Watts Water Technologies Inc (WTS) 2012 Q2 法說會逐字稿

Good day, ladies and gentlemen.

Welcome to the second quarter, 2012 Watts Water Technologies earnings conference call.

(Operator Instructions).

I would now like to turn the conference over to your host for today, Mr. Kenneth Lepage, General Counsel.

Please proceed.

Thank you, and good morning.

On the call with me today are David J. Coghlan, our President and Chief Executive Officer, and Bill McCartney, our Chief Financial Officer.

Please be aware that remarks we may make on today's call about the Company's future expectations, plans and prospects constitutes Forward Looking Statements under the Private Securities Litigation Reform Act of 1995.

Actual results may differ materially from those indicated by these Forward Looking Statements as a result of various factors including those discussed under the heading Risk Factors in our Annual Report on Form 10K for the year ended December 31, 2011, and with reports we file from time to time with the SEC.

In addition, Forward Looking Statements represent our views only as of today and should not be relied upon as representing our views at any future date.

While we may elect to update these Forward Looking Statements, we do not claim any obligation to do so.

During this call we may refer to nonGAAP financial measures.

These measures are not prepared in accordance with generally accepted accounting principles.

A reconciliation of the non GAAP financial measures to the most directly comparable GAAP measures is available in the Press Release dated July 31, relating to our second quarter, 2012 financial results.

A copy of which may be found under the Investor Relations section of our website www.Wattswater.com under the heading Press Releases.

I will now turn the presentation over to David Coghlan.

Good morning, everyone, and thank you for joining us on quarter two earnings call.

We appreciate your interest in Watts Water.

I would like to start by providing a brief overview of the quarter.

I will follow with our latest view on market positions in our key regions, and a sense where we see those markets going in the second half of 2012.

I will then hand you over to Bill McCartney, who will provide more color on our performance for the quarter.

After Bill's discussion, I will summarize and open the call to your questions.

Let me start by recapping the quarter.

We believe we delivered solid quarter for our shareholders in quarter two, particularly given our disappointing results in quarter one and the continued economic malaise in Europe, which as you know is about 40% of our business.

Our adjusted operating margins were up 1.5% points sequentially from quarter one, and were just slightly below those of quarter two, 2011.

We are off to a good start in the year on the cash flow front, with an increase of 65% in the first six months of the year, versus the same period last year.

And we also completed our previously announced share buy back, purchasing about $63 million of shares in the quarter.

European sales in the quarter were up organically by about 6%.

Much of that related to our Italian business, which fell significantly in the quarter.

Despite those head winds, we saw growth in our European Drains Business and in our Under Floor Heating Business, while (inaudible) continued to deliver strong performance.

We were also pleased with our performance in Eastern Europe and the Middle East.

Furthermore, we were encouraged to see order rates pick up toward the end of the quarter And finally, our European Team made progress in reducing operating costs in response to the slowing economy.

In North America, our organic growth rate doubled from quarter one, albeit from a slow start with sales gains in both the retail and wholesale channels.

We made progress on a number of the issues affecting our quarter one performance, including non commodity cost increases, a spike in our product liability costs and the costs associated with their conversion to lead free.

The North American Team attacked these issues during quarter two and made good progress on our lead free conversion program, on reining in non commodity cost increases and driving productivity improvement, on instituting new freight cost coverage programs and then taking additional steps to reduce operating expenses including some selective reductions in force.

The sum total of these efforts helped to increase our North American gross margins by 60 basis points versus quarter one.

Finally, I should mention that although a small part of our overall business, our Asia team delivered a very strong quarter with earnings up 133% from quarter two last year.

This result was driven by our focus on attractive segments within the plumbing and HVAC markets, by better absorption in our plants and by improved productivity.

In general, pricing was not a major issue during the quarter, although we are still facing pricing challenges in certain markets.

Including some European markets and North American DIY.

