Overview



The following discussion and analysis are provided to increase the understanding
of, and should be read in conjunction with, the accompanying unaudited
consolidated financial statements and related notes. In this quarterly report on
Form 10-Q, references to "the Company," "Watts," "we," "us" or "our" refer to
Watts Water Technologies, Inc. and its consolidated subsidiaries.

We are a leading supplier of products, solutions and systems that manage and
conserve the flow of fluids and energy into, through and out of buildings in the
commercial and residential markets in the Americas, Europe and Asia-Pacific,
Middle East and Africa ("APMEA"). For over 140 years, we have designed and
produced valve systems that safeguard and regulate water systems, energy
efficient heating and hydronic systems, drainage systems and water filtration
technology that helps purify and conserve water. We earn revenue and income
almost exclusively from the sale of our products. Our principal product lines
include:

? Residential & commercial flow control products-includes products typically
sold into plumbing and hot water applications such as backflow preventers, water
pressure regulators, temperature and pressure relief valves, thermostatic mixing
valves and leak detection products.

? HVAC & gas products-includes commercial high-efficiency boilers, water heaters
and heating solutions, hydronic and electric heating systems for under-floor
radiant applications, custom heat and hot water solutions, hydronic pump groups
for boiler manufacturers and alternative energy control packages, and flexible
stainless steel connectors for natural and liquid propane gas in commercial food
service and residential applications. HVAC is an acronym for heating,
ventilation and air conditioning.

? Drainage & water re-use products-includes drainage products and engineered rain water harvesting solutions for commercial, industrial, marine and residential applications.

? Water quality products-includes point-of-use and point-of-entry water filtration, conditioning and scale prevention systems for commercial, marine and residential applications.


We believe that the factors relating to our future growth include continued
product innovation that meets the needs of our customers and our end markets;
our ability to continue to make selective acquisitions, both in our core markets
as well as in complementary markets; regulatory requirements relating to the
quality and conservation of water and the safe use of water; increased demand
for clean water; and continued enforcement of plumbing and building codes. We
have completed 12 acquisitions since 2012. Our acquisition strategy focuses on
businesses that promote our key macro themes around safety and regulation,
energy efficiency and water conservation. We target businesses that will provide
us with one or more of the following: an entry into new markets and/or new
geographies, improved channel access, unique and/or proprietary technologies,
advanced production capabilities or complementary solution offerings.

Our innovation strategy is focused on differentiated products and solutions that
will provide greater opportunity to distinguish ourselves in the marketplace.
Conversely, we continue to migrate away from commoditized products where we
cannot add value. Our goal is to be a solutions provider, not merely a
components supplier. We continually look for strategic opportunities to invest
in new products and markets or divest existing product lines where necessary in
order to meet those objectives.

The Internet of Things has allowed companies to transform components into smart
and connected devices. Over the past several years we have been building our
smart and connected foundation by expanding our internal capabilities and making
strategic acquisitions. Our strategy is to deliver superior customer value
through smart and connected products and solutions. This strategy focuses on
three dimensions: Connect, Control and Conserve. We intend to introduce products
that will connect our customers with smart systems, control systems for optimal
performance, and conserve critical resources by increasing operability,
efficiency and safety.

Products representing a majority of our sales are subject to regulatory standards and code enforcement, which typically require that these products meet stringent performance criteria. We have consistently advocated for the development and enforcement of such plumbing codes. We are focused on maintaining stringent quality control and testing procedures at



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each of our manufacturing facilities in order to manufacture products in
compliance with code requirements and take advantage of the resulting demand for
compliant products. We believe that product development, product testing
capability and investment in plant and equipment needed to manufacture products
in compliance with code requirements, represent a competitive advantage for us.

Market activity levels have generally recovered from the COVID-19 pandemic,
however there are still end markets we serve that may take time to recover, and
potential regional COVID-19 outbreaks and associated restrictions may occur. In
the first quarter of 2022, our APMEA segment was impacted by lockdowns in
several of our key markets, including New Zealand and Shanghai, China. We were
able to adjust accordingly and continued to drive growth in the region in the
first quarter of 2022, however extended lockdowns, the impact of other actions
and restrictions due to COVID-19 on a regional and global level could further
impact our operating results.

We remain diligent as a company to mitigate potential future outbreaks in our
facilities by taking precautions to reduce the spread of COVID-19 while
maintaining our production capabilities. We continue to focus on the health and
safety of our employees by maintaining health authority and government
recommended safety protocols, enabling remote work and hybrid work schedules
where feasible, providing personal protective equipment and providing COVID-19
information, which includes the latest CDC and other government protocols and
our pandemic plan.

