Watts Water Technologies, Inc. (NYSE:WTS) Q3 2024 Earnings Conference Call October 31, 2024 9:00 AM ET

Company Participants

Bob Pagano - President and CEO
Shashank Patel - CFO
Diane McClintock - SVP, FP&A and IR

Conference Call Participants

Jeff Hammond - KeyBanc
Ryan Connors - Northcoast Research
Walt Liptak - Seaport Global
Adam Farley - Stifel

Operator

Welcome to the Watts Water Technologies, Inc. Third Quarter 2024 Earnings Call, hosted by Bob Pagano, President and CEO; Shashank Patel, CFO; and Diane McClintock, Senior Vice President, FP&A and Investor Relations.

At the end of the presentation, we will open the line for questions. I will now turn the call over to Diane McClintock.

Diane McClintock

Thank you, and good morning, everyone. Welcome to our third quarter earnings conference call. Joining me today are Bob Pagano, President and CEO; and Shashank Patel, our CFO. During today's call, Bob will provide an overview of the third quarter, our markets and our operations. Shashank will discuss the details of our third quarter performance and provide our outlook for the fourth quarter and for the full year. Following our remarks, we will address questions related to the information covered during the call. Today's webcast is accompanied by a presentation, which can be found in the Investor Relations section of our Web site. We will reference this presentation throughout our prepared remarks. Any reference to non-GAAP financial information is reconciled in the appendix to the presentation. I'd like to remind everyone that during this call we may be making certain comments that constitute forward-looking statements. These statements are subject to numerous risks and uncertainties that could cause actual results to differ materially. For information concerning these risks, see Watts' publicly available filings with the SEC. The company undertakes no obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. With that, I will turn the call over to Bob.

Bob Pagano

Thank you, Diane. And good morning, everyone. Please turn to Slide 3, and I'll provide an overview of quarter. We are pleased with our third quarter results, which exceeded expectations. During the quarter, organic sales were down 4%. Strong growth in APMEA was offset by declines in the Americas and Europe. The decline in the Americas was partly due to project timing and inventory safety stock reductions within our wholesale channel. Europe was weaker than expected as a result of continued heat pump destocking in our OEM channel. Adjusted operating margin of 17.1% exceeded our expectations, primarily driven by productivity and cost controls, which more than offset European volume deleverage. Adjusted operating margin was down 90 basis points compared to last year, primarily due to acquisition dilution and Europe volume deleverage. Year-to-date free cash flow continues to be solid and we expect to generate seasonally strong free cash flow through year end. The balance sheet remains healthy and we have ample flexibility in our disciplined capital allocation strategy. Strategic M&A, high ROI CapEx, competitive dividends and steady share buybacks remain our top capital allocation priorities.