NORTH ANDOVER, Mass., Nov 02, 2011 (BUSINESS WIRE) --

Watts Water Technologies, Inc. (NYSE: WTS) today announced results for the third quarter ended October 2, 2011. Net income per diluted share from continuing operations (EPS) for the third quarter of 2011 was $0.63. This represents an increase of 37% as compared to $0.46 of EPS reported in the third quarter of 2010. Third quarter 2011 EPS includes a negative $0.06 impact for various special items, including restructuring and other charges of $0.03, and acquisition accounting adjustments related to the Socla acquisition of $0.03. Adjusting for these items, third quarter 2011 adjusted EPS was $0.69, compared to third quarter 2010 adjusted EPS of $0.52, an increase of 33%. Socla contributed $0.06 on an adjusted basis in the third quarter, with results excluding Socla contributing $0.63 on an adjusted basis in the third quarter of 2011 or 21% above adjusted EPS of $0.52 for the same period last year.

Sales for the third quarter of 2011 were $370.8 million, an increase of $56.2 million, or 18%, compared to the third quarter of 2010. The Socla acquisition accounted for $35.6 million of the increase, favorable foreign exchange accounted for $11.8 million of the increase, primarily due to the strength of the euro against the U.S. dollar, and $8.8 million of the increase was attributable to increased organic sales (i.e. an organic increase of 3%). Operating income in the third quarter of 2011 was $41.2 million, which yielded operating margins of 11.1%, compared to operating income in the third quarter of 2010 of $31.5 million, which yielded operating margins of 10%. On an adjusted basis, operating income in the third quarter of 2011 increased by $10.4 million to $44.9 million from $34.5 million in the third quarter of 2010 (i.e. an organic increase of 30%). Adjusted operating margins increased by 1.1 percentage points to 12.1% in the third quarter of 2011, compared to 11.0% on an adjusted basis in the third quarter of 2010.

North American sales for the third quarter of 2011 increased $13.8 million to $205.6 million, compared to $191.8 million for the third quarter of 2010. This increase was due to an organic sales increase of $9.3 million, acquired sales of $3.3 million and favorable foreign exchange movements associated with the strength of the Canadian dollar against the U.S. dollar of $1.2 million. Sales into the North American wholesale market increased organically by 6% during the third quarter as compared to the same period in 2010, primarily from increased sales in the water quality, pressure relief and drains product lines. Organic sales into the North American DIY home improvement market were flat as compared to the third quarter of 2010.

European sales for the third quarter of 2011 increased $41.5 million to $159.3 million, compared to $117.8 million for the third quarter of 2010. This increase was primarily due to acquired sales of $31.5 million and favorable foreign exchange movements associated with the strength of the euro versus the U.S. dollar of $10.4 million. Organic sales in Europe for the third quarter of 2011 were essentially flat with the third quarter of 2010 as small gains in the wholesale market were offset by slightly lower OEM and DIY sales. European sales represented approximately 43% and 37% of total Company sales in the third quarters of 2011 and 2010, respectively.

China sales for the third quarter of 2011 increased $0.9 million to $5.9 million compared to the third quarter of 2010. The increase was driven by acquired sales and favorable foreign exchange associated with the strengthening of the Chinese Yuan against the U.S. dollar.

Sales for the first nine months of 2011 were $1.07 billion, an increase of $118.5 million, or 12%, compared to the first nine months of 2010, primarily from acquisitions and favorable foreign exchange. Sales grew organically by 2%.

David J. Coghlan, Chief Executive Officer, commented, "Compared to the third quarter of 2010, organic sales growth was 3%,with increased sales in the North American and European wholesale markets being partially offset by reduced European OEM and DIY sales. The organic operating margin percentage on the incremental organic sales was 53%. Our adjusted operating margin increased 1.1 percentage points to 12.1% in the third quarter of 2011, and is a result of improved coverage of raw material cost increases, benefits from our operational excellence programs and favorable sales mix. We covered commodity costs more effectively in North America as compared to Europe. The Socla acquisition delivered better than expected sales results and we are on track with the Socla integration program. As a result, on an adjusted basis, Socla delivered $0.06."

