Watts Water Divests Flomatic (BMI) (WTS)

Located in Glens Falls, New York; Flomatic Corporation specializes in manufacturing and selling check valves, foot valves and automatic hydraulic control valves for the well water industry. Flomatic became a part of Watts Water with the acquisition of French valves and backflow preventers maker Danfoss Socla S.A.S. in April 2011.

Watts Water reported third-quarter 2012 adjusted earnings of 63 cents per share were down 8.7% from the year-ago quarter’s EPS of 69 cents. The earnings, however, beat the Zacks Consensus Estimate of 58 cents.

Total revenue declined 3% to $361.2 million, missing the Zacks Consensus Estimate of $364 million. Decline in revenues was driven by negative impacts of foreign currency translation (5%). Organic growth rose 2% year over year in the reported quarter, driven by growth in Europe, the Middle East and Africa (EMEA) and Asia, partially mitigated by flat year-over-year growth in North America.

The transaction is expected to improve Watts Water’s cash position and can be utilized to further reduce its debt position. Cash and cash equivalents were $209.5 million as of September 30, 2012, compared with $250.6 million as of December 31, 2011. Long-term debt excluding current portion amounted to $307.8 million as of September 30, 2012, compared with $397.4 million as of December 31, 2011.

Watts Water’s cost saving initiatives will boost margins. However, weak economic condition in Europe is still a headwind for the company.

Watts Water, through its subsidiaries, manufactures innovative products to control the efficiency, safety, and quality of water within applications (residential, commercial, and institutional). Watts Water retains a short-term Zacks #2 Rank (Buy). Badger Meter Inc. (BMI) is a Zacks #3 Rank (Hold) stock in the same industry.