Watts Water Technologies (NYSE: WTS) reported Q2 2026 net sales of $763.2 million, up 19% year over year, while diluted EPS increased 17% to $3.53. Organic sales grew 12% on favorable pricing and data-center-driven volume, but GAAP operating margin fell 80 basis points to 20.2% as acquisitions, inflation and tariffs limited margin conversion.
Core Financial Results
For the quarter ended June 28, 2026, acquisitions added $34 million, or about five percentage points, to reported sales growth, while favorable foreign exchange contributed $7 million, or about one point. The remaining growth was organic, supported by pricing and higher volume.
Operating income and earnings increased, but more slowly than revenue. Acquisition dilution, inflation, tariffs and comparison with a one-time tariff-related price-cost benefit in Q2 2025 outweighed part of the benefit from pricing, volume leverage and productivity.
| Metric | Q2 2026 | Q2 2025 | Year-over-year change |
|---|---|---|---|
| Net sales | $763.2 million | $643.7 million | +19% reported; +12% organic |
| Gross profit / gross margin | $374.1 million / approximately 49.0% | $325.9 million / approximately 50.6% | Approximately +15% / -160 bps |
| GAAP operating income | $154.0 million | $135.3 million | +14% |
| GAAP operating margin | 20.2% | 21.0% | -80 bps |
| Adjusted operating income | $160.0 million | $139.1 million | +15% |
| Adjusted operating margin | 21.0% | 21.6% | -60 bps |
| Net income | $118.3 million | $100.9 million | +17% |
| Diluted EPS / adjusted diluted EPS | $3.53 / $3.66 | $3.01 / $3.09 | +17% / +18% |
Organic growth, adjusted operating results and adjusted EPS are non-GAAP measures. Gross margin figures are calculated from the reported sales and gross profit amounts.
Business and Regional Performance
All three regions generated organic growth, but their margin trends diverged. The Americas remained the largest revenue contributor and benefited from data-center demand, while Europe and APMEA expanded segment margins.
| Region | External sales | Reported growth | Organic growth | Segment margin change |
|---|---|---|---|---|
| Americas | $585.0 million | +17% | +12% | -150 bps to 25.7% |
| Europe | $124.6 million | +12% | +9% | +160 bps to 13.3% |
| APMEA | $53.6 million | +57% | +31% | +100 bps to 19.9% |
Americas growth reflected pricing, acquisitions and data-center-driven volume, but acquisition dilution, inflation, tariffs and the prior-year price-cost benefit pressured its margin. Europe’s pricing, volume leverage and productivity more than offset inflation.
APMEA recorded the fastest growth, helped by data-center volume in China, acquisitions and currency. A decline in the Middle East and conflict-related cost pressures partly offset those gains. Segment margins are based on total segment revenue, while the sales figures above represent revenue from external customers.
Profitability, Cash Flow and Balance Sheet
Gross margin contracted by approximately 160 basis points, but operating expenses provided a partial buffer. Selling, general and administrative expenses rose to $214.5 million from $187.2 million, slower than revenue, reducing SG&A to approximately 28.1% of sales from 29.1%. Higher restructuring charges of $5.6 million, compared with $3.4 million, contributed to the GAAP operating-margin decline.
Cash flow figures were provided for the first six months rather than Q2 alone. Operating cash flow decreased to $120.8 million from $124.9 million, while free cash flow fell to $98 million from $105 million despite higher net income. Higher accounts receivable associated with sales growth, inventory investments related to tariffs and expected demand, and increased capital expenditure accounted for the decline. Management expects seasonal working-capital conversion to improve free cash flow sequentially in the second half.
Cash and equivalents stood at $347.9 million on June 28, down from $405.5 million at year-end, while long-term debt declined to $108.0 million from $197.7 million following $90 million of debt repayments. That left the company with approximately $240 million of net cash. Watts Water also repurchased about 13,000 shares for $4.1 million during Q2, with approximately $121 million remaining under its authorization.
Full-Year 2026 Guidance
Watts Water increased its full-year sales-growth and margin outlook following the first-half performance. The revised ranges call for double-digit reported sales growth and year-over-year expansion in both GAAP and adjusted operating margins.
| Metric | Updated FY2026 outlook | Change communicated |
|---|---|---|
| Reported sales growth | +14% to +17% | Increased |
| Organic sales growth | +8% to +11% | Increased |
| GAAP operating margin | 19.4% to 20.0%, up 100–160 bps year over year | Increased |
| Adjusted operating margin | 19.8% to 20.4%, up 20–80 bps year over year | Increased |
The supplied release did not disclose the previous numerical ranges, so the size of the increase cannot be quantified. The outlook incorporates tariffs in place or announced as of August 4, 2026, assumes no change in the Middle East conflict’s impact and excludes potential tariff refunds from adjusted results.
Recent Insider Transactions
The supplied six-month summary reports 66,107 shares classified as purchases and 35,358 shares sold, resulting in net purchases of 30,749 shares across 25 transactions. The latest reported transactions include six zero-cost director grants and four sales; these records alone do not establish insiders’ views about the company’s outlook.
| Date | Insider | Role | Transaction | Reported price or value |
|---|---|---|---|---|
| Aug. 3, 2026 | Joseph T. Noonan | Director | Stock award | $0 |
| Aug. 3, 2026 | Merilee Raines | Director | Stock award | $0 |
| Aug. 3, 2026 | Michael J. Dubose | Director | Stock award | $0 |
| Aug. 3, 2026 | Rebecca Boll | Director | Stock award | $0 |
| Aug. 3, 2026 | David A. Dunbar | Director | Stock award | $0 |
| Aug. 3, 2026 | Kenneth Napolitano | Director | Stock award | $0 |
| May 28, 2026 | Michael J. Dubose | Director | Sale | $309.63 per share; $123,233 |
| May 13, 2026 | Elie Melhem | Officer | Sale | $301.00 per share; $679,357 |
| March 19, 2026 | Elie Melhem | Officer | Sale | $292.13 per share; $108,672 |
| March 18, 2026 | Elie Melhem | Officer | Sale | $300.03 per share; $113,711 |
Risks Investors Should Watch
- Margin pressure from tariffs, inflation and acquisitions: These factors contributed to lower Q2 operating margins even as sales increased. The full-year outlook incorporates only tariffs in place or announced as of August 4.
- Working-capital conversion: First-half free cash flow declined because of higher receivables, inventory and capital spending. The expected second-half improvement depends partly on monetizing that working capital.
- Reliance on data-center-driven volume: Data-center demand was a significant growth driver in the Americas and China. A slowdown would weaken an important contributor to organic growth.
- Middle East exposure: The region already reduced APMEA organic growth and created cost headwinds. Full-year guidance assumes no change in the conflict’s current impact.
- Acquisition-related dilution: Acquisitions added $34 million to quarterly sales but also diluted consolidated and Americas margins, making future operating leverage an important measure of execution.
Summary
Watts Water’s Q2 2026 results combined double-digit organic growth and higher earnings with narrower margins. Data-center demand, pricing and acquisitions supported revenue, while tariffs, inflation and acquisition dilution constrained profitability and working-capital investment reduced first-half free cash flow. The raised full-year outlook shifts attention to whether the company can convert its sales growth into margin expansion and the anticipated second-half cash-flow improvement.
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