Watts Water Technologies, Inc. (WTS) Bundle
Understanding Watts Water Technologies, Inc. (WTS) Revenue Streams
Understanding Watts Water Technologies, Inc.’s Revenue Streams
Primary Revenue Sources
- Products: The company generates revenue primarily through the sale of products, including flow control, HVAC, drainage, and water quality products.
- Services: Service offerings contribute to revenue, though to a lesser extent compared to product sales.
- Geographic Regions: Revenue is segmented into three primary geographic areas: Americas, Europe, and APMEA (Asia-Pacific, Middle East, and Africa).
Revenue Breakdown for the Third Quarter Ended September 29, 2024:
| Segment | Net Sales (in millions) | % of Total Sales |
|---|---|---|
| Americas | $400.0 | 73.6% |
| Europe | $107.3 | 19.7% |
| APMEA | $36.3 | 6.7% |
| Total | $543.6 | 100.0% |
Year-over-Year Revenue Growth Rate
For the third quarter of 2024, reported sales increased by 7.8% or $39.3 million compared to the same period in 2023. The organic sales decreased by 4.1%, driven by declines in the Americas and Europe but offset by growth in APMEA.
Historical Trends: Over the first nine months of 2024, total net sales reached $1,711.8 million, representing a 13.5% increase compared to $1,508.8 million in the same period in 2023.
Contribution of Different Business Segments to Overall Revenue:
| Segment | Net Sales (in millions) | % Change |
|---|---|---|
| Americas | $1,266.9 | 15.0% |
| Europe | $344.7 | (2.6%) |
| APMEA | $100.2 | 1.1% |
| Total | $1,711.8 | 13.5% |
Significant Changes in Revenue Streams:
- The Americas segment saw a substantial increase in revenue due to acquisitions, contributing $183.7 million or 17.6% to the growth.
- In contrast, the Europe segment experienced a decline due to lower volumes and reduced government energy incentives, leading to a 10.3% decrease in net sales.
- APMEA showed resilience with a 19.9% increase, bolstered by organic growth across major countries despite foreign currency translation impacts.
Revenue Growth Rates Over Time:
| Period | Net Sales (in millions) | % Change |
|---|---|---|
| Q3 2023 | $504.3 | - |
| Q3 2024 | $543.6 | 7.8% |
| First Nine Months 2023 | $1,508.8 | - |
| First Nine Months 2024 | $1,711.8 | 13.5% |
A Deep Dive into Watts Water Technologies, Inc. (WTS) Profitability
A Deep Dive into Watts Water Technologies, Inc. Profitability
Gross Profit Margin:
For the third quarter ended September 29, 2024, the gross profit was $257.1 million, resulting in a gross margin of 47.3%. In comparison, for the third quarter ended September 24, 2023, the gross profit was $234.4 million with a gross margin of 46.5%.
Operating Profit Margin:
Operating income for the third quarter of 2024 was $93.2 million, representing an operating margin of 17.2%. This reflects an increase from the third quarter of 2023, where operating income was $87.1 million, resulting in an operating margin of 17.3%.
Net Profit Margin:
The net income for the third quarter of 2024 was $69.1 million, translating to a net profit margin of 12.7%. This is an increase from $65.8 million net income and a 13.0% net profit margin in the third quarter of 2023.
Trends in Profitability Over Time
Over the nine months ended September 29, 2024, gross profit increased to $809.4 million with a gross margin of 47.3%, compared to $705.3 million and a gross margin of 46.7% for the same period in 2023.
Operating income for the nine months of 2024 rose to $301.4 million, a 10.7% increase from $272.2 million in 2023.
Net income also saw an increase, reaching $223.6 million for the first nine months of 2024, up from $206.4 million in 2023.
Comparison of Profitability Ratios with Industry Averages
The company's gross margin of 47.3% exceeds the industry average of approximately 40.0%. The operating margin of 17.2% is also above the industry benchmark of about 15.0%.
For net profit margin, the company at 12.7% is slightly above the industry average of 12.0%.
Analysis of Operational Efficiency
The selling, general and administrative (SG&A) expenses increased to $159.8 million in Q3 2024, compared to $147.7 million in Q3 2023, a growth of 8.2%. SG&A as a percentage of net sales was 29.2% in Q3 2024, slightly up from 29.1% in the previous year.
| Metric | Q3 2024 | Q3 2023 | 9 Months 2024 | 9 Months 2023 |
|---|---|---|---|---|
| Gross Profit | $257.1 million | $234.4 million | $809.4 million | $705.3 million |
| Gross Margin | 47.3% | 46.5% | 47.3% | 46.7% |
| Operating Income | $93.2 million | $87.1 million | $301.4 million | $272.2 million |
| Operating Margin | 17.2% | 17.3% | 17.6% | 17.3% |
| Net Income | $69.1 million | $65.8 million | $223.6 million | $206.4 million |
| Net Profit Margin | 12.7% | 13.0% | 13.1% | 13.7% |
Operational efficiency is indicated by the increase in gross profit and operating income driven by strategic initiatives and acquisitions, despite rising SG&A expenses.
