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Operating margin decreased 120 basis points on a reported basis and increased 80 basis points on an adjusted basis. Operating margin was unfavorably impacted by the increase in restructuring charges, partially offset by a reduction in acquisition-related charges. Adjusted operating margin increased primarily due to favorable price, productivity and cost actions which more than offset volume deleverage from fewer shipping days, weakness in Europe and inflation.

Regional Performance

Americas
Sales of $418 million were flat on a reported basis and declined 1% on an organic basis, primarily due to fewer shipping days, which drove an approximate 3% decline that more than offset price realization. The acquisition of I-CON contributed $5 million of incremental sales, or 1% to reported growth.

Segment margin increased 130 basis points as benefits from price realization, productivity and cost actions more than offset inflation and volume deleverage.

Europe
Sales of $108 million decreased 12% on a reported and 9% on an organic basis. Sales declined as a result of lower volumes due to fewer shipping days and continued heat pump and wholesale channel destocking. Unfavorable foreign exchange movements decreased reported sales by 3%.

Segment margin decreased 180 basis points as volume deleverage and inflation more than offset benefits from price and productivity.

APMEA
Sales of $32 million increased 9% on a reported basis and 13% on an organic basis. Sales increased due to growth in China, Australia and the Middle East, which was partly offset by a decline in New Zealand, primarily driven by fewer shipping days. Unfavorable foreign exchange movements decreased sales by 4%.

Segment margin decreased 70 basis points as benefits from higher sales and productivity were more than offset by inflation and sales mix.

Cash Flow and Capital Allocation

For the first quarter of 2025, operating cash flow was $55.2 million and net capital expenditures were $9.6 million, resulting in free cash flow of $45.6 million. In the comparable period last year, operating cash flow was $45.6 million and net capital expenditures were $9.0 million, resulting in free cash flow of $36.6 million. Operating and free cash flow increased primarily due to lower income tax payments. Sequential improvement in operating and free cash flow is expected throughout 2025 due to normal seasonality.

On May 5, 2025, the Company announced a 21% increase in quarterly dividend payments, increasing the quarterly payments from $0.43 cents per share to $0.52 cents per share beginning in June 2025.

The Company repurchased approximately 19,000 shares of Class A common stock at a cost of $3.9 million during the first quarter of 2025. Approximately $141 million remains available under the stock repurchase program authorized in 2023. There is no expiration date for this program.

Full Year 2025 Outlook

The Company is maintaining its previous full year organic sales and midpoint of adjusted operating margin outlook. Reported sales are expected to range between -2% to +3% and organic sales to range from -3% to +2%. Full year operating margin is expected to be between 16.7% and 17.3%, or down 60 basis points to flat, and adjusted operating margin is expected to be between 17.7% and 18.3%, or flat to up 60 basis points. The full year outlook incorporates estimated tariff impact and actions as of May 7, 2025.

Further 2025 planning assumptions are included in the first quarter earnings materials posted in the Investor Relations section of our website at www.watts.com.

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 webcast of its conference call to discuss first quarter 2025 results on Thursday, May 8, 2025 at 9:00 a.m. EDT. This press release and the live webcast can be accessed by visiting the Investor Relations section of the Company's website at www.watts.com. Following the webcast, the call recording will be available at the same address until May 7, 2026.

The Company's 2025 Annual Meeting of Stockholders will be held at 9:00 a.m. EDT on Wednesday, May 21, 2025 at the Company’s executive offices located at 815 Chestnut Street, North Andover, Massachusetts.

This press release includes "forward-looking statements" as defined in the Private Securities Litigation Reform Act of 1995, including statements relating to expected full year 2025 financial results, including organic sales growth and adjusted operating margin, future dividends, our strategy, investments, the benefits from recent acquisitions, improvements in operating and free cash flow throughout 2025, our ability to manage geo-political uncertainty and current market conditions and return of capital to stockholders. 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 imposition of or changes to tariff rates and related impacts to our business and the broader market; the effectiveness, timing and expected savings associated with our cost-cutting actions, restructuring and initiatives; integration of acquired businesses in a timely and cost-effective manner, retention of supplier and customer relationships and key employees, and the ability to achieve synergies and cost savings in the amounts and within the time frames currently anticipated; current economic and financial conditions, 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; inflation; 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 and costs; changes in the status of current litigation; the war in Ukraine and other global crises; supply chain and logistical disruptions or labor shortages and workforce disruptions that could negatively affect our supply chain, manufacturing, distribution, or other business processes; and other risks and uncertainties discussed under the heading "Item 1A. Risk Factors" and in Note 16 of the Notes to the Consolidated Financial Statements in our Annual Report on Form 10-K for the year ended December 31, 2024, filed with the Securities and Exchange Commission ("SEC"), as well as risk factors disclosed in our subsequent filings with the SEC. We undertake no duty to update the information contained in this press release, except as required by law.