Increased market demand continues to strain the global supply chain and extend
order fulfillment lead times. Logistical challenges, oil and gas disruption, the
war in Ukraine and lingering labor challenges are driving additional inflation.
Logistical issues remain with ongoing concerns around container capacity, port
congestion and in-road trucking. COVID-19 shutdowns continue to disrupt global
ports, though time delays have improved since 2021. The global shortage of
electronic components such as semiconductors and other raw materials continues
to challenge our supply chain. We are also experiencing rising prices for
commodities and other raw materials, energy inflation and higher transportation
costs, including expedited freight costs. Labor shortages and other workforce
disruptions have affected our supply chain, manufacturing and distribution
processes, as well as those of our suppliers. The onset of the war in Ukraine
has added strain to the European markets and the global economy, as well as
exacerbating inflation and supply chain issues. While we believe we were able to
effectively manage these disruptions during the first quarter of 2022, including
raising prices to address cost inflation, we cannot predict how ongoing
inflation, the war in Ukraine, COVID-19 restrictions, supply chain disruptions
and related costs may impact our ability to service our customers or the
potential impact on our profit margins going forward.

Due to the above circumstances and as described generally in this Form 10-Q, the
Company's results of operations for the first quarter ended March 27, 2022 are
not necessarily indicative of the results to be expected for the full fiscal
year. Management cannot predict the full impact of the uncertainties discussed
above. For further information regarding the impact of supply chain and
logistics disruption risks to the Company and information regarding the impact
of COVID-19 on the Company, see Part I, Item 1A, "Risk Factors" in the Company's
Annual Report on Form 10-K for the year ended December 31, 2021.

Financial Overview



First quarter 2022 sales increased 12.1%, or $49.9 million, on a reported basis
and 14.0%, or $57.8 million, on an organic basis, compared to the first quarter
of 2021, primarily driven by the global economic recovery across all of our
operating segments, as well as incremental price, partially offset by the
estimated 3% of incremental sales in the first quarter of 2021 attributable to
the severe freezing weather in the South-Central United States. The impact from
the war in Ukraine on the first quarter of 2022 was not significant. The
reported sales increase included the unfavorable impact of foreign exchange of
2.4%, or $10.0 million, primarily driven by the appreciation of the U.S. dollar
against the euro, and an increase in acquired sales of $2.1 million. Organic
sales is a non-GAAP financial measure that excludes the impacts of acquisitions,
divestitures and foreign exchange from year-over-year comparisons. Management
believes reporting organic sales growth provides useful information to
investors, potential investors and others, because it allows for additional
insight into underlying sales trends by providing sales growth on a consistent
basis. We reconcile the change in organic sales to our reported sales for each
region within our results below. Operating income of $71.5 million increased by
$11.9 million, or 20.0%, in the first quarter of 2022 as compared to the first
quarter of 2021. This increase was primarily driven by incremental price, higher
sales volume, productivity and cost savings from prior restructuring actions,
partially offset by inflation, investments, and the return of expenses related
to business normalization.

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Recent Developments

On May 2, 2022, we declared a quarterly dividend of thirty cents ($0.30) per
share on each outstanding share of Class A common stock and Class B common stock
payable on June 15, 2022 to stockholders of record on June 1, 2022.

Results of Operations

First Quarter Ended March 27, 2022 Compared to First Quarter Ended March 28, 2021

Net Sales. Our business is reported in three geographic segments: Americas, Europe and APMEA. Our net sales in each of these segments for each of the first quarters of 2022 and 2021 were as follows:



             First Quarter Ended       First Quarter Ended

% Change to

March 27, 2022            March 28, 2021

Consolidated


            Net Sales      % Sales    Net Sales      % Sales    Change      Net Sales

                                       (dollars in millions)
Americas    $    313.9        67.8 %  $    272.8        66.0 %  $  41.1             9.9 %
Europe           129.9        28.0         122.9        29.7        7.0

1.7


APMEA             19.4         4.2          17.6         4.3        1.8

0.5

Total $ 463.2 100.0 % $ 413.3 100.0 % $ 49.9

12.1 %

The change in net sales was attributable to the following:



                                                                         Change As a %                         Change As a %
                                                                   of Consolidated Net Sales                of Segment Net Sales

             Americas     Europe      APMEA      Total      Americas     Europe     APMEA     Total    Americas     Europe     APMEA