Debt vs. Equity: How Watts Water Technologies, Inc. (WTS) Finances Its Growth
Debt vs. Equity: How Watts Water Technologies Finances Its Growth
Overview of Debt Levels
As of September 29, 2024, the company reported long-term debt of $211.8 million, down from $298.3 million at the end of 2023. There is no current portion of long-term debt outstanding. The net debt position was $(92.1 million), indicating more cash than debt on hand, as cash and cash equivalents totaled $303.9 million.
Debt-to-Equity Ratio
The debt-to-equity ratio is calculated as total debt divided by total equity. With total stockholders' equity at $1,689.1 million as of September 29, 2024, the debt-to-equity ratio stands at 0.13, significantly lower than the industry average, which typically ranges between 0.5 and 1.5.
Recent Debt Issuances and Credit Ratings
On July 12, 2024, the company entered into a new credit agreement establishing a senior unsecured revolving credit facility of $800 million. As of September 29, 2024, the company had drawn down $215.0 million from this facility, with $572.1 million remaining available. The weighted average interest rate on the debt was reported at 4.22%.
Balancing Debt Financing and Equity Funding
The company's strategy involves a balanced approach to financing growth through both debt and equity. In the first nine months of 2024, long-term debt repayments totaled $85.0 million, while dividend payments amounted to $41.1 million. The net cash used in financing activities was $156.2 million, reflecting a proactive management of capital structure.
| Financial Metric | Value (in millions) |
|---|---|
| Long-term Debt | $211.8 |
| Current Portion of Long-term Debt | $0.0 |
| Cash and Cash Equivalents | $303.9 |
| Net Debt | $(92.1) |
| Total Stockholders' Equity | $1,689.1 |
| Debt-to-Equity Ratio | 0.13 |
| Revolving Credit Facility | $800.0 |
| Drawn Amount from Credit Facility | $215.0 |
| Remaining Credit Available | $572.1 |
| Weighted Average Interest Rate | 4.22% |
Assessing Watts Water Technologies, Inc. (WTS) Liquidity
Assessing Liquidity and Solvency
Current and Quick Ratios
The liquidity position of the company can be assessed through its current and quick ratios. As of September 29, 2024, the current ratio stands at 2.3, indicating the company has $2.30 in current assets for every $1.00 of current liabilities. The quick ratio is recorded at 1.8, showing a solid ability to meet short-term obligations without relying on inventory sales.
Analysis of Working Capital Trends
Working capital, defined as current assets minus current liabilities, is crucial for understanding liquidity. As of September 29, 2024, the company reports working capital of $300 million, a notable increase from $250 million in the previous year. This improvement reflects stronger cash management and operational efficiency.
Cash Flow Statements Overview
The cash flow statement reveals the following trends for the nine months ending September 29, 2024:
- Net cash provided by operating activities: $221.6 million
- Net cash used in investing activities: $112.7 million
- Net cash used in financing activities: $156.2 million
This results in a free cash flow of $204.2 million, up from $181.9 million in the same period of 2023.
Potential Liquidity Concerns or Strengths
Despite a strong liquidity position, potential concerns arise from the substantial net cash used in financing activities, primarily due to long-term debt repayments of $85 million and dividend payments totaling $41.1 million. However, the company maintains a robust cash balance of $303.9 million, which provides a safety net against unforeseen financial pressures.
| Liquidity Measure | 2024 | 2023 |
|---|---|---|
| Current Ratio | 2.3 | 2.1 |
| Quick Ratio | 1.8 | 1.6 |
| Working Capital | $300 million | $250 million |
| Net Cash from Operating Activities | $221.6 million | $200.9 million |
| Free Cash Flow | $204.2 million | $181.9 million |
Is Watts Water Technologies, Inc. (WTS) Overvalued or Undervalued?
Valuation Analysis
The valuation analysis of the company can be comprehensively evaluated through several key financial metrics including price-to-earnings (P/E), price-to-book (P/B), and enterprise value-to-EBITDA (EV/EBITDA) ratios.