WATTS WATER TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Amounts in millions, except per share information)
(Unaudited)

WATTS WATER TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Amounts in millions, except share information)
(Unaudited)

WATTS WATER TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Amounts in millions)
(Unaudited)

Segment Earnings and Non-GAAP Financial Measures

In this press release, segment earnings is our GAAP performance measure used by our chief operating decision-maker ("CODM") to assess and evaluate segment results. Segment earnings exclude the impact of non-recurring and unusual items, such as restructuring costs, acquisition-related costs and gain or loss on sale of assets. The CODM uses segment earnings for insight into underlying trends comparing past financial performance with current performance by reporting segment on a consistent basis. Segment margin is defined as segment earnings divided by segment revenue.

We refer to non-GAAP financial measures (including adjusted operating income, adjusted operating margin, adjusted net income, adjusted diluted earnings per share, organic sales, organic sales growth, free cash flow, cash conversion rate of free cash flow to net income and net debt to capitalization ratio) and provide a reconciliation of those non-GAAP financial measures to the corresponding financial measures contained in our consolidated financial statements prepared in accordance with GAAP. We believe these financial measures enhance the overall understanding of our historical financial performance and give insight into our future prospects. Adjusted operating income, adjusted operating margin, adjusted net income and adjusted diluted earnings per share eliminate certain expenses incurred and benefits recognized in the periods presented that relate primarily to our global restructuring programs, acquisition-related costs, gain or loss on sale of assets and the related income tax impacts on these items and tax adjustment items. Management then utilizes these adjusted financial measures to assess the run rate of the Company’s operations against those of comparable periods. Organic sales and organic sales growth are non-GAAP measures of sales and sales growth excluding the impacts of foreign exchange, acquisitions and divestitures from period-over-period comparisons. Management believes reporting organic sales and organic sales growth provides useful information to investors, potential investors and others, and allows for a more complete understanding of underlying sales trends by providing sales and sales growth on a consistent basis. Free cash flow, cash conversion rate of free cash flow to net income, and the net debt to capitalization ratio, which are adjusted to exclude certain cash inflows and outlays, and include only certain balance sheet accounts from the comparable GAAP measures, are an indication of our performance in cash flow generation and also provide an indication of the Company's relative balance sheet leverage to other industrial manufacturing companies. These non-GAAP financial measures are among the primary indicators management uses as a basis for evaluating our cash flow generation and our capitalization structure. In addition, free cash flow is used as a criterion to measure and pay certain compensation-based incentives. For these reasons, management believes these non-GAAP financial measures can be useful to investors, potential investors and others. The Company’s non-GAAP financial measures may not be comparable to similarly titled measures reported by other companies. The presentation of this additional information is not meant to be considered in isolation or as a substitute for financial measures prepared in accordance with GAAP.

TABLE 1
RECONCILIATION OF GAAP TO NON-GAAP FINANCIAL MEASURES
EXCLUDING THE EFFECT OF ADJUSTMENTS FOR SPECIAL ITEMS
(Amounts in millions, except per share information)
(Unaudited)

CONSOLIDATED RESULTS

TABLE 2
SEGMENT INFORMATION - RECONCILIATION OF SEGMENT EARNINGS TO CONSOLIDATED OPERATING INCOME - GAAP
(Amounts in millions)
(Unaudited)

TABLE 3
SEGMENT INFORMATION - RECONCILIATION OF NET SALES TO NON-GAAP ORGANIC SALES
(Amounts in millions)
(Unaudited)

TABLE 4
RECONCILIATION OF NET CASH PROVIDED BY OPERATING ACTIVITIES TO FREE CASH FLOW
(Amounts in millions)
(Unaudited)

TABLE 5
RECONCILIATION OF LONG-TERM DEBT (INCLUDING CURRENT PORTION) TO NET DEBT AND NET DEBT TO CAPITALIZATION RATIO
(Amounts in millions)
(Unaudited)

TABLE 6
2025 FULL YEAR OUTLOOK – RECONCILIATION OF NET SALES GROWTH TO ORGANIC SALES GROWTH AND OPERATING MARGIN TO ADJUSTED OPERATING MARGIN
(Unaudited)

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Contacts

Diane McClintock
SVP FP&A & Investor Relations
email: investorrelations@wattswater.com