Good morning my name is Chris and I will be your conference operator today. At this time, I'd like to welcome everyone to the Watts Water Technologies Inc. Second Quarter 2016 Earnings Conference Call. All lines have been placed on mute to prevent any backgrounds noise. After the speaker's remarks there will be a question-and-answer session. [Operator Instructions] Tim MacPhee, Treasurer, Vice President, Investor Relations. You may begin your conference.

Thank you, and good morning, everyone, and welcome to our second quarter 2016 earnings conference call. Joining me today are Bob Pagano, President and CEO; and Todd Trapp, our CFO. Bob and Todd will provide their perspective and analysis on our second quarter results, provide a key initiatives update and discuss our latest outlook for the second half of this year. Following our prepared remarks, we will address questions related to the information covered during the call. Today's webcast that is accompanied by a presentation which can be found in the Investor Relations section of our website. We will reference these slides to [indiscernible] our prepared remarks. Any reference to non-GAAP financial information is reconciled in the appendix of the presentation. Before we begin 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. I will now turn the call over to Bob Pagano.

Thanks, Tim, and good morning, everyone. I am on Slide three in the presentation, where I'll provide some commentary on the second quarter. Overall I'm very pleased that in the second quarter we continued the momentum in operating performance that we delivered in the first quarter. Organically we grew revenue in all regions and the pace of growth improved sequentially from the first quarter. We delivered a record quarter for operating margin and EPS as a result of the transformative actions we have taken as an organization. From a first half perspective our results were generally in line with our full year outlook for the company. Todd will review the quarter's results and our outlook for the second half in more detail. From a worldwide market perspective, we continue to see a mix performance, in the Americas much of the construction data remains lumpy but overall we expect both the non-resi and resi markets to grow in the low to mid single digits this year. EMEA continued to stabilize through the quarter. In terms of the potential Brexit impact the UK represents only a very small portion of our business, approximately 2% of worldwide revenue. And the recent terror attacks and failed coup in Turkey have become the latest issues for Europe. The impact from all of these events is something we are watching closely but it's still too early to make a call at this time. Finally, we are seeing growth in market outside of China that is countering some softness in the domestic China commercial marketplace which is consistent with what we saw in the first quarter. Now if you recall back in February, I spoke about building on the foundation of our previously announced transformation efforts. We identified four areas of focus in 2016 including; one, executing…

Thanks Bob and good morning everyone. I am on Slide 5, which shows the second quarter results. Reported sales of 371 million were down about 4% quarter-over-quarter, this decline was driven by the exit of undifferentiated products in 2015, which impacted sales by $34 million or 9%. On an organic basis, we grew 4% driven by strengths in Americas, EMEA and Asia Pacific, and I will talk more about the region performance in a few minutes. Adjusted operating profit of 44 million increased 2 million or 5%. This translated into adjusted operating margins of 11.9% up 100 basis points versus last year and a record second quarter for the company. We attained this margin while continuing to invest in our growth initiatives as previously communicated. Higher volume, favorable sales mix including the exit of undifferentiated products and productivity were the main drivers of this Q2 strong margin performance. Adjusted EPS of $0.75 were approximately 9% better than last year, the $0.75 also represented a new record quarter for the company. The growth in EPS was driven primarily by strong operational performance which more than offset a $0.06 headwind associated with the exit of undifferentiated products. For the quarter the effective tax rate was 34.6% about 80 basis higher than prior year, some of which was driven by the mix of worldwide earnings. So overall we are very pleased with our performance as we set new highs in adjusted operating margin and EPS in the second quarter. Now turning to the regions on Slide 6 let`s review Americas result for the quarter. Sales were 239 million down 9% on a reported basis all driven by the exit of undifferentiated products in 2015, which was a $32 million headwind to the region in the quarter. More importantly organic sales were up 4%…

Thanks Todd. To quickly summarize, we had a very good second quarter which saw growth in organic sales with record margins and earnings per share. We continue to drive our various transformation programs and are focused on other key areas, which we believe should drive continued performance going forward. And we are anticipating the steady, operating performance during the second half of 2016, delivering full year operating margin expansion of at least 100 basis points with a potential for modest upside and our goals to drive a 100% free cash flow conversion for the full year. So with that operator, please open the line for questions.

Thank you. [Operator Instruction] The first question is from Ryan Connors with Boenning & Scattergood. Your line is open.

I wanted to talk a little bit about the pricing impact of some of the commercial excellence initiatives you are putting through, things like the new training center. Historically I think Watts has already known that the contracted channel is a premium brand and a premium price and presumably that's even more so today given the exit of some of the undifferentiated lines. So my question is, do you believe that there is still room for you to pick up pricing structurally in the market place as you get more disciplined on how you go to market? Or do you think you are more or less priced appropriately in the market place and the bigger opportunities there is actually market share?

