Good day ladies and gentlemen, and welcome to the Watts Water Technologies Inc. Third Quarter 2015 Earnings Conference Call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session and instructions will follow at that time. [Operator Instructions] As a reminder, this conference is being recorded. I would like to introduce your host for today’s conference Mr. Tim MacPhee, Treasurer and Vice President Investor Relations. Sir you may begin.

Thank you, Sharia. Good morning everyone and thank you for joining for our third quarter earnings call. Joining me today are Bob Pagano, President and CEO, and Todd Trapp, our CFO. Bob will begin by providing a summary of the quarter. He will offer some color on current market conditions and will update you on the Americas Asia-Pacific transformation initiatives. Todd will discuss the financial results for the third quarter in more detail and provide some commentary on the fourth quarter. Bob will update you on our progress concerning our key organizational initiatives, and then we will open up the call to your questions. The earnings press release and earnings call presentation we issued last evening include some non-GAAP financial measures and we have included in those documents the necessary reconciliations to GAAP measures. You can find a direct link to the webcast of today’s conference call on our website at www.wattswater.com. We’ll archive the webcast on the site for replay. I’d like to remind everyone that in the course of this call, to give you a better understanding of our operations, we will be making certain forward-looking statements. These statements are subject to numerous risks and uncertainties that could cause actual results to differ materially from such statements. For information concerning these risks and uncertainties, see Watts Water’s publicly available filings with the SEC. The company disclaims any intentions or obligations to update or revise any forward-looking statements whether as a result of new information, future events, or otherwise. Now let me turn the call over to Bob Pagano.

Thanks, Tim and good morning everyone. Please turn to Slide 3 in the earnings call presentation and I will provide a quick overview of the third quarter. Overall I am pleased with the progress we made during the third quarter on many fronts, despite the more muted global economic environment. Our transformation efforts continued to move ahead. We were able to drive sequential operating margin expansion despite lower revenues and we continued to generate strong cash flow. We are focused on portfolio growth and are making strides in reshaping our portfolio with the Sioux Chief sale and the announced purchase of Apex which I’ll discuss momentarily. We also addressed some long term obligations, most notably the pension which I will speak to as well. Our top line continued to be a mixed bag with softer end markets and foreign exchange challenges in EMEA, some timing issues in Asia Pacific and the exit of non-core products more than offsetting the strong contribution from AERCO and higher US core sales. Americas’ reported sales were impacted by the sale of our non-core products to Sioux Chief Organically Americas sales were up 2% in the quarter. We continue to focus on pricing discipline and driving profitable sales growth within our core markets, which is demonstrated in our operating margin profile. AERCO had another strong quarter. Year-to-date AERCO has delivered double digit sales growth as the market continues to migrate to condensing boiler solutions. Organic sales in EMEA remained challenged. Continued tough market environments in some of our larger countries like France and Germany and slower Eastern Europe markets more than offset gains made in the Middle East and Benelux regions. Asia Pacific sales were down due to project delays as well as some early in the quarter destocking by distributors given the uncertainty in…

Thanks, Bob and good morning. I am on Slide 6 which shows the third-quarter results. Sales of $366 million were down 2.6% on a reported basis and down just under 1% on a organic basis. As Bob mentioned, our topline continued to be challenged by foreign-exchange headwinds, a continued softness in Europe and the effects of the Americas non-core product divestiture. These headwinds were offset to some degree by the addition of AERCO and growth in the Americas core product lines. Foreign-exchange mainly related to the weaker euro negatively impacted sales quarter over quarter by 6.5% or roughly $24 million. The year-over-year impact of lower non-core product sales was roughly $20 million, which was about $5 million to $10 million better than our original expectations. These two discrete items substantially offset the upside and the contribution from the AERCO acquisition. Regionally organic sales increased 2% in the Americas, declined 3.5% in EMEA and were down about 5% in Asia-Pacific. I will provide more color on the regional performance in a few minutes. Adjusted operating profit decreased 4.8% to $41.7 million which translated into an adjusted operating margin of 11.4%, down 20 basis points versus prior year. Lower volume absorption and higher anticipated SG&A spend more than offset favorable product mix, strong productivity and other cost saving initiatives. As we’ve communicated in the past, our SG&A costs are higher due to the addition of AERCO, an increase in stock compensation, pension compliance and other costs. Also, it is important to remember that in the third quarter of 2014, as we called out during that call, our operating margins were positively impacted by approximately 40 basis points for net reserve adjustments. So if you factor in these items, we would have actually expanded margins in the quarter despite the lower volume. So…

