Watts Water Technologies (WTS) Q4 2023 earnings summary

Executive summary

• FY 2023 delivered record sales, adjusted operating margin, adjusted EPS and free cash flow; Q4 adjusted operating margin also reached a record 15.8%.

• 2024 plans include Bradley and Josam integration and incremental investment amid softer, mixed market conditions.

Financial highlights

• Q4 net sales were $547.5M, up 9% reported and down 1% organically; reported operating margin rose 100 bps to 14.4%, while adjusted operating income rose 21% to $86.4M and adjusted margin increased 150 bps to 15.8%.

• Q4 net income was $55.8M and reported diluted EPS was $1.67, down 19%; adjusted EPS was $1.97, up 23%.

• FY net sales were $2,056.3M, up 4% reported and 1% organically; reported operating margin rose 120 bps to 17.1%, and adjusted operating income rose 13% to $365.2M with adjusted margin up 140 bps to 17.8%.

• FY net income was $262.1M, up 4%; reported EPS was $7.82, up 5%, and adjusted EPS was $8.27, up 16%.

Outlook and guidance

• FY 2024 sales growth is guided to +6% to +12% reported and -5% to +1% organic; adjusted operating margin is 16.9% to 17.5%, and adjusted EBITDA margin is 19.4% to 20.0%.

• FY 2024 regional organic sales outlook: Americas -3% to +2%, Europe -9% to -4%, and APMEA flat to +6%; acquisition dilution is estimated at 80 bps.

• FY 2024 adjusted operating margin outlook includes 90–140 bps of decline in Americas, 100–160 bps of decline in Europe, and 40–100 bps of growth in APMEA; incremental investments are $20M.

• FY 2024 free cash flow is expected to be at least 90% of net income; planning inputs include $50M capex, ~$55M D&A, $55M corporate costs and $12M net interest expense.

• Q1 2024 sales growth is guided to +15% to +19% reported and +1% to +5% organic; adjusted operating margin is 17.0% to 17.6%, including ~120 bps acquisition dilution and $6M of incremental investments.