Regarding commodity costs, copper bearing product costs have been fairly stable so far this year and we believe near term copper costs may provide some upward bias in gross margin.

However, this may be muted somewhat by the seasonal fall off in volume that we typically experience in the second half of each year, which can impact plant absorption.

We do expect gross margins in North America to still be effective by lead free production costs in quarter three, as we complete the conversion of our main facilities to lead free production.

We will continue to mitigate cost increases as much as possible in both Europe and North America, by improving our productivity through various VAV projects and lean activities.

We anticipate that these programs will lead to improved margins over the next several quarters.

Now let's discuss the current market conditions and where we see things trending into the second half of 2012.

First let me talk about Europe.

Recent expectations of the Euro zone in 2012 are forecasting a slight contraction in GDP, of about 0.4%.

The UK and Spain are in recession.

Recent issues likely won't go away soon, and the Italian economy is struggling.

To add to the confusion, new Governments have taken over in France and the Netherlands.

So from a macro perspective, there are many data points that suggest Europe may experience further economic turmoil before things get better.

As a Pan European Company, our business was most affected by the slow economy in Southern Europe, especially Italy, where we experienced a slow down in quarter two.

We expect this trend will continue for the foreseeable future, which could put pressure on our Italian sales and on plant absorption there.

However, despite the general gloom and doom, our key markets in France and Germany remain pretty solid.

We are seeing growth in our Nordic, and Eastern European markets.

We also believe we are taking share in some market segments where we are focused on servicing customers better than the competition, and with large Pan European wholesalers, where we are working to be the wholesalers' one-stop shop.

Finally, we are also seeing pockets of growth in some of our product line, including Drains and Under Floor Heating.

So overall, our view of Europe remains the same.

We remain cautious about the uncertain macroeconomic environment there, and Southern Europe, particularly Italy, which is an important market for us, remains a concern.

However, we believe the repair of the upgrade business should continue and we are please with the results of our efforts to date in focusing on geographic customer and product focus growth opportunity.

Now let's talk about North America.

U.S. GDP is forecasted to be an unspectacular 2.1% for all of 2012.

But statistics in housing starts and new housing permits, have remained positive through the first half of 2012, largely driven by mostly family construction.

We still see foreclosure overhang, distressed sales and high unemployment levels as a barrier for significant growth in residential construction in 2012.

We believe existing home sales should be steady in the 4.5 million range which is encouraging for our repair and replacement business.

Commercial construction expectation remain mixed at best.

The value of new commercial construction put in place in private nonresidential sector increased nicely in June.

However, a key future indicator, the ABI, has been negative for three consecutive months through June.

So our feeling continues that commercial construction could have little to no positive affect to the end market for the remainder of 2012, and likely in to early 2013.

So in summary, we believe this presents slow but steady sequential growth for the North American business as we move into the second half of the year.

Finally let's look at Asia.

As I mentioned in our last call, although small, we anticipate that our longer term growth prospects in Asia are bright.

We believe there is significant opportunity for us to grow in the domestic China marketplace and we are making some nice progress in laying the foundation for sustained growth there.

The Chinese economy is expected to grow by roughly 7.6% in 2012, and a significant portion of domestic GDP is accounted for by real estate, including construction.

We are really focusing on bringing into bare our worldwide capabilities into the Chinese market for high end construction contractors who want to emulate established European and U.S. plumbing codes, for specking their jobs.

Consumers are increasingly focused on ensuring comfort and safety in their home.

Let me turn it over to Bill now, who will provide you with more insight into our operating performance in quarter two.

Thank you, David.

Looking at the numbers on a consolidated basis revenue was $371 million for the quarter, which is up from the first quarter, but down from last years Q2 by $5 million, or 1%.

Looking at the components of that growth, first of all we had negative organic growth of about $1 million, slightly less than one half of one percent.

