Sign in

You're signed outSign in or to get full access.

WW

WATTS WATER TECHNOLOGIES INC (WTS)·Q2 2025 Earnings Summary

Executive Summary

  • Record quarter: revenue $643.7M (+8% YoY), adjusted operating margin 21.6% (+280 bps), and adjusted EPS $3.09 (+26% YoY), all above internal expectations .
  • Clear beat vs Street: Q2 adjusted EPS $3.09 vs $2.63 consensus*, and revenue $643.7M vs $613.9M consensus*; strength was driven by price realization, Americas volume leverage, and tariff-related pull-forward demand; Europe remained weak .
  • FY25 outlook raised: reported sales growth to +2%–+5% (from -2%–+3%), organic flat to +3% (from -3%–+2%), adjusted operating margin to 18.2%–18.8% (from 17.7%–18.3%); tariff direct cost assumption now ~$40M (was ~$60M previously) .
  • Near-term setup: management flagged sequential margin normalization in Q3 due to non-recurring price-cost favorability, seasonality, and lower pull-forward; data center demand and Nexa platform traction are emerging catalysts .

Values with * retrieved from S&P Global.

What Went Well and What Went Wrong

  • What Went Well

    • “Record sales, operating income, operating margin and EPS” driven by favorable price-cost, productivity, and Americas volume leverage .
    • Adjusted operating margin reached 21.6% (record), with adjusted EBITDA margin of 23.8%; management raised full-year sales and margin outlook .
    • Strategic momentum: Nexa Intelligent Water Management installations across hospitality and multifamily; EasyWater acquisition integrated and contributing; data center exposure growing high double-digits .

  • What Went Wrong

    • Europe remained weak: sales -8% organically; heating OEM declines and destocking persisted; China projects faced timing delays .
    • Q2 included ~$20M of tariff-related pull-forward, creating a tougher sequential setup for Q3; non-recurring ~$6M price-cost favorability lifted gross margin temporarily .
    • Free cash flow YTD down YoY ($105.1M vs $119.7M) on working capital timing and higher inventory costs related to tariffs; net capex increased .

Financial Results

  • Core metrics vs prior year, prior quarter, and adjusted Street consensus.

Revenue, EPS, and margins

MetricQ2 2024Q1 2025Q2 2025 ActualQ2 2025 Consensus
Revenue ($USD Millions)$597.3 $558.0 $643.7 $613.9*
GAAP Operating Margin %18.7% 15.7% 21.0% —
Adjusted Operating Margin %18.8% 19.0% 21.6% —
GAAP Diluted EPS ($)$2.44 $2.21 $3.01 —
Adjusted Diluted EPS ($)$2.46 $2.37 $3.09 $2.63*

Values with * retrieved from S&P Global.

Segment breakdown

SegmentQ2 2024 Net Sales ($M)Q1 2025 Net Sales ($M)Q2 2025 Net Sales ($M)Q2 2024 Segment Margin %Q1 2025 Segment Margin %Q2 2025 Segment Margin %
Americas$448.1 $418.1 $498.5 24.3% 23.4% 27.2%
Europe$114.1 $108.4 $111.0 10.0% 13.9% 11.7%
APMEA$35.1 $31.5 $34.2 18.9% 17.5% 18.9%

KPIs

KPIQ2 2024Q1 2025Q2 2025
Organic Sales Growth % (Total)5.8% (Q/Q construct; use prior-year for reference) -2.1% 5.8%
Adjusted EBITDA ($M)——$153
Adjusted EBITDA Margin %——23.8%
Free Cash Flow (YTD, $M)—$45.6 $105.1
Net Debt to Capitalization Ratio %(12.5)% (FY-end reference) (8.6)% (10.0)%
Shares Repurchased (QTD)—19,000 [$3.9M] 18,000 [$4.0M]
Price Realization (Company-wide)—~1% ~3%
Tariff-related Pull-forward——~$20M

Note: EBITDA not disclosed in press release; provided by management on the call .

Guidance Changes

  • FY 2025 and Q3 2025 updates, with changes vs prior guidance.
MetricPeriodPrevious GuidanceCurrent GuidanceChange
Reported Sales GrowthFY 2025-2% to +3% +2% to +5% Raised
Organic Sales GrowthFY 2025-3% to +2% Flat to +3% Raised
GAAP Operating Margin %FY 202516.7% to 17.3% 17.2% to 17.8% Raised
Adjusted Operating Margin %FY 202517.7% to 18.3% 18.2% to 18.8% Raised
Direct Tariff Cost Assumption ($)FY 2025~$60M (prior baseline) ~$40M Lowered
Organic Sales GrowthQ3 2025n/a+2% to +5% New
EBITDA Margin %Q3 2025n/a19.7% to 20.3% New
Operating Margin %Q3 2025n/a17.1% to 17.7% New
FX Tailwind ($)Q3 2025n/a~$4M New
Acquisition Sales ($)Q3 2025n/a~$8M (Americas) New
80/20 Product Exits ($)Q3 2025n/a~$2M (Americas) New
Dividend per Share ($)Ongoing$0.43 (pre-May) $0.52 (declared; payable Sep 15, 2025) Raised

