Watts is being recognized as one of the Top 300 companies in the U.S. based on environmental sustainability. The rankings are supported by research and analysis of top organizations in the U.S. that have a market capitalization of a minimum $5 billion and adhere to the European Union sustainably standard guidelines. The evaluation is based on greenhouse gas emissions, water usage, water generation, waste generation, and sustainability data disclosure and commitments.

“For nearly 150 years, Watts has been a leading provider of technologies and solutions designed to promote safety, energy efficiency and water conservation around the world,” said Robert J. Pagano, Jr., CEO, President and Chairperson of the Board. “We are honored to receive this recognition because it underscores our commitment to reduce our environmental footprint, expand upon the positive environmental attributes of our products, enrich and engage our communities and people, and adhere to the highest ethical business practices. Together, with our full range of stakeholders around the globe, we can drive the change needed for a safer and more sustainable future.”

Watts has worked hard promote environmental sustainability within its operations. As the first company to be verified for The Water Council’s WAVE: Water Stewardship Verified program, Watts continues to act locally and globally to reduce water consumption, increase reuse, improve water quality, reduce negative upstream and downstream impacts, and engage local communities in water-stewardship activities.

“We are humbled that Newsweek has acknowledged the intentional path we’ve been on to reduce our consumption and emissions, and the efforts we’ve undertaken in water stewardship,” said Kenneth R. Lepage, General Counsel, Chief Sustainability Officer & Secretary. “We are committed to minimizing the impact of our global operations and supply chain on the environment, protecting the communities where we operate, and delivering innovative products and services that support our customers in doing the same.”

Watts Water Technologies, Inc. announced that it has entered into a definitive agreement to acquire Bradley Corporation (“Bradley”) for $303 million, subject to customary adjustments. The net transaction value is approximately $268 million after adjusting for the estimated net present value of expected tax benefits of approximately $35 million. The transaction will be funded through cash on hand and the remainder from Watts’ existing revolving credit facility. The transaction is subject to customary closing conditions and necessary regulatory approvals and is expected to close in the fourth quarter of 2023.

Bradley is a trusted provider and manufacturer of commercial washroom and emergency safety products serving commercial (primarily institutional) and industrial end markets for over 100 years. The company offers a comprehensive product portfolio that includes plumbing fixtures, washroom accessories and emergency safety products to a diverse customer base. Bradley has annual net sales of approximately $200 million.

Chief Executive Officer Robert J. Pagano Jr. commented, “Today’s strategic acquisition delivers on our mission to improve comfort, safety and quality of life for people around the world. Bradley’s complementary portfolio will enable us to provide our customers with innovative water solutions, as it adds front-of-the-wall applications to our differentiated back-of-the-wall portfolio. We believe we can leverage the combined strengths of the two companies’ sales networks and channel relationships to facilitate cross selling and accelerate growth. With expanded end market access, increased product diversification, a strengthened go-to-market position and our highly experienced leadership team, Watts is well positioned to capture run-rate cost synergies, capitalize on growth opportunities and drive value creation.”

Compelling Acquisition Expected to Yield Meaningful Strategic and Financial Benefits

• Extends product portfolio and market leadership: Bradley’s innovative front-of-the-wall portfolio includes a full suite of high-quality, specified and code-driven products.
• Increases end market exposure to secular growth themes: Strategically expands Watts’ position in commercial (primarily institutional) and industrial markets. This is expected to accelerate growth as these markets continue to benefit from long-term secular trends such as water conservation, safety and regulation and energy efficiency.
• Leverages the One Watts Performance System and connected strategy: Achieves meaningful cost synergies through commercial and operational initiatives in addition to global sourcing savings.
• Enhances competitive positioning: Combines two leading brand portfolios with proven, longstanding track records of delivering high-quality, innovative products and solutions.
• Brings highly experienced management team and skilled work force: Adds strong leadership with deep industry expertise, including Bryan Mullett, Bradley’s Chairman and CEO, who will join Watts as President of Bradley, a new platform within Watts’ Americas region.
• Accretive transaction providing long-term financial benefits: The transaction is expected to be modestly accretive to Adjusted EPS in 2024 due to incremental interest expense and normal purchase accounting adjustments. The transaction value, net of the estimated tax benefit, represents less than 8.0x forecasted 2023 proforma Adjusted EBITDA after factoring in expected run-rate cost synergies. Adjusted EBITDA margins expected to be accretive by 2027.

