Watts Water Technologies, Inc. · NYSE:WTS

Watts Water Technologies — Q1 2020 Earnings Presentation

19 slides from Watts Water Technologies's earnings presentation, May 7, 2020

  1. Slide 1: Watts Water Technologies 1Q 2020 Earnings Conference Call

    Watts Water Technologies 1Q 2020 Earnings Conference Call May 7, 2020 © 2020 Watts Water Technologies, Inc.

  2. Slide 2: Forward Looking Statements

    Forward Looking Statements Certain statements in this presentation constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These statements are related to forecasts of sales, margins, earnings, earnings per share, capital expenditures, water

  3. Slide 3: 1Q Overview: COVID-19 Changing 2020 Game Plan

    1Q Overview • Market / Operations Update • Early and decisive COVID-19 response ◦ Created COVID-19 Task Force ◦ Focused on employee safety; following CDC and local country guidelines ◦ Supporting customer business continuity; providing essential products ◦ Implemented cost actions to mitigate econom

  4. Slide 4: Monitoring Developments Daily; Plans in Place to Address Softening Demand

    Market / Operations Update • Markets ◦ Country / regional lockdowns beginning to loosen ◦ Inventory destocking, project delays ◦ Many US construction verticals slowed ◦ European wholesale closures, beginning to reopen • Americas / Europe operations ◦ Solid quarter through late March ◦ All plants now

  5. Slide 5: Customer Outreach – New Hotline / Virtual Training

    Customer Outreach – New Hotline / Virtual Training Watts established a Mission Critical Project Hotline to support our customers in responding to COVID-19 emergencies LOUISIANA CHILDREN’s HOSPITAL CLEVELAND, OH HOSPITAL Watts Hotline received an urgent request Watts Hotline support team to ship stra

  6. Slide 6: Aligning Cost Base with Volume Reduction

    COVID-19 Cost Management • Cost Actions ◦ Structural headcount reductions ◦ Temporary: merit deferrals, salary & incentive reductions, furloughs, reduced discretionary spending ◦ Factory overheads: variable costs ◦ Material costs: aggressively negotiating cost reductions • Cash Preservation ◦ Reduce

  7. Slide 7: Strong Financial Position: Low Leverage and Ample Liquidity

    Liquidity $M Balance Sheet Metrics Recent Capital Actions Total debt $ 379.4 • April 2020 – Revised credit facility Cash & cash equivalents $ (245.4) ◦ $800M revolver, expanded by $300M Net debt $ 134.0 ◦ Extended term to February 2022 Net debt to capitalization 12.2% ◦ Paid off $225M term loan Gros

  8. Slide 8: Solid Performance Aided By Cost Actions

    1Q 2020 Financial Summary $M $M Sales Adj. Operating Margin %* Adjusted EPS* FCF* Down 1 % Up 20 bps Up 1% Organic* 2019 2020 ($8) ($31) 2019 2020 2019 2020 2019 2020 • –2% reported • Adjusted OP $48M, flat • Operations +$0.01 • 73% improvement YOY –1% organic: –1% FX ▲Price, productivity, cost acti

  9. Slide 9: 1Q 2020 Regional Results

    1Q 2020 Regional Results $M Adjusted Operating Sales / Business Adjusted Operating Profit / Sales Margin %* Highlights Margin Commentary Change (bps) • +1% reported; flat organic • Adjusted operating profit* $44M, +2% AMERICAS ◦ +1% acquisition • Margin drivers: $263 16.7% ◦ 1 less workday ▲ Price •

  10. Slide 10: Very Fluid Situation; Forecasting a Challenging Quarter

    2Q Assumptions • Revenue – expect 25% to 30% reduction from prior year • Expect adjusted operating margin in mid to high single digits ◦ Plant under absorption ◦ Includes cost reduction actions • Interest expense to increase sequentially ~$1M vs 1Q 2020 • Planning to repatriate ~$50M by quarter end;

  11. Slide 11: Addressing Near-term Challenges; Focused on Long-term Strategy

    Summary • COVID-19 disruption driving worldwide recession • Focused response ◦ Safety is key ◦ Understanding customer needs ◦ Recalibrating cost structure to meet lower market demands ◦ Monitoring daily; control what we can; adjust as necessary • Durable capital structure ◦ Strong balance sheet; opt

  12. Slide 12: Appendix

    Appendix © 2020 Watts Water Technologies, Inc.

  13. Slide 13: Consolidated Statements of Operations

    Consolidated Statements of Operations (M) (Unaudited) First Quarter 2020 2019 B/(W) % Net sales $382.6 $388.7 ($6.1) (2%) Cost of goods sold 219.8 224.5 4.7 2% Gross profit 162.8 164.2 -1.4 (1%) 42.6% 42.2% +0.4p Selling, general & administrative expenses 115.0 116.1 1.1 1% 30.1% 29.9% -0.2p Restruc

  14. Slide 14: Reconciliation of Reported Sales to Organic Sales

    Reconciliation of Reported Sales to Organic Sales (M) (Unaudited) (in millions except per share information) First Quarter Americas Europe APMEA Total Reported net sales 2020 $262.4 $110.2 $10.0 $382.6 Reported net sales 2019 258.9 116.3 13.5 388.7 Dollar change $3.5 ($6.1) ($3.5) ($6.1) Net sales %

  15. Slide 15: Reconciliation of GAAP As Reported to Adjusted Non-GAAP

    Reconciliation of GAAP “As Reported” to “Adjusted” Non-GAAP Excluding Effect of Adjustments for Special Items (M) (Unaudited) First Quarter (in millions except per share information) 2020 2019 Net Sales $382.6 $388.7 Operating income - as reported $47.8 $46.7 Operating margin % 12.5% 12.0% Adjustmen

  16. Slide 16: Adjusted Operating Income by Segment

    Adjusted Operating Income by Segment (M) (Unaudited) (in millions) First Quarter 2020 First Quarter 2019 Americas Europe APMEA Corp. Total Americas Europe APMEA Corp. Total Reported operating income $43.1 13.2 1.3 (10.9) 46.7 $43.4 13.7 (0.1) (9.2) 47.8 (loss) Operating margin % 16.5% 12.4% (1.0%) 1

  17. Slide 17: Reconciliation of Net Cash Used in Operations to Free Cash Flow

    Reconciliation of Net Cash Used in Operations to Free Cash Flow (M) (Unaudited) First Quarter 2020 2019 Net cash used in operations - as reported ($0.9) ($24.2) Less: additions to property, plant, and equipment, net (7.5) (6.9) Free cash flow ($8.4) ($31.1) Net income - as reported $32.0 $31.0 Cash

  18. Slide 18: Reconciliation of Long-term Debt to Net Debt to Capitalization Ratio

    Reconciliation of Long-term Debt (including current portion) to Net Debt to Capitalization Ratio (M) (Unaudited) March 29, 2020 December 31, 2019 Current portion of long-term debt $82.5 $105.0 Plus: Long-term debt, net of current portion 296.9 204.2 Less: Cash and cash equivalents (245.4) (219.7) Ne

  19. Slide 19: Calculations of Gross and Net Leverage

    Calculations of Gross and Net Leverage (M) (Unaudited) Trailing Twelve Months through March 29, 2020 Net income – as reported $132.6 Plus: Interest expense, net 13.0 Plus: Income taxes 53.4 Plus: Depreciation 31.1 Plus: Amortization 15.5 Earnings before interest, taxes depreciation and amortization

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