Watts Water Technologies Reports Second Quarter 2008 Results

Watts Water Technologies, Inc. (NYSE: WTS) today announced results for the second quarter ended June 29, 2008. Sales for the second quarter of 2008 were $389.0 million, an increase of $38.6 million, or 11%, compared to the second quarter of 2007. Net income for the second quarter of 2008 was $19.8 million, or $0.54 per share, compared to net income of $17.8 million, or $0.46 per share, for the second quarter of 2007. Income from continuing operations for the second quarter of 2008 increased by $2.3 million, or 13%, to $20.0 million, or $0.54 per share, compared to income from continuing operations for the second quarter of 2007 of $17.7 million, or $0.45 per share.

Sales for the first six months of 2008 were $733.0 million, an increase of $36.5 million, or 5%, compared to the comparable period of 2007. Net income for the first six months of 2008 was $33.5 million, or $0.91 per share, compared to net income of $37.7 million, or $0.97 per share, for the comparable period of 2007. Income from continuing operations for the first six months of 2008 decreased by $3.8 million, or 10%, to $33.9 million, or $0.92 per share, compared to income from continuing operations for the comparable period of 2007 of $37.7 million, or $0.97 per share.

Results for the second quarter of 2008 include an after-tax charge of $0.7 million, or $0.02 per share, as part of our previously announced global restructuring program, compared to an after-tax charge of $0.2 million, or $0.00 per share, for the second quarter of 2007. The effective tax rate for continuing operations decreased to 31.2% in the second quarter of 2008 from 36.1% in the second quarter of 2007. The decrease is primarily due to a one-time benefit associated with a tax law change in Italy and the favorable completion of statutory tax audits in the second quarter of 2008 totaling $1.1 million, or $0.03 per share.

In November 2007, the Company’s Board of Directors authorized the repurchase of up to 3.0 million shares of the Company’s Class A common stock. As of July 28, 2008, the Company had repurchased approximately 2.45 million shares at a total cost of approximately $68.1 million. Repurchased shares had an accretive impact of $0.03 per share in the second quarter of 2008.

Patrick S. O’Keefe, Chief Executive Officer, commented, “Our second quarter sales were positively affected by systems sold into the European energy conservation marketplace and from increased sales into the North American retail sector. Sales increased over the second quarter of 2007 by $38.6 million, or 11%, due to an increase in organic sales of $5.7 million, or 2%, from favorable changes in foreign exchange rates of $20.5 million, or 6%, and contributions from acquisitions of $12.4 million, or 3%.

“Sales in our North American segment increased for the second quarter of 2008 by $10.1 million, or 5%, to $234.6 million compared to $224.5 million for the second quarter of 2007. This increase was due to an organic sales increase of $4.4 million, or 2%, contributions from an acquisition of $4.2 million, or 2%, and favorable foreign exchange movements of $1.5 million, or 1%, associated with the strengthening of the Canadian dollar versus the U.S. dollar.

“Organic sales in our North American wholesale market for the second quarter of 2008 decreased 1% compared to the second quarter of 2007. Our North American home improvement retail market sales increased 14% for the second quarter of 2008 compared to the second quarter of 2007. This increase was primarily due to increased sales of water filtration, under-floor heating and plumbing and heating product lines.

“We derived 36% of our total sales for the second quarter of 2008 from our European segment. European sales increased $31.0 million, or 29%, to $139.2 million compared to $108.2 million for the second quarter of 2007. This increase was achieved through favorable foreign exchange movements associated with the strengthening of the euro versus the U.S. dollar of $18.0 million, or 17%, an increase in organic sales of $4.8 million, or 4%, and contributions from the acquisition of Blucher Metals A/S, acquired on May 30, 2008 of $8.2 million, or 8%. Organic sales increased due to a 9% increase in OEM sales. Our German operations experienced strong sales to OEM customers manufacturing solar and other energy conservation products.