                                                              (dollars in millions)
Organic     $     39.0    $  16.6    $   2.2    $   57.8         9.4 %      4.0 %      0.6 %   14.0 %      14.3 %     13.5 %     12.5 %
Foreign
exchange             -      (9.6)      (0.4)      (10.0)           -      (2.3)      (0.1)    (2.4)           -      (7.8)      (2.3)
Acquired           2.1          -          -         2.1         0.5          -          -      0.5         0.8          -          -
Total       $     41.1    $   7.0    $   1.8    $   49.9         9.9 %      1.7 %      0.5 %   12.1 %      15.1 %      5.7 %     10.2 %


Our products are sold to wholesalers, OEMs, DIY chains, and through various
specialty channels. The change in organic net sales by channel was attributable
to the following:

                                                                                     Change As a %
                                                                                  of Prior Year Sales
             Wholesale      OEMs       DIY       Specialty     Total     Wholesale    OEMs     DIY     Specialty

                                                   (dollars in millions)
Americas    $      17.4    $  5.1    $ (1.0)    $      17.5    $ 39.0         11.1 %  25.0 %   (4.8) %       23.6 %
Europe              9.1       7.8      (0.3)              -      16.6         11.2    19.0    (33.3)            -
APMEA               1.8       0.4          -              -       2.2         10.8    40.0         -            -

Total $ 28.3 $ 13.3 $ (1.3) $ 17.5 $ 57.8




Organic net sales in the Americas increased primarily due to incremental price
across all of our channels. The lower volume in the first quarter of 2022 was
primarily due to the first quarter of 2021 being positively impacted from the
severe weather freeze in the South-Central United States, which drove an
estimated 4% of incremental sales in our wholesale and DIY channels.

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Organic net sales in Europe increased due to higher price and volume, with growth in both Fluid Solutions and Drains platforms as well as all major regions. Net sales also increased in our HVAC products within the Italy and Germany OEM markets driven by government energy incentives.



Organic net sales in APMEA increased primarily due to higher volumes and price,
with sales growth in China, Australia, New Zealand and the Middle East. China's
sales growth was primarily driven by higher demand for commercial valves within
data centers and underfloor heating.

The net decrease in sales due to foreign exchange was mostly due to the
appreciation of the U.S. dollar against the euro in the first quarter of 2022.
We cannot predict whether foreign currencies will appreciate or depreciate
against the U.S. dollar in future periods or whether future foreign exchange
rate fluctuations will have a positive or negative impact on our net sales.

The change in net sales due to acquisitions relates to an immaterial acquisition in the Americas segment in the fourth quarter of 2021.

Gross Profit. Gross profit and gross profit as a percent of net sales (gross margin) for the first quarters of 2022 and 2021 were as follows:



                      First Quarter Ended
               March 27, 2022      March 28, 2021

                     (dollars in millions)
Gross profit  $          198.6     $         173.7
Gross margin              42.9 %              42.0 %

Gross profit and gross margin increased primarily from higher price, volume and productivity savings, partially offset by inflation related to material and labor costs, higher logistic and freight costs to expedite components and products and the return of expenses related to business normalization.

Selling, General and Administrative Expenses. Selling, general and administrative, or SG&A, expenses increased $12.3 million, or 10.8%, in the first quarter of 2022 compared to the first quarter of 2021. The increase in SG&A expenses was attributable to the following:



                     (in millions)     % Change
Organic             $          13.2        11.6 %
Foreign exchange              (2.0)       (1.8)
Acquired                        1.1         1.0
Total               $          12.3        10.8 %


The organic increase was primarily due to an increase in investments of $4.3
million, including our smart and connected initiatives, automation and
commercial excellence, increased variable costs due to the higher sales volume
of $3.7 million, general inflation of $2.8 million, as well as the return of
expenses related to business normalization of $1.3 million compared to the first
quarter of 2021. These increases were partially offset by $2.1 million due to
productivity initiatives and a decrease in short-term and long-term compensation
accruals of $1.4 million. The decrease in foreign exchange was mainly due to the
appreciation of the U.S. dollar against the euro. The acquired SG&A costs
related to an immaterial acquisition in the Americas segment in the fourth
quarter of 2021. Total SG&A expenses, as a percentage of sales, were 27.2% in
the first quarter of 2022 compared to 27.5% in the first quarter of 2021.

Restructuring. In the first quarter of 2022, we recorded a net restructuring
charge of $1.0 million which related to a 2021 French restructuring program that
was approved in the second quarter of 2021. For a more detailed description of
our current restructuring plans, see Note 6 of the Notes to Consolidated
Financial Statements.

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Operating Income. Operating income (loss) by segment for the first quarters of 2022 and 2021 was as follows:

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