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Sep 27, 2020
Watts Q3 2020 Earnings Report
Reported solid operating performance with cost actions offsetting COVID-19 impacts and investments.
Key Takeaways
Watts Water Technologies reported a 3% decrease in sales to $384 million, a 5% decrease on an organic basis. GAAP EPS increased 3% to $0.97, and adjusted EPS increased 1% to $1.05. The company generated $127 million in operating cash flow and $95 million in free cash flow year-to-date.
Sales decreased 3% on a reported basis and 5% on an organic basis.
GAAP operating margin of 12.5%, up 10 bps; adjusted operating margin of 13.8%, up 50 bps.
GAAP and adjusted EPS of $0.97 and $1.05, representing increases of 3% and 1%, respectively.
Generated operating cash flow of $127 million and free cash flow of $95 million year-to-date, approximately 34% and 25% increase, respectively, over same period last year.
Watts
Watts
Watts Revenue by Segment
Watts Revenue by Geographic Location
Revenue by Segment
Americas Revenue
CapyFin.comEurope Revenue
CapyFin.comAPMEA Revenue
CapyFin.comRevenue by Geographic Location
Americas Revenue
CapyFin.comEurope Revenue
CapyFin.comAPMEA Revenue
CapyFin.com Forward Guidance
The company expects continued improvement in free cash flow through the fourth quarter of 2020, due to normal seasonality. The company believes the pandemic’s effect will continue as we conclude 2020 and move into 2021.
Positive Outlook
- Aggressive cost actions more than offset COVID-19 driven volume reductions and additional investments.
- Continued to drive more permanent cost reductions as we recorded restructuring and other charges related to previously announced and expanded programs.
- Maintained investment and capital spending at levels necessary for successful new product launches, including enhancements to our production facilities to efficiently make those products.
- Generated incremental free cash flow that, along with an already strong balance sheet, provides flexibility and stability.
- Expect continued improvement in free cash flow through the fourth quarter of 2020, due to normal seasonality.
Challenges Ahead
- Sales decreased 3% on a reported basis and 5% on an organic basis, as compared to the third quarter last year.
- Sales were down 6% organically, with declines in most regions and product lines resulting from COVID-19.
- Reported and organic sales decreased 4% and 22%, respectively, with sales generally down in most regions due to COVID-19.
- GAAP operating margin was also negatively impacted by higher restructuring and other related costs, acquisition charges and a loss on disposal.
- We believe the pandemic’s effect will continue as we conclude 2020 and move into 2021.
Revenue & Expenses
Visualization of income flow from segment revenue to net income