Watts Water Technologies Announces First Quarter 2015 Results and Announces Dividend Increase

Watts Water Technologies, Inc. (NYSE: WTS) today announced first quarter 2015 sales of $356.2 million, a decrease of 2.5% as compared to the same period last year. First quarter net income per diluted share (EPS) was $0.33 as compared to $0.40 for the same period last year. Adjusting for special items, first quarter 2015 adjusted EPS was $0.45 as compared to $0.55 for the same period last year. A summary of first quarter financial results is as follows:

All financial information and period-to-period references are on a continuing operations basis unless otherwise noted. Organic sales growth excludes the impacts of acquisitions, divestitures and foreign exchange from year-to-year comparisons. Reconciliations to generally accepted accounting principles (GAAP) and non-GAAP reconciliations are provided in the attached financial tables.

¹ Revenue from core products does not include revenue from product lines that will be eliminated as part of the Company’s previously announced Americas product rationalization initiative.

First Quarter Highlights:

• Reported consolidated sales decreased by 2.5%, organic consolidated sales decreased by 1.9% and excluding the effect of the Company’s previously announced Americas product rationalization initiative, consolidated sales were flat.
• Organic sales declines of 0.9% in the Americas and 5.7% in Europe, the Middle East and Africa (EMEA) were partially offset by organic sales growth in Asia-Pacific of 40.0%.
• Excluding the effect of the Company’s previously announced product rationalization initiative, Americas organic sales increased by 2.5%. AERCO sales were $22.2 million in the quarter.
• Adjusted operating margins decreased by 1.0 percentage point to 8.2% for the first quarter of 2015 as compared to the first quarter of 2014 due to lower volume which drove under absorption and anticipated higher G&A expenses; operating margins on a GAAP basis decreased 0.7 percentage points to 6.4% in the first quarter of 2015 as compared to the first quarter of 2014.
• Adjusted 2015 first quarter EPS from continuing operations decreased $0.10 as compared to the prior year, driven primarily by decreased operating results in EMEA, negative foreign currency movements, costs related to the Americas product rationalization initiative and anticipated higher G&A costs. AERCO contributed $0.02 of adjusted EPS in the first quarter of 2015.
• Free cash outflow was $4.8 million in the first quarter of 2015, as compared to free cash outflow of $23.6 million in the first quarter of 2014. The improvement was driven principally by lower inventory levels. The first quarter is a seasonally slow cash flow period and we expect continued improvement in free cash flow as the year progresses.
• The Company increased its quarterly dividend by 13.3%, or $0.02 per share, to $0.17 per share for the second quarter of 2015. The dividend will be payable on May 29, 2015 to the Company’s Class A and Class B Common Stockholders of record at the close of business on May 18, 2015.

Commenting on operating results, Chief Executive Officer Robert J. Pagano Jr., said, “We were pleased with our adjusted operating results for the first quarter given the challenges we faced, which included foreign currency headwinds, challenging EMEA end markets, harsh U.S. weather and our previously announced Americas product rationalization initiative. The Americas delivered incremental operating profit growth despite relatively flat organic sales, Asia-Pacific drove incremental profits on 40.0% top line growth and the AERCO acquisition performed well. Further, our ongoing transformation and restructuring efforts are proceeding as planned.”

Commenting on the enhanced dividend, Mr. Pagano noted, “The dividend increase helps to maintain our dividend yield within a range we have historically targeted. This initiative is part of our ongoing cash allocation strategy and our commitment to return value to shareholders. We remain committed to our long-term growth strategy of growing the business, organically and through acquisitions.”

For a reconciliation of GAAP to non-GAAP items and a statement regarding the usefulness of these measures to investors and management in evaluating our operating performance, please see the tables attached to this press release.

Watts Water Technologies, Inc. will hold a live web cast of its conference call to discuss first quarter results for 2015 on Thursday, April 30, 2015, at 9:00 a.m. Eastern Time. This press release and the live web cast can be accessed by visiting the Investor Relations section of the Company's website at www.wattswater.com. Following the web cast, an archived version of the call will be available at the same address until April 30, 2016.

The Company's 2015 Annual Meeting of Stockholders will be held at 9:00 a.m. on Wednesday, May 13, 2015 at the Company’s executive offices located at 815 Chestnut Street, North Andover, Massachusetts.

Watts Water Technologies, Inc., through its subsidiaries, is a world leader in the manufacture of innovative products to control the efficiency, safety, and quality of water within residential, commercial, and institutional applications. Its expertise in a wide variety of water technologies enables it to be a comprehensive supplier to the water industry.

This Press Release includes “forward-looking statements” as defined in the Private Securities Litigation Reform Act of 1995, including statements relating to expected improvement in free cash flow during the year and our long-term growth strategy, our transformation and restructuring initiatives and the timing and expected costs and savings associated with those initiatives. These forward-looking statements reflect our current views about future events. You should not rely on forward-looking statements because our actual results may differ materially from those predicted as a result of a number of potential risks and uncertainties. These potential risks and uncertainties include, but are not limited to: the effectiveness, the timing and the expected costs and savings associated with our ongoing restructuring and transformation programs and initiatives; the current economic and financial condition, which can affect the housing and construction markets where our products are sold, manufactured and marketed; shortages in and pricing of raw materials and supplies; our ability to compete effectively; changes in variable interest rates on our borrowings; failure to expand our markets through acquisitions; failure to successfully develop and introduce new product offerings or enhancements to existing products; failure to manufacture products that meet required performance and safety standards; foreign exchange rate fluctuations; cyclicality of industries where we market our products, such as plumbing and heating wholesalers and home improvement retailers; environmental compliance costs; product liability risks; changes in the status of current litigation; and other risks and uncertainties discussed under the heading “Item 1A. Risk Factors” and in Note 14 of the Notes to the Consolidated Financial Statements in our Annual Report on Form 10-K for the year ended December 31, 2014 filed with the SEC and our subsequent filings with the SEC. We undertake no duty to update the information contained in this Press Release, except as required by law.