From the change in foreign exchanging rates , our revenue declined $16 million, or 4% and the contribution from the acquired companies, we achieved $13 million of revenue, or about 4%.

That's the one month extra of we had and the contributions from Tekmar.

So what we will see when we look at the segments, is basically we struggled in Europe, but some of that growth or that decline was off set by improvements in North America and Asia.

On the earnings front, on the GAAP standpoint we are at $.51 cents compared to $.34 cents last year.

Significant improvement, primarily due to the lack of acquisition accounting charges which we had last year in Q2 because of Socla.

When we look at it as adjusted basis, removing the unusual or special items, we achieved $0.53 compared to $.50 cents last year, and we compare that to consensus estimates of $.54 cents.

Looking at the segments for North America, North American revenue at $222 million, an increase of $10 million from last year's Q2, or about 5%.

And we also picked up about $11 million or $12 million versus the first quarter of this year.

The components of that growth, $8 million organically, which is about 4%.

We had a slight adverse impact from foreign exchange, which is the change in the Canadian rate of about $1 million.

And the contribution of Tekmar, and a little bit of Socla in North America, that is about $3 million or about 1.5%.

That totals about $10 million off 4.5%.

On the wholesale side, breaking it down to wholesale and retail, the wholesale side, we had about $177 million in revenue, an increase of $6 million or 4% versus last year.

And we picked up, comparing the wholesale to Q1 of this year, we picked up 7% revenue gain there.

The retail at $45 million was up 3.5 or 8%.

And as we look at the wholesale side without foreign exchange or acquisitions and so on, we grew about 2.5% or $4 million and the retail numbers are consistent at 9%.

Europe closes the quarter at $143 million which is declined of $15 million.

So we have some unusual numbers working here.

If you look at organically we were down about $9 million, or 6%.

From the change in foreign exchange rate, adversely impacted us $15 million or 10%.

And then the acquisition of Socla contributed $10 million or 6%.

That adds up to the $15 million decline or about 9.5%.

When we look at the Euro, the change in foreign exchange rates, the average rate we used during the second quarter of this year was about $1.29.

We compare that to $1.44 last year.

So we saw the foreign exchange rate decline about 10.5% for us this year, versus last year.

And as David mentioned, the largest impact we saw from an organic standpoint was the softness in southern Europe.

Italy was particularly hard hit there.

In China, small segment, but still we saw some very nice performance there.

$6.5 million in revenue, up 10% off $600,000.

And it was evenly split between the three categories of organic, foreign exchange and acquisitions.

You saw a small contribution from Socla in China.

And again as David mentioned, primarily due to entering the new heating markets in Europe and setting up new distribution teams there as well.

Looking at the margins, on a consolidated basis, the margins were fairly flat with last year and flat with Q1 at 35.5%.

However looking at the segments, there is a lot of movement in between North American and Europe, which offset in consolidation.

North America, the margin is 35.6 is down from last year by 60 basis points, but improving by 60 basis points from the first quarter.

So when we look at the margin in Q1, the things we talked about during our first quarter conference call, of trying to address some of the inflation, we have done that.

We have made progress on our no lead initiatives where we are doing our pre production run with more efficiency and effectiveness, and we have made some progress on some of our increased freight charges.

We made progress on all three fronts, and that's why we saw an increase in the margin of 60 basis points from Q1 of this year.

Looking at Europe, the margin is down from last year by about 200 basis points.

Down from Q1, excuse me, down from Q1 about 110 basis points.

So again what we saw in Europe really was the impact of the volume declining, but we also saw nice improvement in productivity in price versus cost.

On the SG&A, $97 million of SG&A in the quarter, and that's down a little bit from last year's Q2 about $1 million.

A change in the SG&A versus last year, we saw a decline of $2 million from an organic standpoint.

The foreign exchange rate we saw a decline of $4 million and then the inclusion of Socla and Tekmar for the full quarter $4.5 million increase.

When we compare our SG&A to the first quarter of this year, we were $101 million.