Earnings Call Themes & Trends

TopicPrevious Mentions (Q4 2024, Q1 2025)Current Period (Q2 2025)Trend
Tariffs/MacroMonitoring geo-political uncertainty; maintaining FY25 margin outlook despite mixed markets ~$40M direct tariff cost assumed; multiple tariff rounds; price actions 5%–15% across products Fluid but managed via pricing; risk moderated vs prior baseline
Supply Chain & Domestic FootprintVertical integration near customers as advantage Domestic manufacturing footprint viewed as competitive edge amid tariff uncertainty Positive differentiation increasing
Data Center End-MarketNot emphasizedGrowing high double-digits; offsetting residential softness Strengthening
Europe MarketFewer shipping days, OEM destocking, weakness Organic -8%; margins +170 bps YoY; cautious tone persists Demand weak; margin execution improving
Nexa Platform (Digital/IoT)Digital strategy mentioned Installations across hospitality/multifamily; migrating legacy apps into Nexa; subscription/monitoring revenue model Building slowly; pipeline expanding
M&A Integration (Bradley, Josam, I-CON, EasyWater)I-CON closed Jan 2025; integrations progressing All integrations “green”; synergies ahead of plan; EasyWater ~neutral EPS in 2025 Ahead of plan

Management Commentary

  • “We delivered another strong quarter that surpassed our expectations as we achieved record sales, operating income, operating margin and EPS... we are increasing our full year 2025 sales and margin outlook.” — Robert J. Pagano Jr., CEO .
  • “Adjusted operating margin of 21.6% exceeded expectations due to favorable price-cost dynamic, volume leverage, productivity and cost containment.” — CEO prepared remarks .
  • “Our global direct tariff impact in 2025 is estimated to be approximately $40 million... we are confident in our ability to maintain a favorable price-cost outcome.” — CEO .
  • “Adjusted EBITDA margin of 23.8% increased 280 bps... adjusted EPS up 26% versus last year.” — CFO .
  • “Nexa is delivering measurable savings and quick payback cycles... we view Nexa as one of the most promising long-term opportunities.” — CEO .

Q&A Highlights

  • Pull-forward quantified: ~$20M of sales shipped pre–price increase in Q2 .
  • Price-cost favorability: ~$6M one-time benefit from price realization on lower-cost inventory; price increases staggered 5%–15%; full realization expected in 2H25 .
  • Gross margin sustainability: Q2 gross margin >50% benefited ~100 bps from one-time price-cost; medium-term run-rate around ~48% .
  • Europe outlook: heat pump destocking likely ending by Q3; broader construction demand still soft; management remains cautious .
  • Data centers: grew high double-digits; last year ~2% of sales; now meaningful offset to residential softness .
  • Nexa monetization: upfront installation plus annual monitoring/upgrade fee; software revenue base “small but growing” .

Estimates Context

  • Q2 2025 actuals vs S&P Global consensus: adjusted EPS $3.09 vs $2.63*, revenue $643.7M vs $613.9M* — a broad-based beat on price, Americas volume leverage, and productivity .
  • Street for Q3 2025: consensus EPS ~$2.26*, revenue ~$576.3M*; company guided organic growth +2%–+5% and lower margins sequentially due to normalization of price-cost/seasonality .
  • Implications: Models should raise FY25 sales and margin assumptions to match new guidance and incorporate $40M direct tariff costs, attenuated Europe volumes, and continued data center/Nexa contributions .

Values with * retrieved from S&P Global.

Key Takeaways for Investors

  • Q2 was a high-quality beat with record profitability; the raise to FY25 sales and margins is the key stock catalyst .
  • Expect Q3 margin normalization (non-recurring price-cost, seasonality, lower pull-forward); this is guided and should not be a negative surprise if priced in .
  • Americas strength, price realization, and productivity programs are offsetting Europe weakness; segment margin execution remains robust .
  • Data center demand and the Nexa platform provide structurally improving growth vectors; watch for pipeline conversion and subscription revenue scale .
  • Tariff headwinds reduced from ~$60M to ~$40M; management is mitigating via pricing/supply chain moves; monitor copper tariffs and potential GDP impacts on repair/replacement .
  • Balance sheet optionality (net debt/cap negative, buybacks, dividend raised to $0.52) supports continued capital deployment and resilience .
  • Actionable: maintain emphasis on margin durability into FY25, track Europe demand inflection, Nexa adoption milestones, and data center momentum as next leg of the thesis .