WTS 10-Q

Watts Water Technologies Inc (WTS)

10-Q 2023-08-03 For: 2023-06-25

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Added on April 12, 2026

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Delaware		04-2916536
(State or Other Jurisdiction of Incorporation or Organization)		(I.R.S. Employer Identification No.)

815 Chestnut Street, North Andover, MA		01845
(Address of Principal Executive Offices)		(Zip Code)


Large accelerated filer ☒		Accelerated filer ☐

Non-accelerated filer ☐		Smaller reporting company ☐ Emerging growth company ☐


Class		Outstanding at July 23, 2023
Class A Common Stock, $0.10 par value		27,381,556

Class B Common Stock, $0.10 par value		5,958,290


Part I. Financial Information		3

Item 1.	Financial Statements	3

	Consolidated Balance Sheets at June 25, 2023 and December 31, 2022 (unaudited)	3

	Consolidated Statements of Operations for the Second Quarters and Six Months ended June 25, 2023 and June 26, 2022 (unaudited)	4

	Consolidated Statements of Comprehensive Income for the Second Quarters and Six Months ended June 25, 2023 and June 26, 2022 (unaudited)	5

	Consolidated Statements of Stockholders’ Equity for the Second Quarters and Six Months ended June 25, 2023 and June 26, 2022 (unaudited)	6

	Consolidated Statements of Cash Flows for the Six Months ended June 25, 2023 and June 26, 2022 (unaudited)	8

	Notes to Consolidated Financial Statements (unaudited)	9

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	24

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	34

Item 4.	Controls and Procedures	35

Part II. Other Information		35

Item 1.	Legal Proceedings	35

Item 1A.	Risk Factors	35

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	36

Item 6.	Exhibits	37

Signatures		38


	June 25,		December 31,
	2023		2022
ASSETS
CURRENT ASSETS:
Cash and cash equivalents	$	291.9	$	310.8
Trade accounts receivable, less reserve allowances of $12.0 million at June 25, 2023 and $10.7 million at December 31, 2022		271.4		233.8
Inventories, net:
Raw materials		157.1		138.0
Work in process		24.4		21.0
Finished goods		240.4		216.6
Total Inventories		421.9		375.6
Prepaid expenses and other current assets		37.9		30.4
Total Current Assets		1,023.1		950.6
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment, at cost		611.8		595.6
Accumulated depreciation		(415.5)		(398.8)
Property, plant and equipment, net		196.3		196.8
OTHER ASSETS:
Goodwill		595.8		592.4
Intangible assets, net		108.6		113.7
Deferred income taxes		19.7		17.8
Other, net		60.9		59.6
TOTAL ASSETS	$	2,004.4	$	1,930.9
LIABILITIES AND STOCKHOLDERS’ EQUITY
CURRENT LIABILITIES:
Accounts payable	$	152.8	$	134.3
Accrued expenses and other liabilities		182.2		174.6
Accrued compensation and benefits		69.8		69.8
Total Current Liabilities		404.8		378.7
LONG-TERM DEBT		98.0		147.6
DEFERRED INCOME TAXES		17.5		26.2
OTHER NONCURRENT LIABILITIES		69.8		77.8
STOCKHOLDERS’ EQUITY:
Preferred Stock, $0.10 par value; 5,000,000 shares authorized; no shares issued or outstanding		—		—
Class A common stock, $0.10 par value; 120,000,000 shares authorized; 1 vote per share; issued and outstanding, 27,388,423 shares at June 25, 2023 and 27,314,679 shares at December 31, 2022		2.7		2.7
Class B common stock, $0.10 par value; 25,000,000 shares authorized; 10 votes per share; issued and outstanding, 5,958,290 shares at June 25, 2023 and at December 31, 2022		0.6		0.6
Additional paid-in capital		663.6		651.9
Retained earnings		890.3		795.3
Accumulated other comprehensive loss		(142.9)		(149.9)
Total Stockholders’ Equity		1,414.3		1,300.6
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY	$	2,004.4	$	1,930.9