We saw our product liability return to normal levels.

That reduced our SG&A by about $2 million.

Some of the progress we made on our initiatives around freight, hit time reductions and so on reduced SG&A by another $2 million, which brings us down to the $97 million figure.

Operating earnings on an average adjusted basis were down about $800,000.

We look at that.

We saw from an organic standpoint we were essential flat . We had an adverse impact on the foreign exchange of about $1.6 million.

That actually affected our EPS by about $0.03, the foreign exchange rate.

And then the acquisitions contributed about $700,000.

So that comes to your $800,000 in total for a slight decline.

In operated earnings, but primarily impacted by the foreign exchange rate.

Looking at the effective tax rate in the quarter of 33.4%, That's down about 40 basis points.

That's primarily due to a mix shift, because we had Socla for a full quarter more of our income is in Europe and the effective rate in Europe is somewhat lower than the corporate average.

So again that brings us back down to our bottom line . $.53 cents versus $.50 cents.

We did complete our share buy back in the quarter, as David mentioned . Our average shares outstanding were 36.6 million, and as we go forward to Q3 we would expect that to be closer to 35 million shares.

So with that I think we can turn it back to David and open it up for questions as well.

Thank you, Bill.

In our first quarter call, we told you that our focus for the remainder of the year would be on climbing back up the performance staircase.

Following our slip in the first quarter, while executing on our lead free conversion and continuing to navigate through an uncertain macroeconomic environment, we believe we made some progress in this journey in the second quarter and continue to stay focused on this task over the coming quarters.

With that, why don't we open up the line to your questions.

Can you open up the line please?

Yes.

(Operator Instructions).

Your first question comes from the line of Jeff Hammond from KeyBanc Capital Market.

Please proceed.

Good morning, guys.

Hi.

I guess what I really want to focus on and want to understand better is progression North America.

I think you said on one hand there was some seasonality and seasonal weakness into the second half to think about, but I think you talked about in the outlook sequential progression.

I just wanted to better understand how you think North America shapes up, and then on the margin front, margins were quite good in the second half of last year in North America, and seem to be, and you talked about maybe some favorable price costs and just how to think about margins year on year in North America along those lines?

First of all, Jeff, let's remind all of ourselves on the call here that in the last year third quarter was really a grand slam, and that kind of performance even since we had the web call last year, That's not likely to be repeated.

So we view this year as are we making progress on a sequential basis which we did from Q1 into Q2, and when we think about North America we are committed to doing that again.

Some of the factors that are in play there, you know, you do have the summertime tends to be a little slow in our business, but then we start in September with the heating season, and that's usually a good, you know the seasonality of the heating business is a positive thing for Watts both in Europe and in North America.

So that should be a positive for us.

We are continuing to focus on the initiatives from Q1 that we discussed in the call, the material inflation, improving productivity, converting to lead free in a more efficient and effective way, and then continuing to make additional progress on our freight issues as well.

I think all of that bodes well for continued improvement in North America from Q3 versus Q2.

Is that answering your question?

Yes, but I guess Q2 looks like, I guess your seasonally strongest quarter from a revenue perspective.

It was most of the sequential progression on the margin side?

Yes.

Great.

And then can you, I guess maybe just remind us what the quantification of those three issues, where the freight, you know, the lead in the first quarter, and then what that number would have been in Q2 and maybe where it was relative to your expectations going in.

What we spoke about in terms of the second quarter was we had a $6 million issue, if you like, caused by three factors.

It was roughly $2 million apiece.

Right.

I'm sorry, in the first quarter.

The first issue was the impact of the lead free conversion , and if you like the opportunity cost, it caused for productivity efforts in our plants due to our peoples focus on the conversion.

The second issue was a much faster ramp up in non commodity costs than we had anticipated.

That included non commodity related material costs and it also included freight, etc.