Bryan Mullett said, “We are very pleased to have Bradley join Watts and see tremendous opportunity for incremental value creation. This will help us capture the benefits from our diverse range of innovative and customized front-of-the-wall solutions and Watts’ global reach, broad product portfolio and operational strength. I am looking forward to joining the management team to drive continued growth and support the integration of these two companies that have a combined 250-year heritage of experience and endurance in sustainable water products and solutions.”

Pagano concluded, “Watts and Bradley complement each other well in terms of culture and shared vision, with proven track records of delivering innovative, high-quality products and solutions along with outstanding customer service. We look forward to welcoming the Bradley team to Watts Water Technologies.”

“We achieved another quarter of record results that exceeded our expectations, driven by the continued operational excellence of the Watts team. I would like to thank the team for their contributions to our success and their unwavering support of our customers,” stated Chief Executive Officer Robert J. Pagano Jr. “We generated record sales, operating earnings, operating margin and EPS, despite the challenging comparison to a very strong second quarter in 2022. Given our first half performance and our third quarter expectations, we are increasing our full-year 2023 outlook. Organic revenue growth is now expected to range from negative 2% to positive 2%, raising the midpoint by 2%. Adjusted operating margin is now expected to range from 16.7% to 17.3%, raising the midpoint by 100 basis points. Our balance sheet and cash flow remain strong and provide ample flexibility to continue to invest in the business and support the execution of our long-term strategy.”

Second Quarter Financial Highlights

Second quarter 2023 performance relative to second quarter 2022

• Sales of $533 million increased 1% on a reported basis and were flat organically, primarily due to a tough prior year comparison with 16% organic growth in the second quarter of 2022. Mid-single digit organic growth in Europe and Asia Pacific, Middle East and Africa (“APMEA”) was offset by a low-single digit organic decline in the Americas. Sales from acquisitions totaled approximately $8 million and are reported within APMEA. Unfavorable foreign exchange movements had an immaterial impact in the quarter.
• Operating margin increased 60 basis points on a reported basis and 100 basis points on an adjusted basis, driven by favorable price, product mix and productivity, which more than offset inflation, lower volume and incremental investments. Reported operating margin was unfavorably impacted by restructuring and non-recurring acquisition charges.

Regional Performance

Americas

• Sales of $367 million decreased 2% on both a reported basis and an organic basis, largely due to a tough prior year comparison with 22% organic growth in the second quarter of 2022. Growth in core valve products was more than offset by declines in gas connectors, marine instrumentation and radiant heating products.
• Operating margin increased 220 basis points on a reported basis and 210 basis points on an adjusted basis as benefits from price realization, favorable product mix and productivity more than offset inflation, lower volume and incremental investments.

Europe

• Sales of $136 million increased 6% on a reported basis, which included favorable foreign exchange movements of 1%. Organic sales increased 5%, primarily driven by price realization, with sales growth in fluid solutions products, partially offset by a decline in sales of drains products.
• Operating margin increased 50 basis points on a reported basis and decreased 10 basis points on an adjusted basis. Reported operating margin benefited from a decline in restructuring charges in 2023. Reported and adjusted operating margin both benefited from increased price and productivity, but these benefits were more than offset by inflation, lower volume and incremental investments.

