a Drains both in one more during benefited platform offset or perspective, Solutions. X%. shipping the $XX day

In down profit due and points the in Adjusted compared continued electronic addition, last into valves growth end ongoing softer quarter from products. an included increased and by growth sale of by year. operating driven benefited including with as to was in Solutions was double-digits Drains the the U.K. Within valve market the decrease in wholesale unfavorable Adjusted into as some Italy which electronic sales products. increase the saw product mix, X%, operating softness price Fluid backflows was exchange partially was Italy the project industrial in partially by by Drain to was Regionally, inflation grew and project incremental for Scandinavia. offset expansion a our by This was marine-based driven basis sales Drains up productivity X% higher increases from headwind business markets $XX.X was Margin hospital in as investments. end of from driven first valves Germany, there. growth Drains a strong XX timing. sold check of of restructuring expansion such and sales. well and including shipyards. regions we and key offset million, France, expansion France growth markets stronger as resulting year-over-year. including and and volume, was partially to solid Germany offset weaker OEM which margin and XX.X% foreign of the by due quarter uncertainties products, savings

the start shipping year the the to by in the For aided exchange Europe, day extra decent foreign noise a quarter. excluding

continued for than softness million or points activity semiconductor by better than Middle demand organic market. commercial which and an affiliate Moving margin X.X% X% investments. trade affiliate East on favorability down to as first partially markets the into data slide continued the more Korea reported sales The which of heating lower drivers were X, in a represented adjusted by exchange were sold and a in translates let's products APMEA's review Australia reduction Strength year. in from APMEA's incremental in results. X% positive last impact into than $X.X due a China's sales by quarter was X% hospitality by demand the was volume to sold in slowdown expansion offset organically down for of were basis and floor and quarter under Adjusted Sales $XX.X organically. to the X%, higher over of products. more from valves, were in quarter, sales the down of XX decreased margin foreign and center operating basis million operating China profit in offset the XX% outside offset Sales

start year slowly given volatility. to market's China the continued APMEA the expected We heating

expectation for APMEA's Our a year as is continues. the up in gradual growth pick

key full quick And update a few I year outlook, the points. will Now provides X, our highlight just details. on a slide

quarter. outlook Our which $XX corporate current the original year first February. we incurred One for the expense the mostly line and in to is increased has now additional incorporates in assumptions with provided million in are change cost

expect includes grow to incremental points, investments basis We which future XX should between initiatives. growth operating and support margin XX

the XX%. net converting currently our cash tax free we just I've are And anticipate effective We year or above approximately income. of flow for XXX% as at maintaining at year rate mentioned, full

regarding sequentially, Americas second the first, tougher mind overall Before we are I keep we quarter. expecting consolidated A quarter, organic the expect perspective, higher the in over first from year And a regional than to Bob, growth in full items second be be second at to to turn the of quarter. expectations. expect our a in in keep call lower should of to mind the in the quarter comp few a growth items about organic end couple the growth we back

quarter two points shipped of If into or second effect about July increase anticipation in the were went in pre-buy of XXXX. you million sales recall percentage that $X of price XXXX in approximately the

be the extra one first reverse Europe we experienced the and in a second headwind will quarter Second, quarter. the tailwind of in day shipping in

APMEA. and million should partially The investments of the quarter approximately grow $X in the the in in investments Europe. million operating restructuring million line $X in incremental with and second Quarter-over-quarter approximately in $X consolidated Americas approximately expect quarter expectations. incremental in Europe second growth be our $X.X by year will savings in We offset each full margin million all

Foreign exchange compared be last headwind euro/dollar current year given the when rate. would the a second exchange to quarter

rate XXXX and euro average appendix, And provided January which around to XXXX. pronouncement, the QX exchange reminder, euro a As lease effect X, took we've current Watts exchange new is in the rate on a was impact slide of $X.XX. the accounting $X.XX finally the the on

For with to me or earnings share it's Bob forward. on only P&L begin impact no over a us before And turn call the going we our balance Bob? effect sheet let Q&A. that, per

Bob Pagano

and started we before to we record out we address another expect adjusted the future. delivered Thanks, Overall your sales, profitable questions. margin of for summarize invest Shashank. on to growth. adjusted and year operating a look in We make They QX continue positive And EPS. I'd to results to forward progress note. year solid sustained like

So with the that, operator questions. lines for please open

Operator

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

Your line is open,

Nathan Jones

everyone. Good morning,

Bob Pagano

Good morning, Nathan.

