Watts Water Technologies (WTS) Q2 2024 earnings summary

Executive summary

• Q2 2024 delivered record sales of $597.3 million, up 12.1% year-over-year, with strong growth in Americas and APMEA offsetting European declines; organic sales were flat as acquisitions contributed significantly.

• Adjusted operating income and EPS reached record levels, with adjusted EPS up 5% to $2.46 and reported EPS up 8% to $2.44.

• Integration of Bradley, Josam, and Enware acquisitions is ahead of schedule, expanding product offerings and exceeding synergy targets.

• Balance sheet remains robust, supported by an amended and extended credit facility through July 2029.

• Sustainability initiatives advanced, with new long-term carbon reduction goals and recognition for ESG achievements.

Financial highlights

• Q2 net sales were $597.3M, up 12.1% year-over-year; organic sales were flat, with Americas and APMEA growth offset by Europe.

• Adjusted operating margin was 18.8%, down 70 bps; adjusted EBITDA margin at 21%–21.5%, down 50 bps.

• Adjusted EPS was $2.46, up 5%; reported EPS was $2.44, up 8%.

• Free cash flow for H1 was $120M, up from $89M last year; cash conversion rate improved to 77.5%.

• Gross margin for Q2 was 47.7%, up 30 bps year-over-year.

Outlook and guidance

• Full-year 2024 outlook maintained: reported sales up 7%–12%, organic sales down 4% to up 1%.

• Q3 reported sales expected to rise 5%–8%, but organic sales to decline 4%–7% due to project timing and destocking.

• Adjusted operating margin guidance for FY is 17.1%–17.7%, with acquisition dilution of -60 bps.

• Free cash flow conversion target of ≥90% of net income reaffirmed.

• Incremental investments for 2024 increased to $22 million, focused on new product development.