	Second Quarter Ended				Six Months Ended
	June 25,		June 26,		June 25,		June 26,
	2023		2022		2023		2022
Net sales	$	532.8	$	526.6	$	1,004.5	$	989.8
Cost of goods sold		280.0		287.4		533.6		552.0
GROSS PROFIT		252.8		239.2		470.9		437.8
Selling, general and administrative expenses		150.8		141.6		284.5		267.7
Restructuring		1.6		1.7		1.3		2.7
OPERATING INCOME		100.4		95.9		185.1		167.4
Other (income) expense:
Interest income		(1.3)		—		(1.7)		(0.1)
Interest expense		1.7		1.7		3.2		3.1
Other (income) expense, net		(0.6)		—		(0.5)		0.3
Total other (income) expense		(0.2)		1.7		1.0		3.3
INCOME BEFORE INCOME TAXES		100.6		94.2		184.1		164.1
Provision for income taxes		24.7		24.5		43.5		39.9
NET INCOME	$	75.9	$	69.7	$	140.6	$	124.2
Basic EPS
NET INCOME PER SHARE	$	2.27	$	2.08	$	4.21	$	3.70
Weighted average number of shares		33.5		33.5		33.4		33.6
Diluted EPS
NET INCOME PER SHARE	$	2.26	$	2.07	$	4.19	$	3.68
Weighted average number of shares		33.6		33.6		33.5		33.7
Dividends declared per share	$	0.36	$	0.30	$	0.66	$	0.56


											Accumulated
	Class A			Class B			Additional				Other		Total
(For the six months ended	Common Stock			Common Stock			Paid-In		Retained		Comprehensive		Stockholders’
June 25, 2023)	Shares	Amount		Shares	Amount		Capital		Earnings		Loss		Equity
Balance at December 31, 2022	27,314,679	$	2.7	5,958,290	$	0.6	$	651.9	$	795.3	$	(149.9)	$	1,300.6
Net income	—		—	—		—		—		140.6		—		140.6
Other comprehensive loss	—		—	—		—		—		—		7.0		7.0
Comprehensive income														147.6
Shares of Class A common stock issued upon the exercise of stock options	598		—	—		—		0.1		—		—		0.1
Stock-based compensation	—		—	—		—		9.5		—		—		9.5
Stock repurchase	(46,556)		—	—		—		—		(7.7)		—		(7.7)
Net change in restricted and performance stock units	119,702		—	—		—		2.1		(15.6)		—		(13.5)
Common stock dividends	—		—	—		—		—		(22.3)		—		(22.3)
Balance at June 25, 2023	27,388,423	$	2.7	5,958,290	$	0.6	$	663.6	$	890.3	$	(142.9)	$	1,414.3

											Accumulated
	Class A			Class B			Additional				Other		Total
(For the second quarter ended	Common Stock			Common Stock			Paid-In		Retained		Comprehensive		Stockholders’
June 25, 2023)	Shares	Amount		Shares	Amount		Capital		Earnings		Loss		Equity
Balance at March 26, 2023	27,414,400	$	2.7	5,958,290	$	0.6	$	658.1	$	831.6	$	(147.2)	$	1,345.8
Net income	—		—	—		—		—		75.9		—		75.9
Other comprehensive income	—		—	—		—		—		—		4.3		4.3
Comprehensive income														80.2
Shares of Class A common stock issued upon the exercise of stock options	51		—	—		—		—		—		—		—
Stock-based compensation	—		—	—		—		5.5		—		—		5.5
Stock repurchase	(24,083)		—	—		—		—		(4.0)		—		(4.0)
Net change in restricted and performance stock units	(1,945)		—	—		—		—		(1.0)		—		(1.0)
Common stock dividends	—		—	—		—		—		(12.2)		—		(12.2)
Balance at June 25, 2023	27,388,423	$	2.7	5,958,290	$	0.6	$	663.6	$	890.3	$	(142.9)	$	1,414.3


	For the second quarter ended June 26, 2022								For the six months ended June 26, 2022
			(in millions)								(in millions)
Distribution Channel	Americas		Europe		APMEA		Consolidated		Americas		Europe		APMEA		Consolidated
Wholesale	$	214.3	$	81.0	$	20.8	$	316.1	$	389.1	$	165.0	$	38.8	$	592.9
OEM		27.1		46.3		2.0		75.4		52.7		91.7		3.4		147.8
Specialty		112.4		—		—		112.4		206.2		—		—		206.2
DIY		22.1		0.6		—		22.7		41.8		1.1		—		42.9
Total	$	375.9	$	127.9	$	22.8	$	526.6	$	689.8	$	257.8	$	42.2	$	989.8

