Watts Water (WTS) 4 Aug 192019 Q2 Earnings call transcript

Good morning. My name is Brent, and I will be your conference operator today. At this time, I would like to welcome everyone to the Watts Water Technologies Second Quarter 2019 Earnings Conference Call. [Operator Instructions]

At this time, I would like to turn the call over to Mr. Vice Investor and Treasurer MacPhee, President Relations. of Tim please go ahead. Sir,

over outlook of results on detail Pagano, Welcome and in quarter With call and Second Bob his and before perspective good for will will you, CFO. half who to offer Patel, me turning and our Shashank morning, are Call. Thank provide results second Conference Shashank, everyone. our Bob year. address latest CEO; Earnings the Quarter today President more this second our the our business to the financial XXXX

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

Today's webcast found our be section is can of accompanied by website. presentation, which the Investors slide in a

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

to me forward-looking that everyone give be a to better this the we our such actual These of of statements. differ making that statements risks you results materially statements. course may remind Let from operations, subject and our uncertainties numerous understanding could certain cause call, to during are

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

Now over the to call I turn will Bob Pagano.

Thanks, Tim, everyone. and morning, good

in drove operating growth I'll quarterly sales, overview. our EPS. solid presentation, quarter, Thanks results provide to dedicated turn and in our team, X and Please we the Slide delivering margin to for the record

incremental strategy investment also to growth to on fund while our continue profitable driving execute We of opportunities. continuing

stronger-than-anticipated in Middle in project experience quarter. while was due growth product to timing growth and amongst in number broad Drains The Korea and of Europe APMEA's East. a of the Americas positive the softness Americas sluggishness the Organically, saw in timing APMEA's to while sales and channels, by we categories projects. a hindered growth key growth continued continued Europe the persisted saw

We on increases, U.S. of increase effect tariff the addressed round X. in additional July with the into price went latest which

We as progresses. monitor you will details reaction few will these to half financial review second with price the increases continue moments. Shashank market in to enacted a the

quick the briefly, markets. a on view Now

the second we most end the part, quarter, performed, as the had markets for anticipated. During

major APMEA and have the region. data forward, like consistently Looking next to signals and Momentum X slowing ABI remains months. Index over on depending indicators, growth continues been softness spotty the Dodge growth to X in macro market Europe signal flashing the

maintaining year are XXXX. We growth for full our outlook organic sales

year in operating expand should half growth. market half second moderate the the growth in the organic of impact and slowdown in XX as by adjusted to and Europe year the for margin comps points. the second given full expect the will of And our to first tougher Americas XX expect some to We half, the continue overall we compared basis

to to like you I'd Please and our on smart strategy. update Slide Now X. connected turn

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capabilities our to launched. we under expanding continue our pipeline to to have value active create customers. products I'll to speak examples invest of connected in strong platforms development and We all in products a ideas two of recently as

efficiency. connected we controller strengthens money, time Controller, Controller and Benchmark the for and our touchscreen Edge one start-ups and a customers' Edge launched Earlier that the advanced and boiler first AERCO is Platinum example most game-changing maintenance Boiler, market. of on commercial year, simplifies condensing the The boilers system this saves performance the

the Controller and the with a and connect, the unit iOS- The expanded functionalities. the configuring, epitome when culmination team flexibility Edge move to an diagnosing Android-friendly around troubleshooting. promise. now conserve our is features control, one-watch of Customers customer and mobile is and app of freedom have It true effort cross-platform a

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to of continue We'll integrate customers Watts products watts.com in we product allows as Pro more of brands range the model a also portfolio product a visually app several our to into website. expand application. Watts and our XD place It real-life mobile

excited We'll the industry. of about to smart are of future bring the and We continue systems you connected can initiative. to what and periodically on progress Watts the this update

to over performance will discuss operating on call the our provide detail second quarter turn outlook. more second and half our me who let Shashank, Shashank? Now

and good Bob, Thanks, morning, everyone.

you turn X%. results. up second million sales Slide Please Organically, X, of will Reported the were I softness by in APMEA. X% strength being with sales offset and and the $XXX through to Americas partially walk in quarter Europe up were

mainly X% by a exchange, or sales $X driven year-over-year. million weaker by Foreign decreased euro,

up company. year into an This an the translated operating or of operating increase for points profit a basis $XX and of XX.X%, million, margin $X record versus X%. XX Adjusted was adjusted million last

more general this $X continuing million the to than the in were invest We main productivity during approximately and Price and growth our offsetting investments. margin of inflation growth quarter. while initiatives drivers the the attained margin record performance,

also quarter prior movements. negative due and XX the was The tax expenses the points of a a earnings. XX.X% partially mainly share for was effective increase foreign was Operations represented than all-time higher $X.XX record by Watts. or that and X% nonoperating an of drove higher $X.XX year last than rate basis mix exchange new in offset per year, earnings Adjusted higher to translation