And then the third one was what we regarded as a one-time true up in terms of our product liability reserve, which cost us about $2 million.

And so if we go back through those, and on the first one we still have a lot of our folks focused on lead free, but we are moving forward with our lead free conversion as Bill said in a more efficient way.

We are seeing the costs come down a little bit.

With respect to the second issue, we have attacked some of the cost increases we have experienced, and we have reined some of them back.

And we have been offsetting a significant portion of the freight cost increases through increases in freight charges.

And as we said the third item is a one-time true up so it didn't reoccur.

As we look into the third quarter, we will of course continue to try and be as efficient and effective on lead free as we can.

And we will continue to work extremely hard and to go after and eliminate the impact of the incommodity cost increases and freight increase.

So the $6 million was more like $2 million to $3 million this quarter, and will diminish it a little further into Q3.

Yes, That's a good way of looking at it.

Great.

Thanks, guys.

Thank you.

Your next question comes from the line of Garrett Shmois from Longbow Research.

Please proceed.

Hi, good morning.

This is (inaudible) for Garrett.

I was hoping you could provide us additional color on how much of your sales growth, preferably by geography was driven by volume and price during the quarter.

I would say in North America there was very little in terms of pricing.

It was primarily driven by units.

We had our last major price increase during Q2 of last year.

And then in Europe we obviously did have some modest price increases.

As we talked about Q1 call it is one of the first quarters we saw positive pricing in quite awhile.

So that was very minor, but it was still positive in Europe.

Obviously, when you are down 6% that is driven by lower unit sales which as we discussed, primarily driven by southern Europe.

So it is mostly units both U.S., North American and Europe .

Okay, and can you just give us a sense of where you stand with the spread between your pricing and raw materials right now?

Well, we had our last price increase last year, so I guess when you say spread, we view ourselves as we have recovered on the wholesale side in North America and the retail side is always a struggle, and as we said earlier we are seeing copper being relatively stable.

That will give us a little tale wind as we look forward.

Great, thank you very much.

Okay.

Your next question comes from the line of Nick Prendergast from BB&T Capital Markets.

Please proceed.

Good morning, Nick.

Hello?

Please check your mute feature, sir.

Hi, good morning.

Good morning.

Just had one quick question here, regarding the $1.2 million in restructuring, was that entirely in Europe or split between North America and Europe?

No, actually on a pre tax basis, it was $400 in North America and $800 in Europe.

$800 in Europe, all right.

And on FX, do you have a rule of thumb, perhaps, depending on how much the Euro moves and how much that would affect your bottom line?

Well, we saw the Euro decline 10% this year.

It went from $1.44 to $1.29, and that impacted us $0.03.

I think you can

Thank, sure.

Thank you very much.

Okay.

Your next question comes from the line of Ryan Connors from Janney Montgomery Scott.

Please proceed.

Thank you, good morning.

Hi, Ryan.

A couple questions.

First on the issue of, I wonder if you can talk to us a little about inventories and your channel specifically wholesale in North America, and whether the modest improvement there and demand is leading to any restocking among your distributors?

I will answer that question and throw in a little more of a Europe, if I may.

In North America we have not seen any indications that our customers, either wholesale or retail, are increasing in inventory levels.

We continue to see our customers operate tight inventory levels and we continue to see relatively small order volumes.

So the large stocking orders that might have been traditional several years ago, are not traditional today.

If we switch to Europe, we did see some de stocking among some of our OEM customers.

We saw some of that in Q1 and continue into early Q2, as they recovered from a relatively soft heating season in Europe.

But we did see order entry pick up in the end of the quarter.

We entered into the third quarter with a nice back log from our OEM customers.

Again, our customers there are focusing extremely heavily on the low inventory, and that's one of the reasons we believe we are picking up some share in Europe.

We are able to service them very quickly and very effectively in a way that is a little bit better than some of our competitors.

