Watts Water Technologies Q2 2013 Earnings Conference Call These statements are related to forecasts

  • View
    0

  • Download
    0

Embed Size (px)

Text of Watts Water Technologies Q2 2013 Earnings Conference Call These statements are related to forecasts

  • Watts Water Technologies

    Q2 2013 Earnings Conference Call

    July 31, 2013

    0

  • 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 market trends and dynamics, 2013 segment sales,

    capital expenditures, costs and savings associated with realignment activities, lead free

    developments and management goals and objectives.

    Watts cautions investors that any such forward-looking statements made by Watts are not

    guarantees of future performance. All forward-looking statements are subject to known and

    unknown risks, uncertainties and contingencies, many that are beyond the control of Watts,

    which may cause actual results, performance or achievements to differ materially from

    anticipated future results, performance or achievements expressed or implied by the forward-

    looking statements.

    Factors that might affect forward-looking statements include overall economic and business

    conditions, competitive factors, changes in laws affecting Watts, future acquisitions of material

    assets or businesses by Watts, the demand for Watts’ products and services and other factors

    identified in Watts’ most recent Annual Report on Form 10-K and subsequent reports filed with

    the SEC.

    1

  • Q2 2013 Results

    Financial Highlights

    Revenue growth of 1.1% v 2012 - 60 bps FX & 50 bps organic

    • Organic growth by region – NA +3.0%, EMEA - 4.5%, Asia +26.2%

    Adjusted operating margin* = 10.1%, 70 bps above 2012

    • NA adjusted margin up 190 bps to 14.1%; lead free impact $1.4m (60pbs) in quarter

    • EMEA adjusted margin declined 60 bps to 8.4%, mainly due to volume decline

    Adjusted EPS* = $0.57, PY = $0.52 (10% Increase)

    • Net effect of share buybacks = +0.01

    Retired $75m of debt in May, net debt to cap = 11.7% **

    Repurchased $10m of shares, $182m cash on hand

    * “Adjusted” excludes special items, see slides 23 and 25 for reconciliations

    ** See reconciliation on slide 24

    2

  • Q2 Business Highlights

    Key European markets - continued softness in core markets

    • France – wholesale market down but some signs of stabilization

    • Germany – Early Q2 OEM softness moderated in June

    • Drains business solid

    US lead free initiative

    • Customer transition – pace quickening

    • NH plant expansion officially commissioned in June

    NA +4.6% unit volume increase, offset by 160bp in lower retail price

    • Retail still very competitive

    • Wholesale channel up 4.0%

    • Residential volumes up, commercial still lags

    Emerging markets continue solid growth – Asia, Middle East and Eastern Europe

    3

  • Market Dynamics

    EMEA Macro economic headwinds continued

    French and German wholesale markets down since year end 2012

    OEM declines moderated in late Q2 by Flood recovery

    Southern Europe bouncing along the bottom

    Drains business continues strong

    Stable growth in emerging markets

    • Middle East solid

    • Pick up in Q2 in Eastern Europe

    North America

    Strong Residential construction trends continuing

    • Projected housing starts +27% for the full year 2013 (July ‘13 - Wells Fargo)

    Repair & replace steady

    Commercial end market recovery slow

    • Some declines in Institutional and Government verticals; growth in Hospitality

    Lead free transition accelerating, although caution in taking on inventory

    Asia

    China GDP grew 7.5% in Q2

    • Growth opportunities in Tier 2/3 cities, potential slow down in Tier 1 cities

    4

  • Guidance Update - 2013

    • Expect a sales decline in EMEA of 3% to 5% for the full year 2013, at constant exchange

    rates

    • Continue to expect North America core sales growth of 2% to 5% for the full year, plus

    incremental 1% to 2% on top line for lead free sales

    • Maintaining full year sales growth expectation in Asia of 20 to 25%

    • Anticipate lead free transition to accelerate in Q3, with incremental transition costs of up

    to $1m in Q3

    • Expect $ 37 m in Capex for the full year

    • Expect $13M in 2H on share repurchase total of $23M for the year

    • Board approved Realignment Initiative (see next slide)

    5

  • Realignment Summary

    Board approved plan to reduce European manufacturing footprint by 10%

    • Estimated total costs $16m, includes $2m cap ex.