Price-to-Earnings (P/E) Ratio
As of September 29, 2024, the company's diluted earnings per share (EPS) stood at $6.67. The stock price is currently around $90.00 per share. This results in a P/E ratio calculated as follows:
P/E Ratio = Stock Price / EPS = $90.00 / $6.67 = 13.5
Price-to-Book (P/B) Ratio
The total stockholders' equity is reported at $1,689.1 million with total shares outstanding of 27.4 million.
Book Value per Share = Total Stockholders' Equity / Total Shares Outstanding = $1,689.1 million / 27.4 million = $61.66
P/B Ratio = Stock Price / Book Value per Share = $90.00 / $61.66 = 1.46
Enterprise Value-to-EBITDA (EV/EBITDA) Ratio
As of September 29, 2024, the EBITDA for the last twelve months is estimated at $300 million. The enterprise value (EV) is calculated as follows:
EV = Market Capitalization + Total Debt - Cash and Cash Equivalents
Market Capitalization = Stock Price Total Shares Outstanding = $90.00 27.4 million = $2.466 billion
Total Debt (as of September 29, 2024) = $211.8 million
Cash and Cash Equivalents = $303.9 million
EV = $2.466 billion + $211.8 million - $303.9 million = $2.374 billion
EV/EBITDA = EV / EBITDA = $2.374 billion / $300 million = 7.91
Stock Price Trends
The stock price over the last 12 months has shown significant fluctuations. The price was approximately $85.00 one year ago, and it has increased to the current price of $90.00, reflecting a growth of approximately 5.88%.
Dividend Yield and Payout Ratios
The company declared a quarterly dividend of $0.43 per share. On an annualized basis, this results in a dividend of $1.72 per share.
Dividend Yield = Annual Dividend / Stock Price = $1.72 / $90.00 = 1.91%
The payout ratio, calculated as follows:
Payout Ratio = Annual Dividend / EPS = $1.72 / $6.67 = 25.8%
Analyst Consensus on Stock Valuation
Analyst consensus on the stock is generally positive, with a majority rating it as a Buy. The average price target among analysts is approximately $95.00, indicating a potential upside of around 5.56% from the current price.
| Metric | Value |
|---|---|
| P/E Ratio | 13.5 |
| P/B Ratio | 1.46 |
| EV/EBITDA | 7.91 |
| Current Stock Price | $90.00 |
| Annual Dividend | $1.72 |
| Dividend Yield | 1.91% |
| Payout Ratio | 25.8% |
| Analyst Consensus | Buy |
Key Risks Facing Watts Water Technologies, Inc. (WTS)
Key Risks Facing Watts Water Technologies, Inc.
Watts Water Technologies, Inc. faces several internal and external risks that could impact its financial health in 2024. These risks include industry competition, regulatory changes, and market conditions.
Industry Competition
The company operates in a highly competitive environment, facing pressure from both established players and new entrants. In the third quarter of 2024, net sales in the Americas increased by $225.8 million, or 21.7%, compared to the same period in 2023. However, this growth was partially driven by acquisitions, which accounted for $183.7 million, or 17.6%, of the increase. Organic growth is critical to sustaining long-term profitability and may be hindered by competitive pricing and innovation.
Regulatory Changes
Regulatory changes, especially concerning environmental standards and safety regulations, pose a significant risk. The introduction of the OECD's global minimum tax framework, effective January 1, 2024, is expected to have a minimal impact on the company’s consolidated financial statements. However, any future changes in regulations could lead to increased compliance costs or operational disruptions.
Market Conditions
Market conditions, including fluctuations in demand for plumbing and HVAC products, can significantly affect performance. In the third quarter of 2024, organic net sales in Europe decreased by 10.7%, primarily due to lower volumes and government energy incentive reductions. This trend highlights the vulnerability of the company to broader economic conditions.
Operational Risks
Operational risks include supply chain disruptions, particularly in the wake of geopolitical tensions and inflationary pressures. In the first nine months of 2024, gross profit was reported at $809.4 million, with a gross margin of 47.3%, reflecting the challenges posed by inflation. Additionally, the company recorded a net restructuring charge of $4.9 million in the third quarter, indicating ongoing operational adjustments.
Financial Risks
Financial risks are highlighted by the increase in interest expense, which rose by $7.5 million in the first nine months of 2024 compared to the same period in 2023. This increase is attributed to a higher principal balance of debt resulting from recent acquisitions, which adds pressure to the company’s financial structure.
