Watts Water(US:WTS)2021-08-08 16:14Financial Data and Key Metrics Changes - Sales for Q2 2021 reached $467 million, an increase of 38% on a reported basis and 32% organically, driven by global economic recovery [23] - Adjusted operating profit increased by 85%, with adjusted operating margins expanding by 380 basis points to 14.9% [24] - Adjusted earnings per share doubled compared to the previous year, reflecting better operating results and favorable foreign exchange impacts [24] Business Line Data and Key Metrics Changes - The Americas experienced strong repair and replacement activity, with adjusted operating profit increasing by 54% and adjusted operating margin rising by 270 basis points to 17.7% [30] - Europe saw solid sales growth across all major regions, with adjusted operating margin increasing by 700 basis points to 17.1% [31] - APMEA's sales increased double-digits, with adjusted operating margin rising by 460 basis points to 17.9% [32] Market Data and Key Metrics Changes - The U.S. weather freeze in February provided a revenue tailwind in Q2, contributing to strong demand in the Americas [10] - European markets remained robust, particularly in France and Italy, driven by repair and replacement activity [14] - APMEA markets showed growth, particularly in China and New Zealand, with commercial valve demand in data centers driving sales [32] Company Strategy and Development Direction - The company is focused on long-term growth opportunities, particularly in smart and connected solutions and productivity-enhancing technologies [45] - Sustainability efforts are emphasized, with initiatives aimed at reducing energy, water, and waste usage, alongside a commitment to diversity, equity, and inclusion [19][22] - The company plans to continue investing in its manufacturing capabilities and smart product offerings to enhance customer value [45] Management's Comments on Operating Environment and Future Outlook - Management expressed optimism about market conditions, with expectations for continued growth in repair and replacement activities [15] - Concerns remain regarding non-residential new construction, supply chain issues, and inflationary pressures [15] - The full-year outlook has been raised due to stronger-than-expected Q2 results and positive expectations for Q3 [46] Other Important Information - Free cash flow for the year-to-date was $65 million, up 160% from the same period last year [26] - The company completed negotiations to exit its manufacturing facility in Mery, France, with expected savings to be realized by 2023 [11][25] - The company repurchased approximately 31,000 shares of common stock at an investment of $4 million [27] Q&A Session Summary Question: Comments on high demand from channel anxiety in European markets - Management noted that there is over-ordering in the channels, particularly in North America and Europe, driven by supply chain concerns [51][52] Question: Price and cost dynamics for the full year - Management indicated that net pricing was slightly positive in the first half and expects to stay ahead of inflation with upcoming price increases [55][57] Question: European margin improvements - Management attributed margin improvements to a combination of pent-up demand and structural enhancements, with a focus on fixed cost management [66][68] Question: Non-residential construction recovery - Management observed slow recovery in non-residential construction but noted positive indicators in education and healthcare sectors [71][72] Question: Market share and supply chain challenges - Management believes they are holding their own in market share despite supply chain challenges faced by competitors [117] Question: Business normalization costs - Management discussed the return of costs related to travel, marketing, and training, which were previously cut back due to the pandemic [118][119] Question: Innovation and connected strategy uptake - Management reported positive customer feedback on their smart and connected product offerings, which are gaining traction in the market [108][110]