So Ryan, I think there is both. I think we did see some little pricing pressure in Q2 as we adjusted some of our products -- I think we talked about in the past that for our OEMs, we do tie pricing to LME, so with some of the commodity prices coming down we had to give a little of that back. But in general we feel good about our ability to pass along pricing. I think the reliability and quality of our product stands by itself and I think that we'll continue to push price where we can -- we continue to look at -- we test price elasticity, sometimes we back off on that and sometimes we push it. So again as we continue to look at our portfolio we'll adjust our commercial excellence initiatives and are pricing accordingly but overall we feel good about it.

Okay and then on the market share side I mean obviously it breaks in to a product by product discussion pretty quickly but when you are doing things like the training center and other commercial excellence type programs, how do you look at the market share you have today in the product lines you are retaining and whether there is an opportunity to pick up share, is there any way to quantify that side of the opportunity?

So I look at -- the new training centers just started right so it opened up in April, so I think it's difficult to do that but in the long run we believe training as well as new product introductions will allow us to gain market share so I think certainly that was the reason why we are doing it we believe in to continue to train the industry and look for opportunities to grow because in the end that’s what it's all about. So I think it’s a combination of training, new product development and making sure our pricing is appropriately in the right markets.

Got it and then one more, just on the operating margin I think we are almost 12% in the quarter over 11% I guess year-to-date which obviously is impressive and great progress against initial target which have increased if I remember something like 12%, 13% so can you update us on your latest thinking about margin target based on what you know this is much deeper into the realignment process?

Well certainly our goal is to get up into the 15% long term and certainly some of the heavy lifting going on with our portfolio, readjustments and some of the overall restructuring initiatives so longer term I feel good about that. The team is executing, we are working together and we are starting to gain our stride. So I think as we continue to go we will see the continued restructuring and supply chain savings that we have talked about and we feel good about the longer term those margins.

The next question is from Jeff Hammond with KeyBanc Capital Markets, your line is open.

I just want to go at the margin question a little bit differently, Bob you mentioned the 15% target you had there in North America and certainly above prior peak and Europe's been a laggard, so if you just kind of contrast the two other than macro -- are there structural issues for Europe getting to that same level, is it just a matter of time, maybe just compare and contrast kind of where you think you are Europe's margin trajectory versus where you have come on North America?

Yes, I think there is a little structural difference because a large portion of our business in Europe is through the OEM channel which tends to be lower margin but I do believe there is opportunities for improvement. We do have structural cost issues, we have a lot of plans and I would call it high cost areas and as you know we have talked about its difficult to shutter those cost on a cost effective basis right long paybacks et cetera. So I think structurally we are a little bit challenged but I do believe there is still opportunities and we are making progress on our restructuring initiatives, we'll be implementing that in the fourth quarter, so we will see the benefits inside of next year. So really the team's been making great strides, it's unfortunate the Brexit thing happened, so I think that creates a little uncertainty in the region at this point in time, but overall our team is making great progress in Europe.

So, on that point I mean I think you have been a little nervous about Europe coming into the year and you have been able to put up some organic growth and really nice margin improvements. So what's kind of inflected there where you have been able to put those results up?

Well, I think it all centers around our teams are now becoming more focused on the customer and understanding what parts of our business to push, strategic accounts, all of that and being selective on various pricing initiatives. So again I think the team we reorganized it, we have eliminated what I call some redundant overhead in structural cost out of there. And really the whole focus is getting close to our customer. So we saw a little bounce in Italy which was nice, France was up just a little uptick basically flat to up a little bit. I think once Germany stabilizes, I think when -- we sell to a lot of OEMs in Germany that ship outside of Germany in particular to Russia and other countries and I think they are having some difficulty. So once that stabilizes, I’ll feel better about that. So again I have been cautious about Europe and I believe rightly so, we saw first two quarters or actually even in the fourth quarter we saw some growth. So we had three good quarters, and unfortunately this Brexit thing, I think we saw some softness in July a little bit, but we are starting to see that rebound a little bit. So again I think it's natural for all the uncertainty to have happened, given the end of the quarter. But the teams are feeling pretty good about as we go. But we are being a little cautious -- we continue to be cautious and watch our cost structure and driving our growth.

The next question is from Jim Giannakouros with Oppenheimer. Your line is open.

I’ll make it three for three, I guess on Europe. I’ll start with the margins, again just asking near term, can you give us where you guys seeing you are running at base line on an annual basis if revenue stay flat once you lap the benefits of all the actions that you are taking there. But then I guess overlaying incremental [investment] such as building out your sales?

Hi Jim, this is Todd. I think if you look at the margin rates in the second quarter is a little bit north of 11%, and I would say if volume kind of holds at these levels, I would say that’s probably a pretty good range to keep it at that at this point in time, and they are going to continue to benefit from some of the lower restructuring, some of the restructuring actions that is taking place in the quarter in the last couple of quarters. So I think somewhere in that 10% to 11% range would be how I categorize Europe's probably second half margin performance based on what we are seeing so far in the first half.

That’s helpful thanks. And just a little granular on demand, you mentioned Germany OEM channel softness, was that destocking or you are seeing a demand reset specifically in Germany? Thanks.

