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WATTS WATER TECHNOLOGIES INC (WTS)·Q1 2025 Earnings Summary

Executive Summary

  • Q1 2025 was a solid start to the year: net sales $558.0M (-2% YoY), adjusted operating margin 19.0% (+80 bps YoY), and adjusted EPS $2.37 (+2% YoY), despite reported operating margin compression from higher restructuring costs .
  • Management maintained FY2025 organic sales (-3% to +2%) and adjusted operating margin (17.7% to 18.3%) outlooks; reported sales guidance was modestly raised to -2% to +3% on FX tailwinds .
  • Dividend increased 21% to $0.52 per share starting in June, alongside $3.9M of repurchases and a net-debt-to-capitalization ratio of -8.6%, underscoring capital return capacity .
  • Key catalysts: tariff mitigation via pricing and onshoring, strong Americas performance, and “mega project” activity (notably data centers), balanced against Europe destocking and fewer shipping days .

What Went Well and What Went Wrong

What Went Well

  • Record adjusted operating income ($106.1M), adjusted operating margin (19.0%), and adjusted EPS ($2.37), driven by price, productivity, and cost controls offsetting volume deleverage and inflation .
  • Americas segment margin expanded +130 bps to 23.4% on price realization and productivity; APMEA grew organically +13% on strength in China, Australia, and Middle East .
  • CEO tone confident on tariff mitigation and vertical integration: “We expect that our strategic vertical integration, with manufacturing close to our customers, will continue to be an advantage for us” .

What Went Wrong

  • Reported operating margin fell 120 bps to 15.7% on higher restructuring (France site exit) despite lower acquisition-related charges .
  • Europe weakened: sales -12% reported (-9% organic), segment margin -180 bps amid heat pump and wholesale channel destocking and new construction slowdown .
  • Fewer shipping days across all regions reduced sales by ~3% and masked underlying price realization and operational progress .

Financial Results

Multi-period headline metrics

MetricQ3 2024Q4 2024Q1 2025
Revenue ($USD Millions)$543.6 $540.4 $558.0
Diluted EPS ($USD)$2.06 $2.02 $2.21
Adjusted Diluted EPS ($USD)$2.03 $2.05 $2.37
Operating Margin (%)17.1% 16.5% 15.7%
Adjusted Operating Margin (%)17.1% 16.8% 19.0%
Gross Profit ($USD Millions)$257.1 $252.7 $272.5

Q1 2025 vs Wall Street consensus (S&P Global)

MetricConsensus*Actual
Revenue ($USD Millions)$547.4*$558.0
Primary EPS ($USD)$2.13*$2.37 (Adjusted diluted EPS)
EBITDA ($USD Millions)$110.1*$118.7 (Adj. EBITDA)

Values retrieved from S&P Global.*

Segment breakdown – Q1 2025

SegmentNet Sales ($USD Millions)YoY %FX Impact (%)Acquisition Impact (%)Organic YoY (%)Segment Margin (%)
Americas$418.1 -0.2% +0.3% -1.2% -1.1% 23.4%
Europe$108.4 -12.1% +2.9% 0.0% -9.2% 13.9%
APMEA$31.5 +9.4% +3.8% 0.0% +13.2% 17.5%

KPIs – Q1 2025

KPIValue
Operating Cash Flow ($USD Millions)$55.2
Free Cash Flow ($USD Millions)$45.6
Cash Conversion (FCF/Net Income) (%)61.6%
Net Debt to Capitalization (%)-8.6%
Dividends Declared per Share ($)$0.43
New Quarterly Dividend ($)$0.52 (beginning June 2025)
Shares Repurchased ($USD Millions)$3.9

Guidance Changes

MetricPeriodPrevious GuidanceCurrent GuidanceChange
Reported Sales GrowthFY 2025-3% to +2% -2% to +3% Raised
Organic Sales GrowthFY 2025-3% to +2% -3% to +2% Maintained
Operating MarginFY 202516.7% to 17.3% 16.7% to 17.3% Maintained
Adjusted Operating MarginFY 202517.7% to 18.3% 17.7% to 18.3% Maintained
Dividend per ShareQuarterly (from June 2025)$0.43 $0.52 Raised
Q2 2025 Organic Sales GrowthQ2 2025N/AFlat to +3% New quarterly guide
Q2 2025 EBITDA MarginQ2 2025N/A21.6%–22.2% New quarterly guide
Q2 2025 Operating MarginQ2 2025N/A19.1%–19.7% New quarterly guide
Q2 2025 Acquisition SalesQ2 2025N/A~$7M (Americas) New quarterly guide