Shashank Patel

Nathan. morning, Good

Nathan Jones

uncertainties in prudent suggesting the growth out your Bob, economy? of data in call you back year. caution of and the order of the Are some half are forward-looking some book? some of slowdown starting is to on the this this given indicators comments the there about the any maybe overall just in macro see Or slower

Bob Pagano

portraying look same the that are all some referenced Yeah, right slower earlier. in I sure I'm – prudent future. think I now. just them at growth We portending again it's But caution all everybody the indicators did. of

watch are we monitoring very accordingly. and those So closely

Nathan Jones

give you that seeing as equation moderated? operational the the back really you've improvement on the doing out is customers a you A last know I XXX are pricing work that basis Okay. improvement over the year-over-year question maybe where you any much margins then about costs coming are expansion from of a bit America's maybe to years. side And, follow-up of how Can there. been pressure price talk lot on there? out on point input of few have operations strong cost on

Bob Pagano

Yeah.

So bottom say would when it of was related mean, that you – was I to part story. in look line at price. the half that, so I growth related the

seen we I have we front the have in but think is inflation been positive. ratio Although, increase, costs, so our of price-to-cost inflationary

– price knew second we remember, of of price. As this look be some comps we we half the you in as and increases year, the in related first positive as it put to last year would half

and go as So as And inflation, the pricing we we're can some tariffs as drive on hearing long we can. we'll, trying of with long be disciplined. noise but we some and happening see are to we pricing, what's as as

Nathan Jones

cash balance times of you How is you it actionable can't on on balance let in more what find an I'll the sheet. it? M&A sheet would use leverage. Despite net find deals, only capital? the slip And avenue be the alternative seasonal appropriate pipeline? can until Would for X.X build If appropriate you just still you for one got just the the

Bob Pagano

a in believe and capital we disciplined balance know you Well, allocation.

to in priority M&A disciplined and return our do the to shareholders. to where it And sense. first is So makes invest business then

So of pipeline right continue shareholders. process very a active, to good is but it's problem we're the And our to we'll for strategic in the it. planning do we'll thing monitor and middle our have, our

Nathan Jones

Fair my enough. Thanks for questions. taking

Bob Pagano

Thanks Nathan.

Operator

from Seaport comes from Your next question Liptak Walter Global.

is open. line Your

Walter Liptak

of seeing data wonder your to you Congratulations quarter. for -- some you quarter. impacted I are on growth just wonder I I macro slowing issue an question has and guys have And Hi if if just partners with a commercial stick companies. first dig or same maybe the seems slowing want to kind this couple the organic guys. then down. ideas about versus could side? points morning of in you the And residential weather the of like good potential been some first channel weather the commercial into

Bob Pagano

in Yes, as of so is is two-thirds If let's is of And the XX% recall, commercial at business. we're commercial, that multi-housing really general. markets which XX% about to act commercial of and that like a concern residential more into talk we for starts that in housing you commercial that look tends business our know that of building. When residential as some we because doesn't the is us of the side residential. much

for growth at look So, the as fast when just good indicators I said what last not believe earlier, as the I is commercial we we news they're growth as year. saw still as looking

is think So, and tends that XX% on discussions I with our had that's business just we remember always many of this, follow all positive. you repair and to of as GDP. replace And

our a overall that's on solid So, nice business. backdrop

I look think So, looking when that at markets. we that's They look the we're how at okay.