So no significant movements to increase inventory, and in Europe just a little bit of de stocking as our OEM customers get rid of their overhang from the last winter.

Great.

And then secondly on the issue of pricing in Europe, obviously very encouraging to see somewhat disciplined pricing environment there and even a modest increase.

Surprising given the head winds, and can you just talk about what is driving that and what your outlook is for the pricing in Europe, whether that continues or whether that dissipates?

Look, it very much depends on what market you are looking at.

Obviously with significant fall off of the wholesale market, which we saw in Q2 in Italy, people are competing for every piece of business they possibly can.

However, as we move into some other large markets, places like France, Germany and etc., those markets by and large have relatively stable.

That is enough to help push for price improvements wherever we can.

We think it will remain the same going forward.

We are going to scrap for every little bit of price that we can get, and wherever we can get it, so we can continue to move toward the parity between price costs.

No overall trends.

Market by market, segment by segment and customer by customer.

That's very helpful.

Thank you.

Your next question comes from the line of David Rose from Web Bush, please proceed.

Hi, David.

Hi, this is Michelle in for David.

Good morning, Michelle.

My first question, when will the Company complete the pre production process for lead free?

Do you have any sense of timing and what impact it will have on the quarter?

Yes, there is two large pieces to the pre production, if you would like or the production for lead free.

First is the pre production run.

We are going to be pretty much through them in the third quarter.

There will be a little overhang into the fourth quarter.

We will be predominantly done in the third quarter.

And then the second piece is that we previously announced we have decided to build a dedicated lead free foundry New Hampshire and we are in the midst of the project and that project will complete early next year.

Thank you.

And my next question, what is your capacity utilization in North America, and how does that compare to Europe?

I guess it depends on how you measure it.

Throwing out numbers may be more misleading than helpful.

The way to answer it is in terms of capacity for a pick up in demand, we are comfortable to be well placed for that.

If we switch to Europe, we also feel comfortable that we are well placed.

We believe there is opportunity to continue to rationalize our footprint, and one of the areas we are a bit concerned about and purchased in the quarter is as the Italian market fell off.

We do have absorption issues in the Italian facility.

We are looking to take action to deal with that.

For example, we have shutdown for all of August.

Hopefully that answers your question.

Okay, and then my final question, is there any sense of the timing roll out of the product in North America?

Well, the law requires all water bearing products convert to lead free by January 1, 2014.

Obviously we are in discussion with our customers.

The last thing we want is for our customers to be stuck with leaded inventory headed into that transition.

So we are working with our customers to manage a transition during the course of next year.

Thank you.

(Operator Instructions).

Your next question comes from the line of (inaudible) from RBC Capital Markets.

Please proceed.

Hi.

How are you?

Good morning.

Good morning.

The first question I have regarding the European business , how much is Italy in the European business?

Italy is about 10% of our total business in Europe.

Okay, and what about the rest of Europe like Northern Europe, Germany and France, Nordic Regions, etc.

How confident are you on the stability of those regions going forward?

I can start with how confident are any of us when respect to the macroeconomic environment in Europe.

And obviously significant changes in that macroeconomic environment can have a significant impact on the market.

For example were Greece to default and drop out of the Euro that could have a huge impact.

But absent any changes in the macroeconomic environment which we can't forecast, nor can we plan for.

But what we can talk about is if we look across our major markets, France remains stable.

Germany remains stable.

We are seeing some growth in Nordic.

We are seeing nice growth in Eastern Europe.

We are seeing growth in the Middle East.

Uk is in recession.

But our sales there are relatively stable.

Spain is in recession.

Our sales have come down, but they are stable in the quarter.

The are that changed for us significantly was Italy, where the wholesale market contracted substantially in the quarter.

And then the last point I will make, if you cut across those markets, I referred earlier to the fact that we saw some de stocking following a weak heating season by some of our OEM customers across Europe.

Okay.

How confident do we remain in that?

It ties back to the macroeconomic environment.

