Watts Water Reports Q1 2025 Earnings: Revenue Declines Despite EPS Increase
Watts Water Technologies, Inc. (WTS) announced its first-quarter 2025 adjusted earnings per share (EPS) of $2.37, slightly above the $2.33 reported in the same quarter last year. This result exceeds the Zacks Consensus Estimate by 11.8%.
Net sales for the quarter fell 2% year over year, totaling $558 million, though this amount beat the Zacks Consensus Estimate by 3.2%. Organic sales also dipped 2% from the previous year.
Incremental sales from acquisitions in the Americas contributed $5 million, accounting for 1% of reported growth. Despite this, organic sales dropped due to fewer shipping days across all regions, leading to an estimated 3% decline. Performance was further impacted by market weakness and inventory destocking in Europe. Additionally, foreign exchange fluctuations decreased sales by $6 million, or 1%.
Following these positive results, shares rose by 2% in pre-market trading today. Over the past year, company shares have gained 0.2% while the Zacks Instruments – Control industry has declined by 12.8%.
Image Source: Zacks Investment Research
Segment Results
Americas
In the Americas, net sales remained flat at $418 million, with organic sales down by 1%. The reduction was primarily attributed to fewer shipping days, negatively impacting volumes. The I-CON acquisition added about $5 million in sales, contributing 1% to overall growth. Adjusted operating margins improved by 130 basis points (bps) to 23.4%, supported by effective pricing strategies, productivity gains, and cost management, which compensated for inflation and lower volume leverage.
Europe
Europe reported a 12% decline in net sales to $108 million, with a 9% decrease on an organic basis. Reduced sales in this segment were driven by lower volumes due to fewer shipping days and ongoing inventory destocking, particularly in the heat pump and wholesale channels. Foreign exchange rates negatively impacted reported sales by 3%. Adjusted operating margins fell by 180 bps to 13.9%, as volume pressures and inflation outweighed gains from pricing and productivity improvements.
APMEA
The APMEA region saw net sales increase by 9% to $32 million and 13% on an organic basis. Strong demand from China, Australia, and the Middle East propelled growth, despite a decline in New Zealand linked to fewer shipping days. Unfavorable foreign exchange rates reduced sales by 4%. Adjusted operating margins contracted 70 bps to 17.5%, as inflation and an unfavorable sales mix offset the benefits from increased sales and productivity.
WTS’ Other Financial Details
Gross profit rose by 1.9% year over year to $272.5 million. Meanwhile, selling, general, and administrative expenses declined by 1.2% to $167.5 million. Operating income was recorded at $87.7 million, down 9.3% from the previous year.
The overall operating margin decreased by 120 bps to 15.7%. Adjusted operating margin improved to 19%, reflecting an 80 bps increase compared to last year.
Cash Flow & Liquidity
For the first quarter ending March 31, 2025, Watts Water generated $55.2 million in cash from operating activities, an increase from $45.6 million in the same period last year.
The company reported free cash flow of $45.6 million, up from $36.6 million a year ago. The increase was primarily driven by lower income tax payments. Improvements in cash flow are expected to continue throughout 2025, aligning with typical seasonal patterns.
During the quarter, Watts Water repurchased approximately 19,000 shares at a cost of $3.9 million. At the end of the quarter, about $141 million remains under the stock repurchase program approved in 2023, which has no expiration date.
As of March 31, 2025, the company reported $336.8 million in cash and cash equivalents and $197.2 million in long-term debt, compared to $386.9 million and $197 million as of December 31, 2024.
WTS’ Guidance
For 2025, Watts Water updated its sales guidance, now anticipating a reported sales range from a decline of 2% to an increase of 3%. Previous estimates indicated a potential drop of 3% to a rise of 2%. Organic sales are projected to range from a decline of 3% to an increase of 2%.
The company continues to expect an adjusted EBITDA margin between 20.4% and 21.0%, indicating an improvement of 30 bps to 90 bps year over year. It also projects adjusted operating margins to fall between 17.7% and 18.3%, suggesting a potential increase of 0-60 bps.
In the second quarter of 2025, the adjusted operating margin is estimated to be between 19.1% and 19.7%, indicating growth of 30-90 bps year over year. Reported sales are projected to rise by 1-4%, while organic sales are expected to remain flat or increase by 3%.
WTS’ Zacks Rank
Watts Water currently holds a Zacks Rank #3 (Hold).
Performance of Industry Peers
Badger Meter, Inc.
Badger Meter, Inc. (BMI) reported earnings of $1.30 for the first quarter of 2025, surpassing the Zacks Consensus Estimate by 20.4%. Quarterly net sales rose to $222.2 million, a 13% increase from $196.3 million a year ago, driven by higher utility water sales and contributions from the SmartCover acquisition. The Zacks consensus estimate was $222 million. Over the past six months, shares of BMI have climbed 14.3%.
Infosys
Infosys (INFY) reported mixed results for its fourth quarter of fiscal 2025. Earnings were 20 cents per share, beating the consensus estimate by a penny. However, this represented a year-over-year decrease of 15.3%. The company’s revenues fell short of expectations, with shares gaining 3.7% in the past year.
Microsoft
Microsoft (MSFT) reported third-quarter fiscal 2025 earnings of $3.46 per share, exceeding the Zacks Consensus Estimate by 8.13% and increasing 17.7% from last year’s figures. Revenues reached $70.06 billion, a 13.3% year-over-year increase, surpassing estimates by 2.46%. Shares of Microsoft have risen by 3.7% in the last six months.
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