Watts Water Technologies, Inc. WTS reported second-quarter 2026 adjusted earnings of $3.66 per share, up 18.4% from $3.09 a year ago. The bottom line beat the Zacks Consensus Estimate of $3.34 by 9.6%.
Net sales rose 18.6% year over year to $763.2 million and topped the consensus mark of $726 million by 5.1%. Organic sales advanced 12.2%, driven by favorable pricing, higher volumes and data center growth. Year-to-date data center sales represented 8% of total sales.
Shares of the company have gained 40.6% in the past year compared with the Zacks Manufacturing - General Industrial industry’s growth of 13.6%.
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WTS' Data Center Momentum Accelerates
Second-quarter data center sales more than tripled year over year. Demand was concentrated in the Americas and APMEA, while Europe represented an emerging opportunity. Management said project-based demand could create quarter-to-quarter variability.
Watts Water is investing in talent, product innovation and capacity while expanding relationships with contractors, original equipment manufacturers and hyperscalers. The company estimates its served addressable data center market at about $2 billion, with potential content ranging from roughly $25,000 to $100,000 per megawatt.
Watts Water's Americas Demand Supports Growth
Americas sales increased 17.4% year over year to $585 million and rose 11.6% organically. Favorable pricing and higher volumes tied to data center demand supported the increase, while acquisitions added $28 million.
Segment margin fell 150 basis points (bps) to 25.7%. Acquisition dilution, inflation, tariffs and a difficult comparison with a prior-year tariff-related price-cost benefit outweighed gains from pricing, volume leverage and productivity.
Watts Water Technologies, Inc. Price, Consensus and EPS Surprise
Watts Water Technologies, Inc. price-consensus-eps-surprise-chart | Watts Water Technologies, Inc. Quote
WTS' Europe and APMEA Results Strengthen
Europe sales rose 12.3% to $124.6 million, including 9.2% organic growth. Higher volumes and favorable pricing drove the advance, while foreign exchange contributed 3.1%. Segment margin expanded 160 bps to 13.3% as operating gains more than offset inflation.
APMEA sales climbed 56.7% to $53.6 million and advanced 30.7% organically. Data center growth in China more than offset weaker Middle East activity. Acquisitions contributed 17.3% and foreign exchange added 8.7%, while segment margin improved 100 bps to 19.9%.
Watts Water's Profitability Faces Cost Pressure
Gross profit increased 14.8% to $374.1 million, though gross margin contracted 160 bps to 49.0%. Selling, general and administrative expenses rose 14.6% to $214.5 million.
Adjusted operating income increased 15% to $160 million, while adjusted operating margin declined 60 bps to 21.0%. Adjusted EBITDA rose 15.5% to $176.7 million, but its margin decreased 70 bps to 23.1%. Acquisition dilution, inflation and tariffs pressured profitability, partly offset by price realization, volume leverage and productivity.
WTS' Cash Flow Softens as Balance Sheet Holds
For the first six months of 2026, operating cash flow declined to $120.8 million from $124.9 million. Free cash flow decreased to $98.2 million from $105.1 million, reflecting higher working capital and capital expenditures. The cash conversion rate fell to 45.1% from 60.1%.
Watts Water ended June with $347.9 million in cash and $108 million of long-term debt, resulting in net cash of $239.9 million. The company repurchased about 13,000 shares for $4.1 million during the quarter, leaving roughly $121 million under its authorization. Management expects cash flow to improve sequentially in the second half as working capital is monetized.
Watts Water Raises 2026 Outlook
WTS now expects full-year reported sales growth of 14% to 17%, up from its prior 8% to 12% range. Organic growth is projected at 8% to 11% compared with the previous 2% to 6% outlook. Adjusted operating margin is forecast between 19.8% and 20.4%, while adjusted EBITDA margin is expected between 22.1% and 22.7%.
For the third quarter, management expects reported sales growth of 11% to 14% and organic growth of 5% to 8%. Adjusted operating margin is projected between 19.8% and 20.4%, with adjusted EBITDA margin of 22.2% to 22.8%. The outlook assumes no change in the Middle East conflict's impact and includes tariffs announced through Aug. 4, 2026.
On Aug. 3, 2026, WTS also declared a quarterly dividend of 63 cents per share, payable on Sept. 15, 2026, to shareholders of record as of Sept. 1, 2026.
WTS’ Zacks Rank
Watts Water currently has a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Recent Performance of Peers in the Same Space
Flowserve Corporation’s FLS second-quarter 2026 adjusted earnings of 95 cents per share beat the Zacks Consensus Estimate of 86 cents by 10.5%. The bottom line increased 4.4% year over year.
The company generated revenues of $1.17 billion, which surpassed the Zacks Consensus Estimate of $1.16 billion by 0.9%. However, sales declined 1.6% year over year. Strong bookings growth and operating-margin expansion, along with a record aftermarket bookings performance, supported the quarterly results.
Generac Holdings Inc. GNRC reported second-quarter 2026 adjusted earnings per share (EPS) of $2.91, which beat the Zacks Consensus Estimate of $1.95. GNRC registered an adjusted EPS of $1.65 in the prior-year quarter.
Net sales were $1.173 billion, up 11% from $1.06 billion in the prior-year quarter. The figure missed the consensus estimate by 0.4%.
Zebra Technologies Corporation ZBRA reported second-quarter 2026 adjusted earnings of $6.35 per share, which beat the Zacks Consensus Estimate of $4.35. The bottom line increased 75.9% from $3.61 per share reported in the year-ago quarter.
Total revenues of $1.56 billion surpassed the consensus estimate of $1.50 billion. The top line increased 20.4% year over year, supported by broad-based growth across segments and regions. Consolidated organic net sales increased 9.2% year over year. Acquisitions contributed 8.7% to reported sales growth, while favorable foreign currency translation contributed 2.5%.
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This article originally published on Zacks Investment Research (zacks.com).