Watts Water Technologies Raises Full-Year Outlook on Data Center Boom, Record Q2 Results
The water solutions provider posted record quarterly sales and earnings while tripling data center revenue, prompting management to lift 2026 guidance despite residential construction headwinds.
Data Center Surge Drives Record Quarter
Watts Water Technologies reported record second-quarter results and raised its full-year outlook, propelled by explosive growth in data center cooling solutions that more than tripled year-over-year.
The Franklin, Massachusetts-based company posted Q2 sales of $763 million, up 19% on a reported basis and 12% organically (earnings call, 2026-08-06). Adjusted operating margin reached 21%, down 60 basis points primarily due to dilution from recent acquisitions and a difficult prior-year comparison.
Adjusted earnings per share climbed 18% to $3.66, exceeding expectations despite headwinds from residential construction weakness and Middle East geopolitical disruptions.
Data Centers Now 8% of Revenue
"In the second quarter, our data center sales more than tripled compared with the prior year," CEO Robert Pagano said on the call. Through the first six months of 2026, data center sales represented 8% of total company revenue, up from just 3% for all of 2025 (earnings call, 2026-08-06).
The company estimates its served addressable market at approximately $2 billion, driven by global expansion and the accelerating shift toward liquid cooling solutions for AI-intensive computing infrastructure. Watts recently launched Cool Vault thermal storage tanks to capitalize on this trend.
Management now expects data center sales to represent "mid- to high single digits" as a percentage of full-year revenue (earnings call, 2026-08-06).
Regional Performance and Pull-Forward Effects
The Americas region delivered 12% organic growth, benefiting from approximately $10 million in pull-forward wholesale demand ahead of an SAP implementation and $5 million in accelerated data center project shipments (earnings call, 2026-08-06). Europe posted 9% organic growth, while APMEA surged 31% organically, driven by Chinese data center demand and $5 million in early project shipments.
The company's 80/20 product rationalization program reduced sales by approximately $8 million in the Americas and $1 million in Europe during the quarter (earnings call, 2026-08-06).
Raised Guidance Despite Macro Uncertainty
Watts lifted its full-year organic sales growth outlook to 8% to 11%, representing a five-point increase at the midpoint from prior guidance. Reported sales are now expected to rise 14% to 17% (earnings call, 2026-08-06).
Adjusted operating margin expansion guidance increased to a range of up 20 to up 80 basis points, a 70-basis-point improvement at the midpoint (earnings call, 2026-08-06).
CFO Diane McClintock noted the guidance "assumes there is no change in the current status of the Middle East conflict" and "no further changes to the tariff structure that is currently in place" (earnings call, 2026-08-06).
Integration and Headwinds
The company continues integrating five acquisitions completed in 2025 to expand its nonresidential exposure. Management said these businesses are "performing well" and remain on track to achieve targeted synergies (earnings call, 2026-08-06).
Watts faces ongoing challenges from elevated inflation, higher commodity prices, and expectations of no further interest rate cuts this year. The company is managing tariff complexity, with Section 301 and 338 tariffs replacing expired Section 122 levies, in addition to existing Section 232 duties.
Year-to-date free cash flow of $98 million trailed the prior-year period due to higher receivables and strategic inventory investments, though management reiterated its target of free cash flow conversion at or above 90% of net income for the full year (earnings call, 2026-08-06).
According to MarginX data, Watts is scheduled to report Q3 2026 results on November 4, 2026, with a $0.63 cash dividend payable September 1, 2026.
This article was generated by MarginX from the earnings call on 2026-08-06. It is not investment advice.