Mr. Coghlan concluded, "We generated free cash flow of $40.7 million in the first nine months of 2011 as compared to free cash flow of $58.1 million for the same period of 2010. This decrease in free cash flow is partially due to an increase in inventory values which reflect higher commodity costs. At October 2, 2011, our net debt to capitalization ratio was 18.2%, compared to 5.2% at December 31, 2010. The increase was due to the cash utilized for, and debt incurred as part of, the Socla acquisition. We also successfully completed our one million share buyback program in the third quarter at a total cost of $27.2 million. The buyback contributed $0.01 to diluted earnings per share in the third quarter. As previously discussed, the buyback program will have no effect on our future capital investment or acquisition plans."

In this press release we refer to non-GAAP financial measures (including adjusted operating income, adjusted operating margins, adjusted net income from continuing operations, adjusted earnings per share, adjusted earnings per share excluding Socla, free cash flow 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 that these financial measures are appropriate to enhance an overall understanding of our historical financial performance and future prospects. Operating income - as adjusted, adjusted operating margin, net income from continuing operations - as adjusted and diluted earnings per share - as adjusted, including and excluding Socla, eliminate certain expenses incurred in the periods presented that relate primarily to our global restructuring programs, impairment charges, significant legal settlements, significant termination benefits, due diligence costs, results of newly acquired companies and related acquisition accounting costs, tax adjustments, and other costs and related tax benefits. Management then utilizes these adjusted financial measures to assess the run-rate of the Company's continuing operations against those of comparable periods without the distortion of those factors. Free cash flow and 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 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. In addition, the Company's measure of free cash flow, net debt to capitalization ratio and days working capital may not be comparable to similarly titled measures reported by other companies.

Watts Water Technologies, Inc. will hold a live web cast of its conference call to discuss third quarter results for 2011 on Wednesday, November 2, 2011, at 5:00 p.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 November 2, 2012.

Watts Water Technologies, Inc. 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 may include statements that are not historical facts and are considered forward-looking within the meaning of the Private Securities Litigation Reform Act of 1995. These forward-looking statements reflect Watts Water Technologies' current views about future results of operations and other forward-looking information. In some cases you can identify these statements by forward-looking words such as "anticipate," "believe," "could," "estimate," "expect," "intend," "may," "should" and "would" or similar words. You should not rely on forward-looking statements because Watts' actual results may differ materially from those indicated by these forward-looking statements as a result of a number of important factors. These factors include, but are not limited to, the following: the current economic and financial condition, which can affect levels of housing starts and remodeling, affecting the markets where the Company's products are sold, manufactured, or marketed; shortages in and pricing of raw materials and supplies; loss of market share through competition; introduction of competing products by other companies; realization of price increases and pressure on prices from competitors, suppliers, and/or customers; changes in variable interest rates on Company borrowings; identification and disclosure of material weaknesses in our internal control over financial reporting; failure to expand our markets through acquisitions; failure or delay in developing new products; lack of acceptance of new products; failure to manufacture products that meet required performance and safety standards; foreign exchange rate fluctuations; cyclicality of markets, such as plumbing and heating wholesalers and home improvement retailers, in which the Company markets certain of its products; environmental compliance costs; product liability risks; the results and timing of the Company's manufacturing restructuring plan; changes in the status of current litigation; and other risks and uncertainties discussed under the heading "Item 1A. Risk Factors" in the Watts Water Technologies, Inc. Annual Report on Form 10-K for the year ended December 31, 2010 filed with the Securities Exchange Commission and other reports Watts files from time to time with the Securities and Exchange Commission. We do not intend to, and undertake no duty to, update the information contained in this Press Release, except as required by law.

SOURCE: Watts Water Technologies, Inc.

Watts Water Technologies, Inc.
William C. McCartney, 978-688-1811
Chief Financial Officer
Fax: 978-688-2976