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WATTS WATER TECHNOLOGIES INC (WTS)·Q3 2025 Earnings Summary

Executive Summary

  • Watts delivered a clean beat and raised guidance: Q3 revenue $0.612B (+13% y/y; +9% organic), adjusted EPS $2.50 (+23% y/y), and adjusted operating margin 18.5% (+140 bps), fueled by strong Americas pricing/volume and productivity, offsetting European weakness .
  • Broad-based estimate beats: revenue, EPS, and EBITDA all exceeded consensus; Q3 adjusted EPS $2.50 vs $2.26 consensus; revenue $611.7M vs $576.3M; EBITDA $127.1M vs $116.7M; also beat in Q2 and modest beat in Q1*.
  • FY25 outlook raised: reported sales growth to 7–8% (from 2–5%), organic to 4–5% (from flat–3%), operating margin to 18.1–18.2%, and adjusted operating margin to 19.1–19.2%; management cites tariff-related pricing, FX tailwind, data center strength, and Haws acquisition (10 bps margin dilution) .
  • Capital allocation and M&A: quarterly dividend $0.52 declared; Haws ($~60M sales) acquired 11/4 to complement Bradley safety portfolio; integrations tracking ahead; FCF conversion expected ≥100% of net income for FY25 .

Note: *Values retrieved from S&P Global.

What Went Well and What Went Wrong

What Went Well

  • Americas momentum and price realization: Americas sales +16% reported (+13% organic) with ~$11M acquisition contribution and ~6% price contribution; segment margin +180 bps to 23.7% .
  • Expanded FY25 outlook and execution: Adjusted operating margin +140 bps y/y in Q3; FY25 adjusted operating margin raised to 19.1–19.2%. CEO: “We are increasing our full year 2025 sales and margin outlook” .
  • Data center demand strength and portfolio strategy: Management highlighted “strong sales in data centers” as a driver of raised outlook; Nexa platform adoption building with successful installations and consolidating connected products to one application .

What Went Wrong

  • Europe softness persists: Q3 Europe organic sales −2% despite FX tailwind; drains decline and broader market weakness; volume deleverage remained a headwind though segment margin improved to 12.2% .
  • Tariff uncertainty: Management flagged fluid tariff environment (estimated direct tariff cost ~$40M), potential Supreme Court outcomes, and pricing adjustments needed; sequential margin normalization from Q2’s one-time price-cost favorability .
  • Sequential slowdown ahead: Q4 guide implies lower Americas growth (pull-forward unwinding) and seasonally lower margins; Q4 adjusted operating margin 17–17.5% vs Q3 18.5% .

Financial Results

Consolidated P&L and EPS (Quarterly)

MetricQ1 2025Q2 2025Q3 2025
Revenue (Net sales, $USD Millions)$558.0 $643.7 $611.7
Operating Income ($USD Millions)$87.7 $135.3 $111.4
Operating Margin (%)15.7% 21.0% 18.2%
Adjusted Operating Income ($USD Millions)$106.1 $139.1 $113.3
Adjusted Operating Margin (%)19.0% 21.6% 18.5%
Diluted EPS ($)$2.21 $3.01 $2.45
Adjusted Diluted EPS ($)$2.37 $3.09 $2.50

Segment Net Sales and Margins (Quarterly)

SegmentQ1 2025 Net Sales ($MM)Q1 Margin (%)Q2 2025 Net Sales ($MM)Q2 Margin (%)Q3 2025 Net Sales ($MM)Q3 Margin (%)
Americas$418.1 23.4% $498.5 27.2% $464.1 23.7%
Europe$108.4 13.9% $111.0 11.7% $111.6 12.2%
APMEA$31.5 17.5% $34.2 18.9% $36.0 19.4%
Total External$558.0 21.2% $643.7 21.2% $611.7 21.4%

KPIs and Capital Allocation (Progression)

KPIQ1 2025Q2 2025Q3 2025
Free Cash Flow ($MM, YTD)$45.6 $105.1 $216.0
FCF Conversion (% of Net Income, YTD)61.6% 60.1% 84.0%
Net Debt to Capitalization (%)−8.6% −10.0% −15.3%
Share Repurchases (# shares / $MM)19,000 / $3.9 18,000 / $4.0 15,000 / $3.9
Dividend Declared per Share ($)$0.43 $0.52 $0.52

Q3 Year-over-Year Comparison

MetricQ3 2024Q3 2025Change
Revenue ($MM)$543.6 $611.7 +13%
Operating Margin (%)17.1% 18.2% +110 bps
Adjusted Operating Margin (%)17.1% 18.5% +140 bps
Diluted EPS ($)$2.06 $2.45 +19%
Adjusted Diluted EPS ($)$2.03 $2.50 +23%
Organic Sales Growth (%)—9% n/a

Non-GAAP Adjustments Impact (EPS)

MetricQ1 2025Q2 2025Q3 2025
Special Items impact on EPS ($)$0.16 $0.08 $0.05
Adjusted Diluted EPS ($)$2.37 $3.09 $2.50