	For the second quarter ended June 26, 2022								For the six months ended June 26, 2022
			(in millions)								(in millions)
Principal Product Category	Americas		Europe		APMEA		Consolidated		Americas		Europe		APMEA		Consolidated
Residential & Commercial Flow Control	$	211.9	$	46.2	$	18.6	$	276.7	$	389.9	$	92.3	$	34.5	$	516.7
HVAC and Gas Products		100.7		57.9		3.6		162.2		185.0		117.9		6.0		308.9
Drainage and Water Re-use Products		29.8		22.7		0.3		52.8		52.6		45.5		1.1		99.2
Water Quality Products		33.5		1.1		0.3		34.9		62.3		2.1		0.6		65.0
Total	$	375.9	$	127.9	$	22.8	$	526.6	$	689.8	$	257.8	$	42.2	$	989.8


	June 25, 2023						December 31, 2022
	Gross				Net		Gross				Net
	Carrying		Accumulated		Carrying		Carrying		Accumulated		Carrying
	Amount		Amortization		Amount		Amount		Amortization		Amount

	(in millions)
Patents	$	5.0	$	(5.0)	$	—	$	5.0	$	(5.0)	$	—
Customer relationships		175.0		(122.2)		52.8		175.1		(118.6)		56.5
Technology		53.2		(42.4)		10.8		53.2		(40.5)		12.7
Trade names		20.5		(11.3)		9.2		19.8		(10.8)		9.0
Other		1.1		(0.7)		0.4		1.1		(0.6)		0.5
Total amortizable intangibles		254.8		(181.6)		73.2		254.2		(175.5)		78.7
Indefinite-lived intangible assets		35.4		—		35.4		35.0		—		35.0
	$	290.2	$	(181.6)	$	108.6	$	289.2	$	(175.5)	$	113.7


							Facility
			Legal and		Asset		exit
	Severance		consultancy		write-downs		and other		Total

	(in millions)
Balance at December 31, 2022	$	1.9	$	—	$	—	$	—	$	1.9
Net pre-tax restructuring charges		—		—		—		—		—
Utilization and foreign currency impact		(0.6)		—		—		—		(0.6)
Balance at March 26, 2023	$	1.3	$	—	$	—	$	—	$	1.3
Net pre-tax restructuring charges		—		—		—		—		—
Utilization and foreign currency impact		(0.7)		—		—		—		(0.7)
Balance at June 25, 2023	$	0.6	$	—	$	—	$	—	$	0.6


	2023		2022
Expected life (years)	3.0		3.0
Expected stock price volatility	33.7	%	33.7	%
Expected dividend yield	0.80	%	0.80	%
Risk-free interest rate	4.1	%	2.0	%


					Accumulated
	Foreign				Other
	Currency			Cash Flow	Comprehensive
	Translation			Hedges (1)	Loss

	(in millions)

Balance December 31, 2022	$	(157.0)	$	7.1	$	(149.9)
Change in period		4.4		(1.7)		2.7
Balance March 26, 2023	$	(152.6)	$	5.4	$	(147.2)
Change in period		3.7		0.6		4.3
Balance June 25, 2023	$	(148.9)	$	6.0	$	(142.9)

Balance December 31, 2021	$	(127.9)	$	0.6	$	(127.3)
Change in period		(9.4)		3.5		(5.9)
Balance March 27, 2022	$	(137.3)	$	4.1	$	(133.2)
Change in period		(23.6)		1.6		(22.0)
Balance June 26, 2022	$	(160.9)	$	5.7	$	(155.2)


	Fair Value Measurement at June 25, 2023 Using:
			Quoted Prices in Active		Significant Other		Significant
			Markets for Identical		Observable		Unobservable
			Assets		Inputs		Inputs
	Total		(Level 1)		(Level 2)		(Level 3)

	(in millions)
Assets
Plan asset for deferred compensation(1)	$	2.1	$	2.1	$	—	$	—
Interest rate swap(2)	$	8.6	$	—	$	8.6	$	—
Total assets	$	10.7	$	2.1	$	8.6	$	—
Liabilities
Plan liability for deferred compensation(3)	$	2.1	$	2.1	$	—	$	—
Designated foreign currency hedges(4)	$	0.4	$	—	$	0.4	$	—
Contingent consideration(6)	$	2.5	$	—	$	—	$	2.5
Total liabilities	$	5.0	$	2.1	$	0.4	$	2.5


