Watts Water Technologies Inc. Reports Operating Results (10-Q)

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Aug 13, 2010
Watts Water Technologies Inc. (WTS, Financial) filed Quarterly Report for the period ended 2010-07-04.

Watts Water Technologies Inc. has a market cap of $1.17 billion; its shares were traded at around $31.87 with a P/E ratio of 16.7 and P/S ratio of 1. The dividend yield of Watts Water Technologies Inc. stocks is 1.4%. Watts Water Technologies Inc. had an annual average earning growth of 6.1% over the past 10 years. GuruFocus rated Watts Water Technologies Inc. the business predictability rank of 3-star.WTS is in the portfolios of John Keeley of Keeley Fund Management, Jim Simons of Renaissance Technologies LLC, Bruce Kovner of Caxton Associates, Chuck Royce of Royce& Associates.

Highlight of Business Operations:

During the second quarter and first six months of 2010, organic sales increased by 7.1% and 6.9%, respectively, over last years comparable periods, partially due to the additional working days in the first six months of 2010 mentioned previously and partially due to increased per day sales volume. Organic sales in the second quarter of 2010 increased in all three segments over the second quarter of 2009; Europe by $11.8 million, or 10.8%, North America by $9.2 million, or 4.7%, and China by $0.9 million, or 19.1%. We believe key drivers of the increase in sales continues to be the upturn in the repair and remodeling markets in both the U.S. and Europe, some minor restocking in the retail channels, new product introductions and sales improvements in our European drains and DIY product lines. In addition, the comparative sales volume increase continued to drive greater plant absorption in many of our facilities and, along with productivity initiatives through Lean and Six Sigma programs, drove improved incremental gross margin and operating margin performance as compared to the first six months of 2009. The effects of foreign currency movements and the U.S. commercial marketplace partially offset these increases in organic sales. Foreign currency movements, mainly related to the weakening of the euro against the U.S. dollar, negatively impacted our second quarter and first six months diluted earnings by ($0.03) and ($0.01), respectively, as compared to the comparable periods of 2009. The U.S. commercial marketplace continues to be weak and we do not expect improvement in this end market during the balance of 2010. In the second quarter of 2010, we took advantage of tax planning strategies that allowed us to release a valuation allowance on net operating losses in Europe, which positively impacted our second quarter diluted earnings by $0.08 per common share.

During the six months ended July 4, 2010, we made two acquisitions with an estimated aggregate purchase price of $36.1 million, including the estimated fair value of contingent consideration. We also made a payment of approximately $0.5 million on an earn-out of a previously acquired company.

Restructuring and Other Charges. In the second quarter of 2010, we recorded a charge of $2.5 million primarily for severance and other costs incurred as part of our previously announced restructuring programs, as compared to $0.8 million for the second quarter of 2009. For a more detailed description of our current restructuring plans see Note 5 of Notes to Consolidated Financial Statements.

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