Watts Water Reports EPS +11% Y/Y

Sterne Agee has published a research report on Watts Water Technologies WTS after the company reported adjusted EPS of +11% y/y in its 3Q. In the report, Sterne Agee writes "Adjusted EPS of $0.52 was in line with consensus and slightly ahead of our $0.51 estimate. GAAP EPS of $0.46 included $0.06 in restructuring and impairment charges. Revenue increased 4% Y/Y to $315M, in line with our estimate and below consensus of $320M. Gross margin expanded 20bp Y/Y to 36.2% due to modest volume leverage (~39% incremental margin on organic revenues) and favorable mix. Adjusted operating margin expanded 100bp Y/Y to 11.0%, ahead of our 10.7% estimate, due to stronger than expected N.A. profitability (14.4% vs. 13.3% estimate) and in spite of a loss in China. A $47M increase in cash and flat debt Q/Q resulted in a net debt decrease to $87M (net debt to capital 8.7% vs. 9.9%) Higher working capital investment vs. 3Q09 resulted in more normalized CFO of $42M vs. $73M in the year-ago quarter." Sterne Agee maintains its Neutral rating and $36 price target. Watts Water Technologies closed yesterday at $35.61.