I think it's a combination of both actually. I think the German boiler manufactures have been having a difficult time especially on the residential side. And so again I think its continued adjustment, I think they continue to right size, they have decided to insource some of their products. So again I think it's just a reset because you know the difficult the cost to reduce labor et cetera but our feedback is by the end of the year we feel that that should subside then the comps get more in line with what we have been seeing on a run rate basis.

Switching over to the Americas, specifically you guys called out the resi non-resi tailwinds and your leverage there well understood the continued softness in industrial end markets understood but where exactly can you get a little more granular there on what you are seeing in industrial end markets and how much of that is oil and gas? Thanks.

Yes, I mean our industrial business is about 3% of our overall business, it’s a small portion of it but yes, it is tied mainly to the oil and gas side of the business, where we have some product lines in that. So that continued to be soft down double digits on us but again it’s a small portion of our portfolio and hopefully that starts stabilizing at some point here. But probably in Q4 will lack comps again on that. So again we had some backlog coming in into last year that didn’t ship out till the end of the fourth quarter so by the end of this year I think we will get back down into that steady state, we are lapping descent comps on that.

The next question is from [Gerald Giordano] with Cowen. Your line is open.

I was curious in Europe, if Brexit wounds up being worse than -- and I don’t know [if anyone has realized here what this can turn out to be] but if it turned out to be a little bit worse, are there additional programs that you guys have in the back of your mind that you can just put through real quick to kind of right size that business even further than what you are doing currently?

Yes, I mean when we look at it less than 2% of our business we are not real strong in the UK, it's really the question of what is the macro indicators all around Europe and the overall impact. I think we are constantly looking at our cost structure we know -- you know we have some European restructuring initiatives going on so we will continue to look and monitor that but right now our teams -- they felt the noise they felt the shock, but honestly they believe we will move on and things will go forward with it. So right now we are watching it closely and we will look for opportunities, further opportunities if we need to, but right now the team believes we have got the right actions in place.

I wanted to talk about the one last question like global training -- when you go to that process, is that mostly internal training or how much is customer education and what are initial results like, is it more just -- are you just trying to push volumes and have your customers understand the full range of breadth of product that you guys have, is that the ultimate goal there?

Yes, I think a lot of it is just we have a broad product range and certainly literature needs to be changed, but a lot of our products are global in nature where we can package them and put them together and in the past we have been siloed and the whole goal is to open up the portfolio for the entire organization so it requires marketing materials, trainings from our customer, training for our internal peace. So it’s a combination of all of the above and the goal is really to take a global look and a global product portfolio and provide a customer solution and some of our customers, large customers are global in nature so we want to follow develop strategic relationships with them and bring our products globally with them. So it's a combination of all of the above and we are in the earlier innings of that initiative.

Are you starting to see some product sales out like things in Europe that you are selling in the U.S. but not historically there, have you started to see some intangible evidence there so far?

Actually the biggest benefit we are seeing in is products we make in Europe and selling them into North America and our stainless steel drains business. So we are gaining some traction there, we have added resources and specializing on that, so that’s where we are getting our early wins but we believe there is just as much opportunity, the other way around bringing products into Europe right now. But right now the other opportunity is bringing our products both made in North America and in Europe into the Middle East and in Asia, so all of those are initiatives that are going on right now.

Great, and then just last from me on the Americas, how does sales trend throughout the quarter?

When I look at trends, it was interesting for the quarter, April was soft and we saw it ramp up in May and June, and it's funny, July started off a little soft, but again our sales team is confident and they are coming back. So it's trendy -- but the teams feel good and confident, all the indicators that we look at construction in both non-res and res are looking positive. And as you know 65% of our North America business is repair and replace which tends to go with GDP. So again on balance our team feels good about that and we are somewhat -- we watch the ups and downs, some of its lumpy dependent on the commercial type business. So again cautiously optimistic.

The next question is from Ryan Connors with Boenning & Scattergood. Your line is open.

Yes, thanks. Just a quick follow up question, Bob you mentioned in your prepared remarks this idea of having to go outside the organization to feel certain e-trade, don't feel like you have got the appropriate internal candidate and I know there are some examples of that [in Franklin] for example, but can you talk about how you go about that, is it a compensation, a part of the pitch you are making to some of these people from larger, more mature organizations or what are the elements that you are using to try to bring people on board?

Ryan, it has usually nothing to do with compensation. We are really talking to teams about what we are trying to do, what we are trying to build. The momentum we are starting to get and they need our leadership team, and really see the opportunities in side of the organization, so certainly compensation has to be a part of the discussion. But honestly that is the very last thing we talk about. So really everybody is excited to be part of this company, we have a strong 140-year history, a great brand and we are now going to capitalize on that brand to grow in the future. So people are excited to join us and all the people who have joined us are excited to be here. So they want to be part of a winning team.

Showing no further questions at this time. And this will conclude today's conference call you may now disconnect. Thank you.