You are probably a better judge of that than we are.

And you mentioned building a new lead free foundry in New Hampshire.

I wonder if you could give us some idea for the CapEx expectation for the year?

We talked about that a couple times in the past.

We talked about a Capital Investment in excess of $10 million.

However, the amount of money we spent this year would not be significant.

A significant part of that will come in toward the end of the year and the beginning of next year.

And with the facility footprint with respect to the demand, are you constituting additional actions going forward if that continues?

In Europe?

Europe and North America.

We are not seeing a deterioration in demand in North America.

As we mentioned on the call earlier, we are seeing a pick up in organic growth in North America, a significant pick up from the first quarter.

We are seeing a slow down in organic demand in Europe.

We are looking at our footprint.

We are looking at what actions we can take.

But obviously, in Europe you have things like worker's counsel discussions that you have to have.

So we will be working through that in due course.

Thank you, That's all.

Thank you.

Your next question comes from the line of Stuart Sharp from S&T Capital.

Please proceed.

Good morning.

Good morning.

Regarding Europe or generally your foreign sales, the percentage has come down a bit from last year.

And I was wondering if there is any change in strategy or would you try to focus more on the areas where there is growth in Eastern Europe, Germany and so forth, or are you going to wait it out in the macro environment?

Well, we said Germany was stable.

The areas where we are seeing growth, we are pursuing them.

As I tried to indicate in the call, we have some targeted initiatives around geographies where we see opportunities.

And those geographies are Nordic, Eastern Europe and the Middle East.

We have initiatives around product segments where we see growth opportunities and we referred to Drains and Under Floor Heating, and we also have some initiatives underway with specific customers where we think we can take market share, either because we believe we can serve them better than our competitors given their low inventory rates, or we can serve them on a pan European basis such as the large pan European wholesalers.

Those are the three strategies that we are pursuing.

When you look at it, Europe as a percentage of the total did decline.

But it is really driven more by the foreign exchange rate.

It is not a reflection of any change in strategy and so on that we have.

Right.

And you said that the copper was generally stable.

How do you look at that as far as your pricing strategies or pass through costs?

There is usually a lag or a spike if are you going to have a four, five month lag.

Basically just keeping an eye on it just hoping that it stays where it is.

Yes, I mean, as you know Stuart, you followed the Company for a long time.

We watch copper very closely as it is one of our most significant material cost imports into cost of goods sold.

It has been stable for several months now.

If copper were to have a spike in, and it would be maintained, we would have to consider a price increase.

But I don't see anything like that happening.

If anything copper is going to be, we believe, a slight favorable tail wind for us for the remainder of the year.

Even if copper were to increase, it wouldn't hit our cost of goods sold until early next year.

I think we are in good shape for copper for the remainder of the year.

And Stuart, the other thing I would add, we have done a pretty decent job of covering cost with price in North America.

Copper cost with price in North America.

But we still have work to do in Europe.

We saw some forward progress in the first quarter.

We saw modest forward progress in the second quarter.

We will work that by market, product segment and by customer.

And you said that you have had some pricing in Europe, but not North America, is that right?

That's right.

The last price increase in North America was last year during the second quarter, so they are anniversaried on the price increase.

There is very little pricing in North America right now.

You were able to push through prices in Europe despite the situation there?

Yes, and I again say it is not a broad brush approach.

It is product by product, customer by customer and market by market.

Great, thanks.

Thank you.

Ladies and gentlemen, we have no more questions in queue.

I would now like to turn the conference back over to David Coghlan.

I just like to thank all of you for your continued interest in Watts Water.

I am pleased you could take the time to join us on the call.

We wish you and yours the best for the rest of the summer, and we look forward to seeing you again on our third quarter earnings call in October.

Thank you very much and goodbye.

Ladies and gentlemen, that concludes today's conference.

Thank you for your participation.

You may now disconnect.

Have a great day.