APMEA

• Sales of $30 million increased 33% on a reported basis, which included unfavorable foreign exchange movements of 6%. Organic sales increased 6%, driven by growth in the Middle East and Australia. Sales from acquisitions totaled approximately $8 million.
• Operating margin decreased 720 basis points on a reported basis but increased 250 basis points on an adjusted basis. Reported and adjusted margins both benefited from increased trade and affiliate sales volume, price and productivity, which more than offset inflation. Reported operating margin was unfavorably impacted by restructuring and non-recurring acquisition charges.

Cash Flow and Capital Allocation

• For the first six months of 2023, operating cash flow was $101 million and net capital expenditures were $12 million, resulting in free cash flow of $89 million. In the comparable period last year, operating cash flow was $45 million and net capital expenditures were $12 million, resulting in free cash flow of $33 million. Operating and free cash flow increased due to higher net income and reduced working capital investment. Sequential improvement in operating and free cash flow is expected throughout 2023 due to normal seasonality.
• The Company repurchased approximately 24,000 shares of Class A common stock at a cost of $4.0 million during the second quarter. For the first six months of 2023, the Company repurchased approximately 47,000 shares at a cost of approximately $7.7 million. Approximately $20 million remains available for stock repurchases under the stock repurchase program authorized in 2019, which has no expiration date.
• On July 31, 2023, the Company’s Board of Directors authorized the repurchase of up to an additional $150 million of the Company’s Class A common stock from time to time on the open market or in privately negotiated transactions. The timing and number of any shares repurchased will be determined by the Company’s management based on its evaluation of market conditions. There is no expiration date for this program.

“In 2022, we continued to demonstrate that our commitment to sustainability extends into every aspect of our business through our ESG strategy, which guides our work to reduce our environmental footprint, expand upon the positive environmental attributes of our products, enrich and engage our communities and people, and adhere to the highest ethical business practices,” said Robert J. Pagano, Jr., CEO, President, and Chairperson of the Board. “We know that the complex set of global water challenges such as access, scarcity, pollution, and safety require the most capable, committed, and diverse workforce, and I am extremely proud of our teams’ commitment. Together with our employees, customers, shareholders, and partners around the globe, we can drive the change needed for a safer and more sustainable world.”

Key Watts accomplishments highlighted in the report include:

Reached a significant milestone as the first company to achieve verification by The Water Council’s WAVE Water Stewardship program. WAVE exclusively grants this verification to companies that both meet its rigorous standards of assessing enterprise-wide water-related risk and take action to mitigate their water-related impact on the environment.

Implemented a formal Human Rights Policy outlining our commitment to promoting human rights within our labor force, including through support of and adherence to the United Nations Global Compact and the Universal Declaration of Human Rights.

Revised our strategic pillars to include an emphasis on DEI, incorporated inclusion as a cultural behavior, and launched global, multi-year leadership and inclusivity training for all employees.

Reduced global water use intensity by 11% and purchased 100% certified renewable energy credits to offset annual electric consumption at seven U.S. sites, reducing greenhouse gas emissions intensity by 31% (market based).

Grew the total number of suppliers participating in sustainability audits by 14% over 2021, and suppliers representing more than 94% of our 2022 global annual spend certified their conformance to our Supplier ESG Standards.

Continued to design products and solutions to benefit users and help their sustainability efforts based on the Company’s “triple play” of Safety and Regulation, Water Conservation, and Energy Efficiency, which make up 74%, 37%, and 24% of Watts revenue stream respectively, with some products fitting into multiple categories.

Provided clean water access to disadvantaged communities through the Company’s ongoing partnership with Planet Water Foundation, which to date has benefited more than 55,000 people in nine different countries. Last year, Watts funded and installed six water purification and hand washing systems in Cambodia, India, Mexico, the Philippines, and Indonesia, providing 10,800 people with clean and safe drinking water daily.

ESG research and data company Sustainalytics reported a 24% improvement in our ESG score in 2022, promoting Watts to the low-risk category. The Watts MSCI score was maintained at “AA,” and for the fourth consecutive year, Watts was named one of America’s Most Responsible Companies by Newsweek.