Watts Water Technologies reported second quarter results on August 5, posting net sales of $763 million, representing 19% growth on a reported basis and 12% organic growth compared to the prior year period. Diluted earnings per share reached $3.53, up 17% year over year, while adjusted diluted EPS climbed 18% to $3.66, marking the company’s strongest quarter by most top-line metrics.
Data center demand emerged as the primary growth driver across all three geographic segments. The Americas segment generated $585 million in sales, growing 17% on a reported basis and 12% organically, with acquisitions contributing $28 million. Europe achieved 12% sales growth to $125 million and expanded segment margin by 160 basis points through favorable pricing and productivity improvements. The APMEA region posted the most dramatic performance, with sales jumping 57% on a reported basis and 31% organically, fueled largely by data center expansion in China, alongside a 100 basis point margin increase.
On the strength of first-half performance, management raised its full-year 2026 sales outlook to between 14% and 17% on a reported basis, or 8% to 11% organically. The company also lifted its adjusted operating margin outlook by 20 to 80 basis points. Additionally, Watts increased its quarterly dividend to $0.63 per share from $0.52 and repurchased approximately 13,000 shares for $4.1 million during the quarter.
However, profitability metrics revealed offsetting pressures. Operating margin declined 80 basis points to 20.2%, while adjusted operating margin slipped 60 basis points to 21.0%, attributed to acquisition dilution, inflation, tariffs, and unfavorable year-over-year comparisons against tariff-related pricing benefits from the prior year. The Americas segment experienced a 150 basis point margin contraction. Free cash flow for the first six months fell to $98 million from $105 million, as increases in accounts receivable, inventory related to tariffs and strategic positioning, and capital expenditures exceeded net income gains.
Management noted that full-year guidance assumes no change in Middle East conflict impacts and indicated that future tariff refunds will be classified as special items. Hedge fund ownership increased to 44 funds from 40, while short interest remained minimal at 3.93% of float. The stock traded at a forward price-to-earnings multiple of 25.25, reflecting market confidence in the data center growth narrative but leaving limited room for execution shortfalls.
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