	Fair Value Measurements at December 31, 2022 Using:
			Quoted Prices in Active		Significant Other		Significant
			Markets for Identical		Observable		Unobservable
			Assets		Inputs		Inputs
	Total		(Level 1)		(Level 2)		(Level 3)

	(in millions)
Assets
Plan asset for deferred compensation(1)	$	1.9	$	1.9	$	—	$	—
Interest rate swap(2)	$	9.3	$	—	$	9.3	$	—
Designated foreign currency hedges(5)	$	0.2	$	—	$	0.2	$
Total assets	$	11.4	$	1.9	$	9.5	$	—
Liabilities
Plan liability for deferred compensation(3)	$	1.9	$	1.9	$	—	$	—
Contingent consideration(6)	$	2.5	$	—	$	—	$	2.5
Total liabilities	$	4.4	$	1.9	$	—	$	2.5


	Second Quarter Ended				Second Quarter Ended						% Change to
	June 25, 2023				June 26, 2022						Consolidated
	Net Sales		% Sales		Net Sales		% Sales		Change		Net Sales

	(dollars in millions)
Americas	$	366.9	68.9	%	$	375.9	71.4	%	$	(9.0)	(1.7)	%
Europe		135.6	25.4			127.9	24.3			7.7	1.5
APMEA		30.3	5.7			22.8	4.3			7.5	1.4
Total	$	532.8	100.0	%	$	526.6	100.0	%	$	6.2	1.2	%


	Six Months Ended
	June 25,		June 26,
	2023		2022
OPERATING ACTIVITIES
Net income	$	140.6	$	124.2
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation		14.3		14.2
Amortization of intangibles		6.0		6.1
Loss on disposal and impairment of long-lived asset		0.2		1.5
Stock-based compensation		9.5		8.2
Deferred income tax		(10.1)		(1.1)
Changes in operating assets and liabilities, net of effects from business acquisitions:
Accounts receivable		(29.2)		(54.1)
Inventories		(35.0)		(72.5)
Prepaid expenses and other assets		(8.9)		(6.0)
Accounts payable, accrued expenses and other liabilities		13.1		24.4
Net cash provided by operating activities		100.5		44.9
INVESTING ACTIVITIES
Additions to property, plant and equipment		(11.6)		(13.1)
Proceeds from the sale of property, plant and equipment		—		0.8
Business acquisitions, net of cash acquired		(11.7)		—
Net cash used in investing activities		(23.3)		(12.3)
FINANCING ACTIVITIES
Proceeds from long-term borrowings		30.0		75.0
Payments of long-term debt		(80.0)		(15.0)
Payments for withholding taxes on vested awards		(15.6)		(12.9)
Payments for finance leases and other		(1.4)		(0.6)
Proceeds from share transactions under employee stock plans		0.1		0.2
Payments to repurchase common stock		(7.7)		(61.1)
Dividends		(22.3)		(19.3)
Net cash used in financing activities		(96.9)		(33.7)
Effect of exchange rate changes on cash and cash equivalents		0.8		(10.9)
DECREASE IN CASH AND CASH EQUIVALENTS		(18.9)		(12.0)
Cash and cash equivalents at beginning of year		310.8		242.0
CASH AND CASH EQUIVALENTS AT END OF PERIOD	$	291.9	$	230.0

SUPPLEMENTAL CASH FLOW DISCLOSURE:
Acquisition of businesses:
Fair value of assets acquired	$	19.5	$	—


									Change As a %								Change As a %
									of Consolidated Net Sales								of Segment Net Sales

	Americas		Europe		APMEA		Total		Americas		Europe		APMEA		Total		Americas		Europe		APMEA

	(dollars in millions)
Organic	$	(7.7)	$	6.0	$	1.4	$	(0.3)	(1.5)	%	1.2	%	0.3	%	—	%	(2.1)	%	4.7	%	6.0	%
Foreign exchange		(1.3)		1.7		(1.4)		(1.0)	(0.2)		0.3		(0.3)		(0.2)		(0.3)		1.3		(6.0)
Acquired		—		—		7.5		7.5	—		—		1.4		1.4		—		—		32.9
Total	$	(9.0)	$	7.7	$	7.5	$	6.2	(1.7)	%	1.5	%	1.4	%	1.2	%	(2.4)	%	6.0	%	32.9	%