Guidance Changes

MetricPeriodPrevious Guidance (Aug 6)Current Guidance (Nov 5)Change
Reported Sales GrowthFY 20252% to 5% 7% to 8% Raised
Organic Sales GrowthFY 2025Flat to 3% 4% to 5% Raised
Operating MarginFY 202517.2% to 17.8% 18.1% to 18.2% Raised
Adjusted Operating MarginFY 202518.2% to 18.8% 19.1% to 19.2% Raised
Adjusted EBITDA Margin ExpansionFY 2025Up ~85–95 bps midpoint (implied prior) Up 140–150 bps (midpoint +55 bps) Raised
FCF ConversionFY 2025≥100% of net income ≥100% of net income Maintained
Acquisition ImpactFY 2025EasyWater included Haws adds ~$10M Q4 sales; ~10 bps margin dilution Added
DividendQ4 2025$0.52/share run-rate Quarterly dividend declared $0.52 payable 12/15 Maintained

Earnings Call Themes & Trends

TopicPrevious Mentions (Q-2 and Q-1)Current Period (Q3 2025)Trend
Tariffs & PricingQ2: $40M direct tariff cost; price-cost one-time favorability ($6M); multiple price rounds; copper, EU tariffs Reiterated ~$40M direct tariff cost; continued pricing to offset; SCOTUS uncertainty; Q3 Americas price contrib ~6% Elevated uncertainty; pricing carryover into 2026
Europe Restructuring & MarginsQ1: Destocking and weakness; restructuring charges; margins down Margins improved to 12.2%; restructuring largely complete; aiming to restore run-rate; cautious outlook Improving run-rate; demand still soft
Data CentersQ2: Strong growth; one of fastest-growing markets; NA catching up to APAC “Strong sales in data centers” cited in raised outlook; NA to surpass APAC; high double-digit growth Accelerating; positive mix
Digital/Nexa PlatformQ2: Pilots, consolidating apps to Nexa; long sales cycles Momentum continues; installations in hospitality/multifamily/commercial; scaling via one app Building steadily
M&A IntegrationQ2: Bradley/Josam/I-CON/EasyWater ahead of plan Haws acquired; complements Bradley safety; synergy plan initiated Expanding safety portfolio
Macro: Residential/MultifamilyQ2: Residential softness; multifamily bottoming; ABI/Dodge watched Residential softness persists; multifamily near bottom; interest rates/tariff clarity key Stabilizing

Management Commentary

  • “We achieved strong third quarter results that exceeded our expectations driven by strong execution in our Americas region…we are increasing our full year 2025 sales and margin outlook” — Robert J. Pagano Jr., CEO .
  • “Adjusted operating margin of 18.5% was better than anticipated due to favorable price, volume leverage, productivity, and mix…we expect to generate seasonally strong free cash flow through year-end” — CEO prepared remarks .
  • “We are also pleased to announce the acquisition of Haws Corporation…[it] complements our Bradley business” — CEO .
  • “We now anticipate organic sales growth of 4–5%…reported sales growth 7–8%…adjusted operating margin expansion up 140–150 bps” — CFO .
  • “Our quarter-end net debt-to-capitalization ratio was −15%, and our net leverage is −0.5x” — CFO (supported by tables ).

Q&A Highlights

  • Pricing/tariffs: Americas price contribution ~6% in Q3; pricing likely slightly higher in Q4 to offset tariffs; pre-buy/pull-forward ~$11M in Q3 .
  • Haws acquisition: ~$60M sales; ~20% hydration; primary rationale is safety portfolio complementarity with Bradley; expected margin dilution near term; aim to reach Watts margin over time .
  • Europe margins: Run-rate improving post-restructuring; goal to restore prior levels over time, with 80/20 actions and cost structure realignment; caution given macro/Ukraine conflict .
  • Data center exposure: North America to surpass APAC in 2025; high double-digit growth; offsets residential softness .
  • Macro tone: Multifamily near a bottom; residential remains soft; government shutdown uncertainty could dampen residential activity temporarily .

Estimates Context

MetricQ1 2025 ConsensusQ1 ActualQ2 2025 ConsensusQ2 ActualQ3 2025 ConsensusQ3 Actual
Revenue ($USD)$547.4M*$558.0M $613.9M*$643.7M $576.3M*$611.7M
Primary EPS ($)$2.13*$2.37 $2.63*$3.09 $2.26*$2.50
EBITDA ($USD)$110.1M*$118.7M $135.2M*$153.2M $116.7M*$127.1M

Values retrieved from S&P Global.
Bolded takeaway: Q3 delivered across-the-board beats vs consensus on revenue, EPS, and EBITDA*.

Key Takeaways for Investors

  • Strong execution and pricing power: Broad beats and margin expansion despite tariffs, with Americas pricing/volume and productivity offsetting Europe weakness .
  • Guidance raise is meaningful: FY25 reported growth lifted to 7–8% and adjusted operating margin to 19.1–19.2%, with data centers and FX supportive — a likely positive narrative driver .
  • Sequential normalization: Expect Q4 margins to step down on seasonality, acquisition dilution, and unwind of pull-forward; watch near-term revisions and 1H26 pricing carryover commentary .
  • Europe inflecting on margins: Restructuring nearing completion; improved margins but demand remains soft — monitor run-rate sustainability into 2026 .
  • M&A expands safety portfolio: Haws enhances front-of-the-wall and safety offerings; near-term dilution (~10 bps) but medium-term synergy potential with Bradley .
  • FCF and balance sheet optionality: YTD FCF up to $216M; net debt-to-cap further negative; supports continued dividends, buybacks, and strategic investments .
  • Risk watch: Tariff policy volatility (incl. SCOTUS), residential/multifamily trajectory, Europe macro, and FX — all can sway margins and growth; pricing agility remains key .