WATTS WATER TECHNOLOGIES INC Q4 FY2024 earnings call

2024 Recap

• 2024 was a record year with record sales, operating income, EPS, and free cash flow. Organic sales down 1% due to Europe weakness, adjusted EPS up 7%.

Operations

• Drove productivity savings via automation, lean initiatives, and restructuring. Acquired Icon Systems, closed a French manufacturing facility, introduced Nexa, and phased out low-performing products under 80/20 model.

2025 Outlook

• Growth driven by price and repair/replacement activity. Americas non-residential mixed, Europe weak, Asia Pacific modest growth. Interest rates and policy uncertainty risks noted.

In the fourth quarter, the Americas segment margins increased 160 basis points to 21.8%, Europe segment margins decreased 480 basis points to 10.2%, and Apnea segment margins increased 480 basis points to 17.5%. For the full year, sales were $2.25 billion, up 10% reported but down 1% organically. Adjusted EBITDA was $454 million, up 11%, with Americas segment margin favorably impacted by acquisitions, excluding which core business operating margin was up 100 basis points, and Apnea up 170 basis points.

2025 Sales

• Expected to range between down 3% to up 2% on reported basis, organic down 3% to up 2%.

Adjusted EBITDA Margin

• Expected 20% to 21%, up 30 to 90 basis points.

First Quarter 2025

• Expected sales decrease 3% to 7%, Europe weak due to heat pump destocking, Americas low to mid-single-digit decline, Apnea flat.

• Europe weakness with continued heat pump destocking and weak new construction. - Tariffs impacting construction industry and ability to pass costs. - U.S. policy uncertainty including tariffs and geopolitical risks.

Q: On the 80/20 action, margin profile of exiting products, sales track in 2025?

A: Bob Pagano explains 80/20 is part of the system, exiting niche accessory products, sales track in 2025 with focus on margin improvement.

Q: Tariffs exposure, plan to pass on costs?

A: Bob Pagano and Shashank Patel state intention to fully offset tariff impact with price increases.

Q: 80/20 usage, tool for future?

A: Bob Pagano says 80/20 used for optimizing product portfolio, including reevaluating Europe's product portfolio and footprint.

Q: Bradley integration, PNL contribution, Nexa rollout?

A: Bob Pagano talks about Bradley integration tracking well, PNL contributions, and Nexa in early stages with customer testimonials.

Q: Demand outlook, European margins?

A: Bob Pagano and Shashank Patel discuss demand trends and European margin improvement through restructuring efforts.

Q: Margin line puts and takes, Europe margin recovery?

A: Shashank Patel and Bob Pagano explain margin drivers like price and productivity, and European margin improvement plans via fixed cost base adjustments.

Q: Tariffs impact on Europe manufacturing, correctional facilities niche?

A: Shashank Patel says minimal tariff impact on Europe manufacturing due to local production, and Bob Pagano notes unique water products in correctional facilities for refurbishment needs.

Q: Icon acquisition distribution channel, cross-selling?

A: Bob Pagano says Icon is direct customer model with potential cross-selling via Bradley rep channels.