Watts Water Technologies, Inc.

Second-quarter sales were $763 million, up 19% reported and 12% organically. Adjusted EBITDA was $177 million, up 15%, with adjusted EBITDA margin of 23.1%, down 70 basis points year over year. Adjusted operating income was $160 million, up 15%, and adjusted operating margin was 21.0%, down 60 basis points. Adjusted EPS was $3.66, up 18% year over year. Free cash flow year to date was $98 million versus $105 million a year ago, and management reiterated a full-year free cash flow conversion target of greater than or equal to 90% of net income. For full-year 2026, the company now expects organic sales growth of 8% to 11%, reported sales growth of 14% to 17%, adjusted EBITDA margin up 20 to 80 bps, and adjusted operating margin up 20 to 80 bps. For Q3, reported sales are expected to rise 11% to 14%, organic sales 5% to 8%, adjusted EBITDA margin 22.2% to 22.8%, and operating margin 19.8% to 20.4%.

Bob Pagano said the quarter reflected better-than-expected execution, record financial results, and strong momentum in data centers, pricing, and Europe/APMEA. He emphasized that Watts is benefiting from a broad water-solutions portfolio and a business mix with about 60% of sales coming from repair and replacement, which he said supports performance across varying macro conditions. His tone was upbeat but measured, repeatedly noting lingering softness in residential and noninstitutional new construction and uncertainty around tariffs, rates and geopolitics.

Diane McClintock detailed the quarter’s financial bridge: $763 million in sales, $177 million of adjusted EBITDA, $160 million of adjusted operating income, and $3.66 adjusted EPS. She said margin pressure came mainly from acquisition dilution, a tough comparison to a prior-year tariff-related price/cost benefit, and inflation, partly offset by price, volume leverage and productivity. She also pointed to $98 million of year-to-date free cash flow versus $105 million last year, attributed the decline to higher receivables and inventory investment, and reiterated the company is on track for free cash flow conversion of at least 90% of net income, with net debt to capitalization at negative 12% and net leverage at negative 0.4x.

Analysts focused heavily on data centers: the expanded TAM estimate from about $1 billion to $2 billion, the split between Europe, North America and China, the product mix shift toward liquid cooling, and how much visibility Watts has into the pipeline. Management said the TAM update reflects a more global view that now includes Europe, the Middle East and Southeast Asia, and that liquid cooling plus the new Cool Vault thermal storage tank are increasing content opportunity per megawatt. They also said the business is project-based and lumpy, with visibility strongest in Q3 and generally shorter than two years, but that they work closely with contractors, hyperscalers and OEMs, and have inventory in place to handle shifting designs and timing.