    • Estimate 70% of costs to be incurred through 2014

    • Estimated annualized 2016 savings of $7m

    • Estimate realize 50% savings in 2014, 90% in 2015

    Plans may be subject to review by outside agencies and/or employee representative

    bodies

    BOD approved sale of Austroflex

    • Underperforming asset since purchase

    • Additional European footprint reduction of 6%

    • Q3 loss on disposal estimate = $ 2m

    6

  • Residential/ Commercial

    Flow Control

    56%

    HVAC/Gas 29%

    Water Quality

    5%

    Drains and Re-use

    10%

    Revenue by Platform & Region

    7

    Q2 2012 Sales Q2 2013 Sales

    Residential/ Commercial

    Flow Control

    56%

    HVAC/Gas 29%

    Water Quality

    5%

    Drains and Re-use

    10%

    U.S.A 53%

    EMEA 39%

    Asia 2%

    Canada 6%

    U.S.A 55%

    EMEA 37%

    Asia 2%

    Canada 6%

  • Residential/ Commercial

    Flow Control

    56%

    HVAC/Gas 30%

    Water Quality

    5%

    Drains and Re-use

    9%

    Revenue by Platform & Region

    8

    YTD 2012 Sales YTD 2013 Sales

    Residential/ Commercial

    Flow Control

    56%

    HVAC/Gas 29%

    Water Quality

    5%

    Drains and Re-use

    10%

    U.S.A 52%

    EMEA 40%

    Asia 2%

    Canada 6%

    U.S.A 54%

    EMEA 38%

    Asia 2%

    Canada 6%

  • Q2 2013 Financial Highlights (in millions except DEPS; see reconciliations in Appendix; continuing ops only)

    $367.4

    $371.3

    Q2 12 Q2 13

    Sales

    $34.4

    $37.6

    Q2 12 Q2 13

    Op Profit/ Margin*

    9.4%

    10.1%

    $0.52

    $0.57

    Q2 12 Q2 13

    DEPS from Continuing Operations*

    Sales Growth of 1.1%

    Organic 0.5%

    FX 0.6%

    * Excludes Special Items – see Slide 23

    Net accretion +$0.01

    9

  • June YTD 2013 Financial Highlights (in millions except DEPS; see reconciliations in Appendix; continuing ops only)

    $728.6

    $733.4

    YTD 12 YTD 13

    Sales

    $62.8

    $68.1

    Q1 12 Q1 13

    Op Profit/ Margin*

    8.6%

    9.3%

    $0.95

    $1.06

    YTD 12 YTD 13

    DEPS from Continuing Operations*

    Sales Growth of 0.7%

    Organic 0.1%, FX 0.5%

    & Acquisitions 0.1%

    * Excludes Special Items – see Slide 23

    Net accretion +$0.03

    10

  • North American Operations (in millions)

    Industries Served: Commercial, Residential, Irrigation, Fire Protection, Marine, Waterworks, Water Quality

    $218.1 $224.4

    $26.6 $31.6

    Q2 12 Q2 13

    Sales Op Profit*

    12.2% 14.1%

    * Excludes Special Items – see Slides 25 and 27

    Q2 revenue growth of 2.9% v Q2 2012

    • 300 bps organic offset by 10 bps FX decline

    • Wholesale up +4.0%, Retail down 0.7% due to pricing

    • Overall volume up 4.6%

    Q2 adjusted operating margin = 14.1%

    • 190 bps improvement v Q2 2012

    • Lead free incremental costs of $1.4m in Q2

    11

  • North American Operations (in millions)

    Industries Served: Commercial, Residential, Irrigation, Fire Protection, Marine, Waterworks, Water Quality

    $425.1 $437.4

    $47.4 $55.8

    June YTD 12 June YTD 13

    Sales Op Profit*

    11.2% 12.8%

    * Excludes Special Items – see Slides 26 and 28

    June YTD revenue growth of 2.9% v H1 2012

    • 280 bps organic, 20 bps acquisition, (10 bps) FX

    • Wholesale / OEM up +3.6%, DIY flat

    June YTD adjusted operating margin = 12.8%

    • 160 bps improvement v H1 2012

    • Margin expansion hindered by competitive pricing in DIY

    • Lead free incremental costs of $2m in 1st half of 2013

    12

  • EMEA Operations (in millions)

    Industries Served : Water Protection, Sanitary, HVAC-Radiant Heat, Under floor, Fuel &Gas, Instrumentation and Electronics

    $142.8 $138.6

    $12.8 $11.7