What drove WTS's earnings surprise in 2024?

Watts Water Technologies (WTS) experienced an earnings surprise in 2024 due to several key factors:

1. **Organic Sales Growth**: Despite a 5% decline in organic sales, the full-year sales increased by 10% reported and 1% organically, reaching $2.25 billion. This growth was driven by strategic initiatives and market expansion.
2. **Operating Margin Improvement**: The adjusted operating margin for Q4 2024 was 16.8%, an increase of 100 basis points. This improvement in operational efficiency contributed to the overall financial performance.
3. **Strategic Acquisitions**: WTS closed the acquisition of I-CON Systems, which is expected to enhance the company's market position and contribute to future growth. Such acquisitions can often lead to earnings surprises by boosting revenue and profitability beyond market expectations.
4. **Free Cash Flow**: The company reported record free cash flow, indicating strong financial health and the ability to generate cash above market expectations. This can lead to higher earnings as a significant portion of the cash flow is not spent on capital expenditures or other expenses.

In summary, Watts Water Technologies' earnings surprise in 2024 was driven by a combination of organic sales growth, operating margin improvement, strategic acquisitions, and record free cash flow. These factors collectively contributed to the company's strong financial performance, exceeding market expectations.