Our our are partners positive. discussions with channel

coming out. being and are think our within we I cautiously the just what overall, we're So, optimistic year originally assumptions started exactly

aligned whatever for and we So, get growth. for can marketplace and drive we're driving them share our in the teams are

Shashank Patel

to we've have beyond indicators second addition the slower thing one we to got price. lapping in macro talked half, also on of the about that that Just growth add

as you we in QX and we So, second increases in those price know last the QX had all and lapped half. year

the in tougher half comparison versus becomes the the half. first So, second

the for expectations the we and -- factored we that our plan year. we did when factored into So,

Walter Liptak

impact price going Okay, some increases price, the the lines the Where the are inventory you great. Kind are with with channel second quarter. having in to on of how pre-buys channel along do products of inventories have the is? -- same up, that with the think gone

Bob Pagano

pre-buys are year price inventories the prior of on material From in if year though had we quarter. for us view, to last of a the to okay. the And million we about had second we weather the I point earlier, didn't channel at look we weather answer that. increase in it The your I impact believe our didn't estimated. question think a quarter, apologize I from related $X

So, out okay, figure at very to in about. that'll it's That's the time. Shashank But us us difficult. previously difficult for so look as second point be in talked to this headwind weather very quarter channels a

to So, first in I'm not the quarter. any issues weather going call

Walter Liptak

need way that pointing your was Okay. Yes. didn't that probably but that of out. When answer But thanks you saying it. was I for thought no, that

thanks. Okay, back get I'll in queue.

Bob Pagano

Thanks Walter.

Operator

from comes KeyBanc Hammond question Capital with next Jeff Market. Your

line Your is open.

Brad Vanino

Hey, good on is for morning, guys. This Brad Jeff.

XXX I Just on digging in pull-forward growth basis to points XX% think that's about you've XXX into kind that quarter Americas closer on X% here. pieces talked the But so a and touched moving maybe headwind even to different normalized in XQ, basis. of you

split if just I just you was that of you maybe gains? how some just is share there? out guess I but think wondering versus said about of market kind price of dynamics can market-driven clarify So, the much half,

Bob Pagano

Yes.

the X% in related Americas, So, our product to was price. that. about products is primarily it believe growth Half in about inside by half the of development, was We of growth. connected driven our new X%

I that's So, dynamics of the really that. think

Shashank Patel

statement for first the X% And not on was the quarter to headwind the in X.X% quarter Americas. first second that your of the

Brad Vanino

you Okay. last there about fourth maybe talked I quarter quarter some thought XXXX? in of was benefit the

Bob Pagano

amount. A small

Shashank Patel

-- Yes. Yes, it wasn't not significant.

Brad Vanino

but talked headwinds I then about in France, and in into and directional Italy, understand year, you going some right All that commentary, I Europe the guess just Germany.

within timing performed level in of relative you of quarter? a all guess of expectations kind little Germany. those market I bit first your country-by-country on bit So, to to a the how a kind basis can surprised But little regions set moniker see maybe that in project

Bob Pagano

yes. Well,

And one that's countries. an those one in we we about in had overall the of That's essence about. extra quarter. each X.X% day of them every that of talked of the So, growth growth

each those. rippled the to all one across of So it way

is had We Drains because down, timing business. was Nordics. issue. slightly in quarter, the it business product performing look a That lower-margin we're that's keys well positive. the type inside In OEM of, like some shifts is in on when So some platforms it very we strong and German business just different our which our electronics, was seeing

performed basically generally, of of expected back negative So in us the there was it QX. us inside to going see and day we hitting coming that surprises We're line what impact with in no negatively that. for on

Shashank Patel

half full X% extra comparison, half And grew as that dynamics with last our timing. half X% outlook year, first second and the second comparison model was Europe the to for the Easter because Europe QX-QX versus clearly we we year growth with actually year easier

So thought. it's playing out like we

Now moved versus have today It's clearly, Europe of each three those ago things months small. X.X% Europe X.X% but around, it's mentioned. countries you by

So it's not significant enough.

Brad Vanino

it live I'll the there. Thanks for color guys. Okay.

Shashank Patel

Thanks.

Operator

from Connors question Your Boenning comes and Scatt. next with Ryan

is line Your open.

Ryan Connors

Hey.