Thanks, Todd. If you would, please turn to Slide 12 and let me update you on our top priorities. I’d like to update the scorecard we shared with you during our second quarter call in July regarding our top near-term priorities of the business. We have hired a new Chief Human Resources Officer Debra Ogston who started about two weeks ago. Debra is a seasoned HR executive with substantial experience at some leading organizations like Johnson Controls and Pepsi. Debra will help drive our talent and performance culture. She will also look for opportunities to accelerate management and employee development and help to add key skill sets at all levels of the organization. The EMEA transformation and restructuring initiatives are on track and the team is executing against those plans. They have made steady progress in driving savings throughout Europe but unfortunately their efforts have been more than offset by the overall market downturns. We continue to assess our structural costs in this region given EMEA’s results, the current market environment and the muted outlook. That assessment may drive additional actions to right size our cost structure. We will update you with any plans during our Q4 earnings call. Phase 1 of the Americas, Asia-Pacific transformation effort is going very well. We finalized the sale of the US assets and are in process of selling our China manufacturing plant and have identified and executed on sourcing initiatives. Completing Phase 1 will allow our key commercial resources to focus on a more profitable customer and product portfolio that drives innovation and is more solutions oriented. Today we announced the framework for Phase 2 of the transformation program. The focus will be on consolidating and optimizing our Americas operating footprint to better support the needs of our customers and improve our cost structure. We successfully resolved certain long-term obligations during Q3, including the settlement of our legacy defined benefit pension plan. This will alleviate an administrative burden and improve our future operating performance. As I mentioned earlier, I plan to make incremental investments in reinvigorating customer training, R&D and our new product development pipeline. A key for us will be to continue to be able to differentiate ourselves in the marketplace. Finally, we will continue to look at every opportunity to continuously improve performance in our company. We are increasingly working together as one organization between businesses, countries and regions to provide our customers with value added products and solutions. We have our strategic priorities as an organization and we are on track to complete what we said we would do. We are building momentum within the organization. So with that, Sharia, please open the lines for questions.

[Operator Instructions] And our first question comes from Kevin Bennett of Sterne Agee.

Bob, first question on the Apex deal, which certainly seems like a good one. I was wondering if you could comment some more on the margin profile of that business, as well as kind of get into what was the thinking in terms of expanding in New Zealand?

Well, when we look at our portfolio, when we look at our growth, the New Zealand market, this is a market leader in New Zealand, they have mid single-digit operating margins which is a nice portfolio add and they have 40 some patents inside their business. So we believe we can take some of their products and leverage it throughout Asia. So we’re really excited about it, it gives our Asia-Pacific team the ability to have a new product to offset their various undifferentiated products that they lost. So the team is really excited about it and believe they can grow that business.

So you said high single-digit operating margins, is that correct?

I'm sorry, it's high to mid double digits, I am sorry.

And then the other question for me, I was wondering about new product development, we’ve talked about this before but I was wondering if you could provide some more information there and if you guys have a target for kind of what that should contribute to growth over the longer term?

Yes, well certainly, we’re slightly below our industry in spending as R&D as a percentage of sales. Our goal is to get similar to everybody. AERCO spends a lot more on R&D and we see the benefits of that. So that's an area you'll see us increasing our investments over time. So I think it's a great opportunity. We continue to get our teams together. We've had an innovation summit just recently. We brought a lot of our engineers from all over the world to meet with our electronics team and the team just has a real multitude of ideas that we need to fund as an organization. So we’re really excited about it and it's an area we’re going to take some of our savings and reinvest for the long run of the company.

But no targets as of right now, kind of what percentage growth this could add, again, just I was thinking longer term?

Yes, we will provide more details on our next call about our future forward-looking information but as of now to suffice it to say that it’s a key growth initiative for us in the out years.

Thank you. Our next question comes from Joe Giordano of Cowen.

Hi guys thanks for taking my question and apologies if this has been asked, I am kind of bouncing around a little bit. But I just wanted to confirm -- the impact of the non-core loss like going through 2016, so it was a little bit lighter in 3Q to see your expectations for 4Q, are we still expecting about 100 incremental in 2016?

Joe, hey, this is Todd. I would say -- really the only thing that’s changed from our previous guidance is that we saw higher sales due to the Sioux Chief closure which happened a few weeks later than expected. So again it was about $20 million of headwind in Q3, we expect Q4 to be somewhere in that $40 million range. And then as we think about 2016, I’d say $90 million to $100 million is still probably a pretty good number at this point in time.

And then what were the margins for AERCO for the quarter?

I would say they were in the high – I would say high teens for AERCO, in that 18% to 20% range were the margins for the quarter.

And then last, on China, on the margin I know it’s not a huge impact to the overall year but the commentary on the last call suggested margins in like a single-digit range and then they are being up. So just curious as to what I'm – if I am missing something there.

No, I think it’s more of a timing issue and so in Q3 we still saw some activity from our intercompany sales perspective but we expect that to wind down in Q4. And I think in Q4 you would see operating margins in that, I’d say in that low mid single-digit for the Asia-Pacific region. So it’s more time than anything. End of Q&A

Thank you and at this time I am showing no further participants in the queue. I would like to turn the call over to Bob Pagano, President and CEO for any closing remarks.

Okay. There is no more callers, okay. All right. Well in closing, I’d like to thank you for taking the time to join us today for our Q3 earnings call and we appreciate your continued interest in Watts Water. We look forward to speaking with you again during our Q4 earnings call in February. Thank you very much.

Ladies and gentlemen thank you for your participation on today's conference. This concludes the program. You may now disconnect. Everyone have a great day.