Strategic Risks
Strategic risks involve the execution of the company’s growth strategy, particularly regarding acquisitions. The company completed the acquisition of Josam and adjusted the purchase price allocation of Bradley, resulting in $35.5 million of goodwill. The success of these acquisitions in generating anticipated synergies remains a key factor in the company’s strategic outlook.
Mitigation Strategies
To mitigate these risks, the company is focusing on enhancing operational efficiencies and cost controls. For instance, SG&A expenses increased by 8.2% in the third quarter of 2024, driven by strategic investments aimed at improving productivity. Additionally, the company is actively managing its capital structure, maintaining a net debt to capitalization ratio of (5.8%) as of September 29, 2024.
| Risk Factor | Description | Recent Impact |
|---|---|---|
| Industry Competition | Pressure from established and new competitors | Net sales growth of $225.8 million, with acquisitions contributing $183.7 million |
| Regulatory Changes | Compliance with evolving environmental and safety regulations | Minimal expected impact from OECD tax framework |
| Market Conditions | Fluctuations in demand affecting sales | 10.7% decrease in organic sales in Europe |
| Operational Risks | Supply chain disruptions and inflationary pressures | Gross profit of $809.4 million; restructuring charge of $4.9 million |
| Financial Risks | Increased interest expenses due to debt | Interest expense rise of $7.5 million |
| Strategic Risks | Execution of acquisition strategy | $35.5 million of goodwill from acquisitions |
Future Growth Prospects for Watts Water Technologies, Inc. (WTS)
Future Growth Prospects for Watts Water Technologies, Inc.
Watts Water Technologies, Inc. has several key growth drivers that are expected to enhance its market position and financial performance in the coming years.
Key Growth Drivers
- Product Innovations: The company continues to invest in research and development to introduce new products, particularly in the smart and connected products category. For instance, investments of approximately $18.0 million in smart initiatives were reported in 2024.
- Market Expansions: The company has actively pursued geographic expansions, notably through acquisitions like Enware Australia, aiming to penetrate the Australian market, which has well-established plumbing codes. This acquisition alone added approximately $8.1 million to revenues in 2024.
- Acquisitions: The completion of the Bradley acquisition resulted in a reported increase in revenue of $183.7 million in the Americas segment, contributing to an overall net sales increase of 21.7% for the first nine months of 2024 compared to the previous year.
Future Revenue Growth Projections and Earnings Estimates
Analysts project steady revenue growth driven by both organic sales and contributions from recent acquisitions. For the full year 2024, revenue is expected to exceed $2.3 billion, reflecting a compound annual growth rate (CAGR) of approximately 5-7% over the next five years. Earnings per share (EPS) estimates are projected to reach $8.50 by 2025, bolstered by strategic cost management and operational efficiencies.
Strategic Initiatives and Partnerships
- Partnerships: Collaborations with key industry players are being pursued to enhance product offerings and expand market reach. For example, partnerships aimed at integrating smart technology into existing product lines are expected to drive sales growth.
- Cost Reduction Initiatives: The company has implemented productivity initiatives expected to yield savings of approximately $3.4 million, which will contribute to improved margins.
Competitive Advantages
Watts Water Technologies enjoys several competitive advantages that position it well for future growth:
- Strong Brand Recognition: The company’s long-standing reputation in the plumbing and HVAC industries enhances customer loyalty and drives repeat business.
- Diverse Product Portfolio: With a range of products spanning residential, commercial, and industrial applications, the company is well-positioned to meet varying customer needs.
- Robust Supply Chain: Efficient supply chain management allows for quick response to market demands, minimizing disruptions and optimizing inventory levels.
| Metrics | Q3 2024 | Q3 2023 | Change (%) |
|---|---|---|---|
| Net Income | $69.1 million | $65.8 million | 5.0% |
| Earnings Per Share (EPS) | $2.06 | $1.96 | 5.1% |
| Operating Income | $93.2 million | $87.1 million | 7.0% |
| Revenue Growth (9M) | $1.711 billion | $1.508 billion | 13.4% |
The data presented illustrates the company's solid financial performance and growth trajectory, driven by strategic initiatives and an expanding market presence.
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Article updated on 8 Nov 2024
Resources:
- Watts Water Technologies, Inc. (WTS) Financial Statements – Access the full quarterly financial statements for Q3 2024 to get an in-depth view of Watts Water Technologies, Inc. (WTS)' financial performance, including balance sheets, income statements, and cash flow statements.
- SEC Filings – View Watts Water Technologies, Inc. (WTS)' latest filings with the U.S. Securities and Exchange Commission (SEC) for regulatory reports, annual and quarterly filings, and other essential disclosures.