“Sales in our China segment in the second quarter of 2008 decreased $2.5 million, or 14%, to $15.2 million compared to the second quarter of 2007. This included a decrease in organic sales of $3.5 million, or 20%, partially offset by favorable foreign exchange movements associated with the strengthening of the yuan against the U.S. dollar of $1.0 million, or 6%.

Mr. O’Keefe continued, “Our operating income for the second quarter of 2008 increased by $4.9 million, or 16%, to $35.2 million as compared to $30.3 million in the second quarter of 2007. The increase was due to organic growth of $3.0 million, or 10%, and favorable foreign exchange movements contributing $2.5 million, or 8%, partially offset by restructuring costs, which increased by $0.6 million, or 2%. Operating margins in the second quarter of 2008 increased by approximately 30 basis points to 9.0% as compared to 8.7% in the second quarter of 2007. The primary reasons for the increase in operating margins include plant utilization efficiencies in Europe and, to a lesser extent, improved pricing in selective markets.

Mr. O’ Keefe concluded, “We continue to generate positive cash flow through our various working capital initiatives. For the six month period ended June 29, 2008, we expect to generate positive cash from operating activities of approximately $40.8 million, which compares favorably to a $0.2 million net use of cash from operating activities in the first six months of 2007. Net cash outflows from working capital have decreased from approximately $58.0 million in the first half of 2007 to approximately $7.0 million in the first half of 2008.”

Watts Water Technologies, Inc. will hold a live web cast of its conference call to discuss second quarter results for 2008 on Tuesday, July 29, 2008, at 5:00 p.m. Eastern Time. This press release and the live web cast can be accessed by visiting the Investor Relations section of the Company's website at www.wattswater.com. Following the web cast, an archived version of the call will be available at the same address until July 29, 2009.

Watts Water Technologies, Inc. is a world leader in the manufacture of innovative products to control the efficiency, safety, and quality of water within residential, commercial, and institutional applications. Its expertise in a wide variety of water technologies enables it to be a comprehensive supplier to the water industry.

This Press Release includes statements that are not historical facts and are considered forward-looking within the meaning of the Private Securities Litigation Reform Act of 1995. These forward-looking statements reflect Watts Water Technologies’ current views about future results of operations and other forward-looking information. In some cases you can identify these statements by forward-looking words such as “anticipate,”“believe,” “could,”“estimate,” “expect,”“intend,” “may,”“should,” “will” and “would” or similar words. You should not rely on forward-looking statements because Watts’ actual results may differ materially from those indicated by these forward-looking statements as a result of a number of important factors. These factors include, but are not limited to, the following: shortages in and pricing of raw materials and supplies including recent price increases by suppliers of raw materials and the Company’s ability to pass these costs on to customers, loss of market share through competition, introduction of competing products by other companies, pressure on prices from competitors, suppliers, and/or customers, changes in variable interest rates on Company borrowings, identification and disclosure of material weaknesses in our internal control over financial reporting, failure to expand our markets through acquisitions, failure or delay in developing new products, lack of acceptance of new products, failure to manufacture products that meet required performance and safety standards, foreign exchange rate fluctuations, cyclicality of industries, such as plumbing and heating wholesalers and home improvement retailers, in which the Company markets certain of its products, economic factors, such as the levels of housing starts and remodeling, affecting the markets where the Company’s products are sold, manufactured, or marketed, environmental compliance costs, product liability risks, the results and timing of the Company’s manufacturing restructuring plan, changes in the status of current litigation, including the James Jones case, and other risks and uncertainties discussed under the heading “Item 1A. Risk Factors” in the Watts Water Technologies, Inc. Annual Report on Form 10-K for the year ended December 31, 2007 filed with the Securities Exchange Commission and other reports Watts files from time to time with the Securities and Exchange Commission. Watts does not intend to, and undertakes no duty to, update the information contained in this Press Release, except as required by law.

Contacts:

Watts Water Technologies, Inc.
William C. McCartney, 978-688-1811
Chief Financial Officer
Fax: 978-688-2976