Watts Water Technologies Q2 Earnings Call Highlights

Watts Water Technologies Q2 Earnings Call Highlights

Record Q2 performance: Sales rose 19% to $763 million, while adjusted EPS increased 18% to $3.66. Growth was driven by pricing, acquisitions and strong data-center demand, although adjusted operating margin fell 60 basis points to 21%.

Data centers are a rapidly expanding opportunity: Sales to data-center customers more than tripled year over year, and Watts raised its estimated served market to approximately $2 billion, including liquid-cooling and thermal-storage applications. Management cautioned that project timing and customer pull-forwards could increase quarterly volatility.

Full-year outlook raised despite construction weakness: Watts now expects 8%–11% organic sales growth, 14%–17% reported growth and 20–80 basis points of adjusted margin expansion. Residential and broader nonresidential construction remain soft, but repair-and-replacement activity, which represents about 60% of sales, provides support.

Watts Water Technologies NYSE: WTS reported record second-quarter sales, operating income and earnings per share, driven by pricing, data center demand and contributions from recent acquisitions. The company raised its full-year sales and margin outlook, though executives said residential and non-institutional construction markets remain under pressure.

Second-quarter sales increased 19% on a reported basis to $763 million and rose 12% organically. Adjusted operating income increased 15% to $160 million, while adjusted operating margin declined 60 basis points to 21%. Adjusted earnings per share rose 18% year over year to $3.66.

"We delivered another quarter of better-than-expected results, including record sales, operating income and earnings per share,” Chief Executive Officer Robert Pagano Jr. said. He attributed organic growth to data center demand and favorable pricing, partly offset by the company’s 80:20 product rationalization program.

Data Center Sales More Than Tripled

Data centers continued to be a major source of growth for Watts during the quarter. Pagano said data center sales more than tripled from the prior-year period, supported by demand for cooling products, including the company’s recently launched CoolVault thermal storage tanks. For the first six months of 2026, data center sales represented 8% of total company sales, including some customer-driven sales that were pulled forward from later periods. Watts now expects data center revenue to account for a mid- to high-single-digit percentage of full-year sales, compared with 3% in the prior year. The company increased its estimate of its served addressable market for data center products to approximately $2 billion, from a prior estimate of more than $1 billion. Pagano said the revised estimate incorporates a broader global opportunity, including Europe, the Middle East and Southeast Asia, as well as growing adoption of liquid-cooling systems. Watts said liquid cooling can increase its content opportunity per megawatt compared with traditional air-cooled systems. Pagano said the company’s content opportunity varies considerably by project, ranging from about $25,000 to $100,000 per megawatt. Liquid-cooled projects that include thermal storage tanks generally represent the higher end of that range.

While the company sees strong demand, management cautioned that data center projects can make quarterly results more variable. Customer requirements pulled roughly $5 million of data center project sales into the second quarter in the Americas and another approximately $5 million in APMEA, the Asia-Pacific, Middle East and Africa region.