capital inventory million first half $X income, free compared a flow levels, a of due Year-to-date, $XX reduced during incremental was the The XXXX. spending payments the reduced cash as seasonal We in continue and in and million positive improve of historic was $XX the half. we cash generation our to to improvement in slightly progress outflow second tax million to to last expect quarter should as made higher year. patterns, that consistent compared with second lower flow cash

of our stock repatriated million at debt. pay the quarter, approximately $XX we million we In to a a Year-to-date, down of XX,XXX million. have the of cost that about purchased second we During common cash, second in cash. $XX in majority shares using quarter, repatriated approximately $X.X

new share to in balanced our dividends Overall, as our approximately part and pleased of deployment of share. sales, shareholders highs with in second repurchases million earnings margin as and total a returned we we've Year-to-date, capital strategy. operating performance per are $XX quarter set we

number lines, a heating on broad quality by strength Sales partially growth Turning water the were saw X% to on let's the and was and This to up due $XXX drains. a water project market across regions, organic plumbing, Slide a quarter. and about of timing Americas Similar we basis. results including quarter, product to million solutions competitive reported in first and environment. of X, offset for both review the hot softness

X% Americas' operating line contributor was both to each X% in Similar in Adjusted The $XX.X was second driven key increases. to was the by the pre-buy the year, growth. of quarter, increase first a the top incremental pre-buys pricing Americas million, July quarter-on-quarter minimal year-over-year. impact price a quarter profit approximated as

a XX summary, growth by and strong continued expanded and In for Americas Price, volume margin performance XX.X%. inflation and Operating to productivity basis in the investments. second incremental points quarter. productivity offset the increased operating

X. Slide on reported down of results, X% Europe up Sales million were organically. to turn basis, on but Let's a $XXX X%

end the saw platform, X% solid partially into in continued the Foreign million export negatively strong We our driven primarily sales. about growth euro $X Germany drains project quarter. sales saw by exchange, both Products the markets performed and by Drains Regionally, and in impacted marine- well. in timing. growth sold or land-based in

products France, to In sold sales HVAC by the the slightly region, Germany's sector. performance the into In the Fluid sold was due wholesale into core sales and increase increases up included sold saw and into in Italy. plumbing electronics driven France, platform, products marine OEMs growth products Solution certain drains in By HVAC, stronger in channel. and products. Solutions we increases Germany Fluid mainly were

In Italy, both product of Fluid driven slowing into primarily in the into see Brexit last to was to the quarter continue Russia. saw of year. for we Conversely, Solution XXX concerns increase the the Europe an slow $XX.X by sales XX.X%, strength which U.K. Europe ongoing second we markets. was Adjusted wholesale in Eastern quarter and basis versus million, margins due points OEM operating of and operating translated profit

incremental volume with growth a investments. margin productivity price, in including improvement expansion. by margin The quarter driven inflation, solid and restructuring offset stronger-than-expected and partially was mix good Europe savings and organic by Overall,

Moving to Slide X.

were Asia down review last and sales the Pacific, East Let's X% period reported year. a approximately quarter, Middle $XX results. the million, over XX% and Africa organically down basis same on In

and decreased Sales which outside digits. We East. Middle sales weakness more Australia Southeast about by the and XX% was quarter, Zealand China, organically New of by of growth the than which in double Korea, APMEA saw represented in in offset Asia,

we we sold saw half into our should data China digits pickup project to were mentioned, a in double underfloor by products and is the of the up second for and timing centers year. organically and softness Middle believe in heating this up As sales the as as more valves the due in Bob markets, demand well. expect pick residential semiconductor continued sales East commercial

in quarter. top margin $X.X half The reduction, of be back X.X%. this decreased APMEA initiatives. included project expect third-party in operating issue profit the the into key growth timing, soft by of investments, the the offset year. the line incremental partially operating of second which continued and second and quarter of volume we productivity to affiliate XX% the and APMEA Overall, reduction in translated to relates to to Most bounce margin inflation Adjusted adjusted for million, drivers

the Now to for of X please growth year. second turn outlook the half and Slide our

to continue the original X% much especially between in consolidated second growth year X%. tougher Americas our are we Europe. moderate basis, growth We of half comps, sales markets to and sales and expect On with half expectation and that continued second maintaining the overall the of a growth in should organic due slowing

a moderating should slower growth tougher expect in region, partially tailwind, of markets. we second By second price comps offset driven see by half X%, and by half growth X% underlying the to in Americas the

in continue should in X% to with against and X% projects in grow. markets In the And the to half more X% should last year. comps X% second some pick as Europe, online we tougher sales come China expect to up Asia by Pacific, sales be Middle East up