Earnings Call Themes & Trends

TopicPrevious Mentions (Q-2: Q3 2024, Q-1: Q4 2024)Current Period (Q1 2025)Trend
Tariffs/macroSoftening conditions; acquisition mix dilution; FX immaterial; raising margin midpoint (Q3’24) Multiple tariff waves; pricing actions late-Mar and May 12; cautious H2 demand (pre-buy pull-forward) Heightened focus; proactive mitigation
Supply chain/onshoringLead times normalized; wholesale safety stock reset (Americas) (Q3’24) Vertical integration near customers; expanding shifts vs capex; dual sourcing to offset China tariffs Execution advantage
Regional trendsEurope destocking in heat pumps; OEM declines (Q3’24, Q4’24) Europe down on destocking/new construction; Americas resilient; APMEA growth Europe remains weak; Americas/APMEA positive
Product/performance (data centers)Noted secular demand drivers (energy efficiency) (Q3’24) “Mega project activity, including data centers remains strong” Strengthening
Pricing dynamicsPrice realization offset by volume deleverage (Q3’24, Q4’24) Annual Jan price; tariff-related increases Mar/May; disciplined competitive posture More aggressive price actions
M&A integrationBradley/Josam dilutive in mix (Q3’24); I-CON closed Jan 2, 2025 (Q4’24) I-CON accretive to adj. EBITDA & EPS in 2025; synergies ahead of plan; EasyWater acquired June Positive integration momentum

Management Commentary

  • CEO: “We began 2025 with better-than-expected first quarter results, including record adjusted operating income, adjusted operating margin and adjusted earnings per share… Adjusted operating margin of 19% exceeded expectations due to better-than-expected volume, productivity and cost controls” .
  • CEO on tariffs: “We are proactively working to mitigate the impact of tariffs… price increases, relocating our supply chain… increasing capacity across our U.S. manufacturing footprint” .
  • CEO: “Mega project activity, including data centers remains strong… maintaining our full year organic sales and adjusted operating margin outlook” .
  • Press release: “Maintaining full year 2025 organic sales and adjusted operating margin outlook” .

Q&A Highlights

  • Pricing cadence and tariffs: Annual increase in January; tariff-related increases end-March and May 12; realization updates to follow in Q2 .
  • Demand pull-forward: ~$5M pre-buy impact at end of Q1; April solid; limiting customers from over-ordering ahead of price hikes .
  • H2 caution: Management expects potential demand reduction if large China tariffs (referenced at ~145%) persist; holding margins via price/global sourcing/footprint actions .
  • Europe margins: Q1 benefited from ~$10M incremental volume (half pre-buy, half data centers); sequential margins still expanding into Q2; YoY tough compares with ongoing heat pump destocking .
  • Capacity/onshoring: Ample NA capacity via additional shifts (few third shifts); minimal capex needed to ramp .
  • Acquisitions: Bradley, Josam, I-CON integration tracking ahead of plan; I-CON accretive in 2025 .

Estimates Context

Watts beat Wall Street consensus for Q1 2025 on revenue, EPS, and EBITDA:

  • Revenue: $558.0M vs $547.4M consensus* .
  • Primary EPS: $2.37 (adjusted diluted EPS) vs $2.13 consensus* .
  • EBITDA: $118.7M (adjusted) vs $110.1M consensus* .

Estimate depth: 9 EPS and 9 revenue estimates for Q1; implies reasonably broad coverage*.
Values retrieved from S&P Global.*

MetricQ1 2025 Consensus*# of Estimates*Q1 2025 Actual
Revenue ($USD Millions)$547.4*9*$558.0
Primary EPS ($USD)$2.13*9*$2.37 (Adjusted)
EBITDA ($USD Millions)$110.1*—$118.7 (Adjusted)

Values retrieved from S&P Global.*

Key Takeaways for Investors

  • Quality beat: Strong price/productivity lifted adjusted margins and EPS despite fewer shipping days and Europe destocking; the beat vs consensus on revenue, EPS, and EBITDA should support near-term sentiment .
  • Americas resilience: Structural advantages (vertical integration, onshoring capacity, dual sourcing) and tariff-driven pricing underpin margin durability in H1; monitor H2 demand normalization post pre-buy .
  • Europe risk persists: Heat pump/wholesale destocking and new construction softness likely weigh through Q2; cautious stance remains appropriate .
  • Capital returns intact: 21% dividend hike to $0.52 and continued buybacks reflect balance sheet strength (net debt/cap -8.6%) and cash generation trajectory .
  • Guidance stance: FY2025 organic sales and adjusted margin outlook maintained; reported sales range modestly improved on FX—watch Q2 execution on pricing realization and tariff offsets .
  • Secular tailwinds: Data center “mega projects” and water quality portfolio expansion (I-CON, EasyWater) bolster medium-term thesis; synergy realization tracking ahead of plan .
  • Trading implications: Near-term: positive drift on beat/raise dynamics into Q2; Medium-term: watch tariff policy path, H2 demand elasticity, and Europe recovery for estimate revisions.

Citations:
Press release and 8-K Q1 2025 ; Q1 2025 press release ; Q1 2025 call transcript ; Q4 2024 8-K ; Q3 2024 8-K ; Dividend press release .