											Change As a %
											of Prior Year Sales
	Wholesale		OEMs		DIY		Specialty		Total		Wholesale		OEMs		DIY		Specialty

	(dollars in millions)
Americas	$	8.8	$	(0.7)	$	(0.9)	$	(14.9)	$	(7.7)	4.1	%	(2.6)	%	(4.1)	%	(13.3)	%
Europe		—		6.0		—		—		6.0	—		13.0		—		—
APMEA		1.5		(0.1)		—		—		1.4	7.2		(5.0)		—		—
Total	$	10.3	$	5.2	$	(0.9)	$	(14.9)	$	(0.3)


	(in millions)		% Change
Organic	$	6.7	4.7	%
Foreign exchange		(0.3)	(0.2)
Acquired		2.8	2.0
Total	$	9.2	6.5	%


											Change As a % of										Change As a % of
											Consolidated Operating Income										Segment Operating Income

	Americas		Europe		APMEA		Corporate		Total		Americas		Europe		APMEA		Corporate		Total		Americas		Europe		APMEA		Corporate

	(dollars in millions)
Organic	$	6.1	$	0.8	$	0.4	$	(2.4)	$	4.9	6.4	%	0.8	%	0.4	%	(2.5)	%	5.1	%	7.1	%	4.1	%	11.1	%	18.8	%
Foreign exchange		(0.4)		0.3		(0.4)		—		(0.5)	(0.4)		0.3		(0.4)		—		(0.5)		(0.5)		1.5		(11.1)		—
Acquired		—		—		—		—		—	—		—		—		—		—		—		—		—		—
Restructuring, impairment charges		0.4		0.8		(1.1)		—		0.1	0.4		0.8		(1.1)		—		0.1		0.5		4.1		(30.6)		—
Total	$	6.1	$	1.9	$	(1.1)	$	(2.4)	$	4.5	6.4	%	1.9	%	(1.1)	%	(2.5)	%	4.7	%	7.1	%	9.7	%	(30.6)	%	18.8	%


	Issuer Purchases of Equity Securities
					(d) Maximum Number (or
	(a) Total			(c) Total Number of	Approximate Dollar
	Number of			Shares (or Units)	Value) of Shares (or
	Shares (or	(b) Average		Purchased as Part of	Units) that May Yet Be
	Units)	Price Paid per		Publicly Announced	Purchased Under the
Period	Purchased	Share (or Unit)		Plans or Programs	Plans or Programs
March 27, 2023 – April 23, 2023	255	$	168.37	—	—
April 24, 2023 – May 21, 2023	2,953	$	170.12	—	—
May 22, 2023 – June 25, 2023	96	$	158.45	—	—
Total	3,304	$	169.65	—	—


Exhibit No.		Description
3.1†		Restated Certificate of Incorporation, as amended.
3.2		Amended and Restated By-Laws. Incorporated by reference to the Registrant’s Current Report on Form 8-K dated July 31, 2023 (File No. 001- 11499).
31.1†		Certification of Principal Executive Officer pursuant to Rule 13a-14(a) or Rule 15d-14(a) of the Securities Exchange Act of 1934, as amended
31.2†		Certification of Principal Financial Officer pursuant to Rule 13a-14(a) or Rule 15d-14(a) of the Securities Exchange Act of 1934, as amended
32.1††		Certification of Principal Executive Officer pursuant to 18 U.S.C. Section 1350
32.2††		Certification of Principal Financial Officer pursuant to 18 U.S.C. Section 1350
101.INS*		Inline XBRL Instance Document
101.SCH*		Inline XBRL Taxonomy Extension Schema Document
101.CAL*		Inline XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF*		Inline XBRL Taxonomy Extension Definition Linkbase Document
101.LAB*		Inline XBRL Taxonomy Extension Label Linkbase Document
101.PRE*		Inline XBRL Taxonomy Extension Presentation Linkbase Document
104		Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101)


	WATTS WATER TECHNOLOGIES, INC.

Date: August 3, 2023	By:	/s/ Robert J. Pagano, Jr.
		Robert J. Pagano, Jr.
		Chief Executive Officer (principal executive officer)

Date: August 3, 2023	By:	/s/ Shashank Patel
		Shashank Patel Chief Financial Officer (principal financial officer)