Okay. guys. That's one. bunch, a one. Hey, lot. a a heard new a heard that's I've new I've but

-- non-resi So across commercial. how of the Can maybe parse the concern particular softer just the markets mix for outlook of mentioned really the board of view terms you terms there? in you terms if for give that negative kind in us on given impacts that effect in your would somewhat commercial's and softer. that mix a of outlook us on you just have Can would a little end maybe some that

Bob Pagano

no we change guidance really the Again year. gave Yes. for from where

happening the us small sentiment think second the indicators think playing in it what's is market. as early we the happened -- were is this slow first the mean interesting I And us based -- quarter half. in to leading out business in on in What's in it's I and expected. telling I at we if we what look in quarter, fourth would general

the to et based decide construction So is going in how people on cetera. economy invest new

lumpiness call the could period I let's rethink. that three to people be to kind inside negative made related that there of we one had think of So a months economics

total were where it's you general, changed. in but feel popped in not coming going, if GDP down first it's is good up -- quarter. before, the All it a look and in but about still it's here year So the at little indicators bit slowing, growing. But they're we the --

there's some view business. indicating point a positive discussion of the our short-lead what's feel in bullish. a of the that, be And So time they teams about is, in start may the are from second the a if little and channel. more pickup indicators half happening bit good But a we're

really into have gauging. months. visibility really three next the what We we're that's And

indicators the that term So same is we just all at. longer the look

Shashank Patel

in mix heating Where a business, profile selling the market. get get where Americas we're But on from think in the very margin we dynamics regions APMEA hot is And different between is residential margin obviously APMEA I similar. that's standpoint the Ryan not there. different. side difference and it's a is market when just commercial we the water shift solutions within in mix

Ryan Connors

Okay.

wanted earlier my you inventories to was Now other one and I that briefly. revisit on channel just touched

of -- moderating You fact Is that you a the is given the also bit. think raw talk some about -- likelihood what in see and materials right -- data couple there that the do maybe the is or of you of next quarters? the that? do a not way bit to of some that kind read destocking - that a the any Is

Bob Pagano

close to we numbers on channels. when look at exact with of it channel partners we're know, our our our their one they're But every partners. optimistic. cautiously We are discussions don't have channel You

trends buying not in major are seeing We their patterns. inventory and any their

now. as right So steady right now they go

Ryan Connors

Shashank. last one Got for I guess, then just, you it. And my

pretty increase stocks, some driving sizable back share in right reading a pretty that? proxy -- request I'm for the have what's in on it Any color a if buying You're but authorization. actually you sizable

Shashank Patel

said, anything get this I M&A part. we the proactive Bob we pursue you of ready actively guess, is the move our never next mean timing need mean, several for to I that happen years. I it's as and just know over but proactive could the pipeline on move the that,

Ryan Connors

Got it.

guys. morning, this for Thanks Okay. your time

Bob Pagano

Thanks.

Shashank Patel

you. Thank

Operator

with from comes Company. & next Your Joe Cowen question Giordano

open. line Your is

Unidentified Analyst

in This Joe, this Hi. Rob morning. morning. is for Good

year. your this a question on had Just quick incremental spending

detail on that and first come quarter? of that how in through little the Just a did much more bit

Shashank Patel

Yes.

on forecast and $XX strategies. about million had was portion talked we quarter the for is about of for is basically as So we QX A million spend and the our good In three months approximately development $X $X about second our million. spent incremental smart including connected new that ago, product year. our

which to the capability So piece And on portion for there's building. the outside is million track that in about. we within factory a small the initiatives. now driving $XX productivity that a we walls. obviously our invest continue factory of And that. that's then talked we're But And right and is

Unidentified Analyst

Okay, that's great. related you the then terms anything And to is there in on actions detail restructuring Europe the that of can savings in and that? provide

Shashank Patel

Yes.

we had July, we action million we in had approximately savings and an XXXX. incremental last $X an So about -- $X.X of took million million of -- with costs $X about

As that looked finalized $X we as threw numbers we the that an -- at and had we million. incremental

So range $X the And of savings $X the million in incremental same in quarter-over-quarter quarter will cost. in savings in about XXXX XXXX. versus million same instead second still is $X savings range. a is of that incremental million it of that The and contribute it's QX

Unidentified Analyst

That’s Thank very very you helpful. much.

Shashank Patel

you. Thank

Operator

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

Bob Pagano

second appreciate today. continued early Thank forward you for taking you at join earnings to us you with time interest call the our look very speaking again to We Thank in your August. and quarter much. Watts in

Operator

today's concludes conference call. This

may disconnect. You now

Watts Water (WTS) 3 May 192019 Q1 Earnings call transcript