includes an by for Our grow our which our XX of the incremental the expected This second original should consolidated the approximately with in points, year. basis consistent $XX expectation. expansion million, XX growth increase adjusted half in million with year operating entire $X half line to in in second spend our margin full during investments margins is

strong flow second our forecasting the past generation performance We in are cash with half, the over several years. consistent

cash year. We achieving are conversion still on XXX% the flow focused for free

a mind over to back call third the the keep turning to Before quarter. regarding Bob, few in items

expecting at are Americas the growth our end with consolidated be organic growth with our We in third second line the given quarter quarter pre-buy of the the to second impact. lower in outlook, half expectations,

that range. the lower of should full operating third at the consolidated We margin in year our be expect expansion quarter end

Europe should of and approximately Regarding investments and third Europe. the million investments, million incremental investments all Americas we in million approximately in the anticipate in offset savings, quarter, in by $X in $X restructure partially million $X.X APMEA. be These $X each incremental

We year XX%. of with rate full tax effective to our line in expect third our outlook quarter be

negative third over compared foreign current slightly we before exchange Bob when Bob? year. that, the impact last turn translation the With quarter begin on rates, call back based I'll Q&A. to should Finally, the of to be

Thanks Shashank.

share margin per operating summarize, the by the was This quarter. performance driven second in during sales, both a the quarter. delivered Americas operating delivering business To record Europe, and solid and the earnings

with margin our and pleased the connected to We strategy. and are year our sales and operating date are outlook maintaining around product progress smart full

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

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

Your open. line is

on This Nathan. for Farley, Adam is

does growth the in XH lower that the Or the of given your gaining comparisons? organic at imply some Looking end a potentially in it of the second share guide, of half is markets? growth some in XH is slowness Watts simply - function tougher

Americas of we at half thanks of if the at for When particular, - look was the the all, year, question. look comp it, it Adam, in you last a first up in had XX%. second

comps. slowing we market And So have do secondly, believe difficult we the a bit. is

half year. as in growing, still second the just compared it's So to but last slowing

And that. believe in think continue of to driving the and we're great tough this I a environment, it's in the a team job market. growth So combination is we doing current

growth up turning in you then the to expect APMEA, to half. just And second pick

then kind called you East there? just some out confidence also think of any great. in I And color timing you gives additional and other pickup Middle project the China. would What be

Sure. Yes.

growth we data of saw primarily in under quarter, valves China, for come back all, - the First our in our centers. our valves second

the we It's same half. thing. And pipeline continuing the timing so Middle that's And East, issue. second see positive. a in

that happened, see uncertainties in half year, backlog, that in half political the we're this to The call to and year. out build the come of of let's beginning second it, first the we're a going

on think comps us our And there's confidence the half easier that the second region. So and I gives based in that see. backlog we what in

the half if recall, that digits. last on and of in double in second down were China, - that's And point, Yes. we year, you

comps half. the the get China do in easier second So in

next comes Walter Seaport [Operator from Liptak of question Your Instructions] Global.

line is open. Your

Friedberg, This in filling is Steven Walt. for

operating want I quarter a a to turn row good. It to in second So like the looks looked leverage.

guess, of the guys out continued? margins You XX% level slower-than-expected to kind of same half, the of I productivity, can be with price, growth incremental a volume, thing, in second XX% call

Yes. Yes.

So operating second from in play in and to range that expect XX% outlook of productivity XX% in as continue the a our far the we to standpoint we've And what it's on based more inflation, half. as on got leverage.

talked you expectations And a I then back kind the of bit. second the to call, half conference regarding on the on original down guys question little growth. QX going know call

comments You tone X% this data well is a QX, as of in you you current same the guess, as looks great as outlook? market quarter said to guys on Americas. your, has it like pulled in I of the the recent in as affordability, caused guess, call, I growth any housing out QX, question housing organic being rethink growth second with rates the

playing mean, the year we No, than to second second I like we half of the was number just first strong two, the felt think pricing to I going - conditions, number out had thought. of stronger increases, et half relative knowing is cetera. the market that such began a half, market we last because with we because one, but be year

So it's had of we out kind like in playing expected just the markets.

out seeing season; we've one a anything companies underlying improving I more. I Are this know guys And stable even could data. couple then ask in if of just housing seen can earnings market an call confirm housing or mentioned? you that this as

you our and when look of of it, at residential, is if the about Well, business recall, residential us. for is of XX% multifamily business two-third you that

in higher part we in end to So and those our the a of low homes, the is tend single-family business, Americas, of be on homes. particular,

family go a that I recent sounding play beginning starts, ones, with not like going in. single market rates So we interest to especially that's decreasing, But think that's heavily the that's forward.

