Watts Water had a loss from continuing operations attributable to it for the first quarter of 2009 of $0.9 million, or ($0.02) per share, a decrease of $14.8 million when compared to income from continuing operations for the first quarter of 2008 of $13.9 million, or $0.37 per share.
Results for the first quarter of 2009 include an after-tax charge of $9.3 million, or $0.25 per share, which includes $9.1 million of restructuring charges related to the company’s previously announced restructuring programs and $0.2 million for asset impairment charges, compared to an after-tax charge of $0.8 million, or $0.02 per share, for the first quarter of 2008. The increase is primarily due to a preliminary tax charge of $8.3 million, or $0.23 per share, relating to previously realized tax benefits, which are likely to be forfeited as a result of the company’s decision to restructure certain operations. The company expects to finalize this amount by the time it files its quarterly report on Form 10-Q for the first quarter of 2009. The effective tax rate for continuing operations increased to 109% in the first quarter of 2009 from 33.9% in the first quarter of 2008 due to this one-time tax charge.
Patrick S. O’Keefe, chief executive officer, stated, “Our sales in the first quarter continued to be affected by downward pressure from the receding U.S. commercial construction marketplace. In addition, US residential construction activity is at historically low levels. We also saw a marked reduction in European sales as the European economy has migrated into recession. Consolidated sales decreased over the first quarter of 2008 by $49.1 million, or 14%, due primarily to an organic sales decrease of $48.1 million, or 14%, and unfavorable changes in foreign exchange rates of $16.3 million, or 5%, partially offset by contributions from an acquisition of $16.9 million, or 5%. Also, sales in the first quarter of 2008 included $1.6 million attributable to Tianjin Tanggu Watts Valve Co. Ltd. (TWT), a company we sold in October 2008.”
“Sales in our North American segment decreased for the first quarter of 2009 by $33.9 million, or 16%, to $177.5 million compared to $211.4 million for the first quarter of 2008. This decrease was primarily due to an organic sales decrease of $30.8 million, or 15%, and unfavorable foreign exchange movements of $3.1 million, or 1%, associated with the weakening of the Canadian dollar versus the U.S. dollar.”
“Organic sales in our North American wholesale market for the first quarter of 2009 decreased 18% over the first quarter of 2008. This decrease was primarily due to decreased unit shipments of our plumbing and heating and backflow product lines. Our North American home improvement retail market sales were flat in the first quarter of 2009 compared to the first quarter of 2008.”
“We derived 37% of our total sales for the first quarter of 2009 from our European segment. European sales decreased $13.1 million, or 11%, to $109.6 million compared to $122.7 million for the first quarter of 2008. We experienced a decline in organic sales in Europe for the first quarter of $16.5 million, or 13%, and unfavorable foreign exchange movements associated with the weakening of the euro versus the US dollar of $13.5 million, or 11%, partially offset by sales contributed from the Blucher acquisition of $16.9 million, or 13%. The organic sales reduction was primarily due to the economic downturn throughout Europe. Sales into Eastern Europe were especially slow due to economic issues and heightened credit concerns.”
“Sales in our China segment in the first quarter of 2009 decreased $2.1 million, or 21%, to $7.8 million compared to $9.9 million for the first quarter of 2008. As previously mentioned, sales in the first quarter of 2008 included $1.6 million attributable to TWT. In addition, organic sales decreased $0.8 million, or 8%, partially offset by favorable foreign exchange movements associated with the strengthening of the yuan against the U.S. dollar of $0.3 million, or 3%.”
O’Keefe added, “Our operating income for the first quarter of 2009 decreased by $11.6 million, or 44%, to $14.7 million as compared to $26.3 million in the first quarter of 2008. The organic decrease in operating income was $12.6 million, or 48%, unfavorable foreign exchange movements were $2.0 million, or 8%, and restructuring costs and impairment charges increased by $0.2 million, or 1%, partially offset by contributions from an acquisition of $1.3 million, or 5%. Further, in 2008, an operating loss of $1.9 million, or 8%, was recorded for the TWT subsidiary.”
“Operating margins in the first quarter of 2009 decreased by about 260 basis points to 5.0% as compared to 7.6% in the first quarter of 2008. The primary reasons for the reduction in operating margins include plant underutilization in all segments and cost savings initiatives lagging our sales decline.”
Watts Water generated about $17.4 million in net cash offered from continuing operations for the first quarter of 2009, as compared to $14.8 million in the first quarter of 2008. Free cash flow (a non-GAAP financial measure) for the first quarter of 2009 was about $13.4 million, compared with $6.6 million for first quarter of 2008.
The net debt to capitalization ratio (a non-GAAP financial measure) decreased to 22.4% at March 29, 2009 as compared 22.8% as of December 31, 2008.
Watts Water is a US-based supplier of products for use in the water quality, water safety, water flow control, and water conservation markets.
