WATTS WATER TECHNOLOGIES INC Q1 FY2025 earnings call

• Began 2025 with better-than-expected first quarter results, including record adjusted operating income, margin, and EPS. • Organic sales declined 2% due to fewer shipping days and Europe weakness, but benefited from I-CON acquisition, offset by unfavorable foreign exchange. • Adjusted operating margin of 19% exceeded expectations due to better volume, productivity, and cost controls. • Proactively working to mitigate tariff impact via price increases, supply chain relocation, and U.S. manufacturing investment. • I-CON integration progressing, expected accretive to adjusted EBITDA margins and EPS in 2025. • Announced 21% dividend increase starting in June; CFO search ongoing with Shashank staying on for transition.

Sales were $558 million, down 2% on reported and organic basis. Americas organic sales down 1% with reported sales flat; Europe organic sales down 9% and reported down 12% due to fewer shipping days, heat pump destocking, and new construction weakness; APMEA sales increased 9% reported and 13% organic. Adjusted EBITDA was $119 million, up 1%, with adjusted EBITDA margin of 21.4% and adjusted operating income of $106 million, up 2% with adjusted operating margin of 19%. Americas segment margin increased 130 basis points to 23.4%, Europe decreased 180 basis points to 13.9%, and APMEA decreased 70 basis points to 17.5%.

• Reaffirm 2025 outlook with consolidated organic sales range of -3% to +2% and adjusted operating margin outlook maintained. • Second quarter organic sales expected flat to up 3%, with Americas low to mid-single-digit growth, APMEA low single-digit growth, and Europe high single to low double-digit decline. • Second quarter EBITDA margin expected 21.6%-22.2% and operating margin 19.1%-19.7%.

• Impact of currently enacted tariffs on cost base. • Uncertainty in trade environment affecting demand. • Foreign exchange fluctuations. • Weakness in Europe new construction and ongoing heat pump destocking.

Q: Talk about gaining share due to manufacturing footprint.

A: Products close to customer help in tariff environment, aim for fair share.

Q: Pacing of price increases, tariffs reduction impact.

A: Annual price increase in Jan, tariff-related in Mar and May 12, will see realization in Q2.

Q: Prebuy ahead of May 12 increases, impact.

A: Saw prebuy impact in Q1, controlling order input, April solid.

Q: Europe margin weakness, heat pump.

A: Destocking, new construction uncertainty, cautious.

Q: I-CON integration, synergies.

A: Synergies ahead of schedule, teams integrating well.

Q: Raw materials, price opportunism.

A: Tariffs main driver, price based on value, customer-focused.

Q: U.S. manufacturing utilization, CapEx.

A: North America facilities not fully utilized, can expand shifts, no immediate large CapEx.

Q: Americas margin, future potential.

A: Aim for 30-50 basis points margin growth, invest in business.