what expectations are. in are as we the playing, earlier, - So I with alignment right markets said now, are our

comes Your KeyBanc. Hammond with question from Jeff next

Your open. line is

seems that in as holding are Europe, - worries. slow most some product- growth or macro look kind to I half, sustainability either your into first concerned where given of stay environment? should margin kind Europe, you that Just of nicely really back be Where mean, better, the we you the then in And do progressed in kind you business half on in margins kind improvement region-wise? this of just just of the of of

now, When very us. That had a Europe was look Jeff. our positive for good at Thanks, in Drains quarter Yes. I right we business.

comps we're second again, we we what half, is tough we seeing saw year. last the had, look what As into and

year. of half know, our quarter in X% As over last strong was the you second

we're we're against I some European So mean, hearing slowing, the fundamentally, that. of is market seeing that. we're comping

Germany. We have some in strength

This couple quarter, we new some took of a - customers we in customers. gained with share small Germany,

- seen market, half the same. the improvement on think and restructuring a I quarter of done that is over again, general, lot first you've margin of We've year. we've the about fourth and So this based the in the the in done

growing, So business. our we particular, driving a business, keep keep as and margins electronics our about global in on which have be Drains our cautious market and goal to global and is the business is

the question your let And question. I'll second was margin Shashank grab.

the came margins better done beyond expected. Price on I question, productivity mean, over In favorable Yes. have a job we cetera, cost, we in normal than the price. et more

teams the market prop been have the So hard albeit of working value out price really the more on market, and tougher driving conditions. under

the well. it drivers a slightly of Drains is then Bob obviously, And there then that's better the that primarily about as business and talked marine so on aspect and margin - drives profile been the that's side, that

then restructuring. the out And performance. additional well And million the that's of $X got the of do op in second some did margin. help we operating the as So to will margin half an last is that and that, the helped continue piece We restructuring. savings

And have being specifically or an you those performed? the it. mentioned business, maybe guys impacting don't if weather about is weather there? business? think creeped impacting How then really to a kind not And lot PVI peers weather do issue. of your you And think how AERCO I in of talked all at the then

Yes.

platform run year-to-date in that. quarter. impact with the impacted an year with X%, regions, especially we talked small So a weather that look pull-ins we it, again, the at mid-single-digit that's and have it when believe think guys at. Shashank our impact, at difficult those we basis, in end quantify a But bit on particular. I to we're I little have we right, a because expect in to would the about, And in self-central but where that It's believe, HHWS approximately had our did alignment

is, price first is so increase? price And in then half? the - - half new in you what kind think of about contribution the can the talk the second And given you what was just

the half in slightly that U.S. the second the quarter, growth drove lot price. price-related obviously, was not there's tariff the more obviously, the Europe, less, in a impact Yes, of In than because,

As market, you X and there's look too look, July early increase. to We dynamic announced price at very It's it's price the second right tell half, just elasticity. I the now. mean, a

So we've second tapered the expectations half. down happens our go we what as based on through

guess, the on side the and Because what the like was driving So dynamics moderating. of are and increase, that price increase? a through price what I seems it tariffs the some most are just are of cost on - follow-on inflation that the input costs are

at the XX% I May China in - from from end was, tariff XX the XX%. believe So to the of it went May, - on imports

So the in additional and tacked tacked the got January down that's end what July of XX% on for be the that was drove supposed X price increases to May, U.S. at finally the

And then on question, final the just quiet it's front. M&A been

of macro you your what to seeing pipeline? Just the come the on mean way on And does given some that maybe start uncertainty, valuations actionability for deals? are

and pipeline and acquisitions at think in always cultivating Yes. it's - strategy. allocation acquisitions continues We're I looking look capital difficult time full. to always balanced have Jeff, at be to we our our like

the all So over multiples, they're place.

what's in it's difficult or say So exactly not. to coming

we think So on something and cultivate still we'll strategy. balanced continue to keep capital again, monitoring, it's I allocation our deploy

Joe and Your Company. Cowen Instructions] [Operator from question of next Giordano comes

Your line is open.

have investment Robert, year question half this for far? guidance so much I Joe. is this see the first spending. just your year. in the $XX how wondered came I about a for million This I through in incremental quick just

be roughly $X second and million first the $X half. million the half in of million, other in $XX will the Out was Yes. the

the further to are There would CEO. Bob turn to this time. and at President telephone Pagano, now questions I back no over call like

you your and joined call taking Enjoy third earnings Watts second us speaking We call. for earnings Thank time appreciate quarter today continued you the in you Thank forward of for quarter at November. again you. remainder the summer. look to early our with your in interest our

this and call. concludes gentlemen, today's Ladies conference

You may now disconnect.