Water management manufacturer Watts Water (NYSE: WTS) reported Q2 CY2026 results beating Wall Street’s revenue expectations, with sales up 18.6% year on year to $763.2 million. Its non-GAAP profit of $3.66 per share was 9.7% above analysts’ consensus estimates.

Is now the time to buy WTS? Find out in our full research report (it’s free for active Edge members).

StockStory’s Take

Watts Water’s second quarter saw a positive market response, attributed by management to robust growth in data center cooling applications, favorable pricing, and targeted product rationalization. CEO Robert Pagano highlighted that sales were lifted by strong demand for data center solutions, including the recently launched Cool Vault thermal storage tanks. The company also benefited from strategic acquisitions and price increases, helping offset ongoing softness in residential and nonresidential new construction markets. Management noted that operational discipline and supply chain management, particularly in response to Middle East conflict and tariffs, were key contributors to the quarter's results.

Looking ahead, Watts Water’s outlook is shaped by continued momentum in data center markets, further product innovation, and resilience in its repair and replacement business. Management raised its full-year sales and margin outlook, citing greater than expected performance in Europe and APMEA (Asia-Pacific, Middle East, and Africa), as well as ongoing pricing discipline. CFO Diane McClintock noted, “Margin expansion continues to come from price, volume leverage and productivity, which more than offset higher inflation and 50 basis points of acquisition dilution.” However, management remains cautious about macroeconomic headwinds, including persistent inflation, interest rate uncertainty, and geopolitical disruptions.

Key Insights from Management’s Remarks

Watts Water’s second quarter performance was primarily influenced by sharp data center demand, new product launches, and strategic shifts in product and regional mix.

• Data center sales surge: Management reported that data center-related revenue more than tripled year-over-year, now representing 8% of total sales for the first half of 2026. This growth was driven by new cooling solutions, particularly the Cool Vault thermal storage tanks, which entered the product portfolio this year. CEO Robert Pagano emphasized that the company’s focus on liquid cooling and project-based solutions contributed to winning large-scale contracts.
• Product rationalization in focus: The ongoing 80/20 product rationalization initiative resulted in reduced sales of legacy and lower-margin products, but helped streamline operations and improve profitability in core areas. The initiative had a modest negative impact on organic growth but was cited as improving the company’s ability to allocate resources toward high-growth segments like data centers.
• Geographic expansion and acquisitions: Acquisitions completed in 2025 expanded Watts Water’s portfolio and increased exposure to nonresidential markets. The company also grew its addressable market by broadening its data center offerings in Europe, Middle East, and Southeast Asia, and integrating new businesses such as Superior Boiler to support manufacturing capacity.
• Tariff and geopolitical risk management: Management proactively addressed the impact of new tariffs and the Middle East conflict through targeted pricing actions and supply chain adjustments. The recently acquired Saudi Cast business, with its local manufacturing model, was highlighted as resilient to regional disruptions.
• Repair and replacement business stability: Approximately 60% of Watts Water’s sales are tied to the repair and replacement market, providing a stable revenue base despite ongoing softness in new construction. This mix helped balance volatility from more cyclical sectors and enabled continued investment in productivity and innovation.

Drivers of Future Performance

Watts Water’s outlook is driven by ongoing data center demand, evolving product mix, and macroeconomic uncertainty.

• Data center growth and variability: Management expects data center sales to remain a high-growth area, now projected as mid- to high single digits as a share of total revenue for the year. However, the project-based nature of this business means sales timing can be unpredictable, with pull-forwards and delays impacting quarterly results. CEO Robert Pagano noted, “We have clear visibility on construction schedules for Q3. It gets a little tougher in Q4 because some of these delays could push some of the projects out or in.”
• Tariff and inflation headwinds: The fluid tariff environment, including new Section 301 and 338 tariffs, and persistent inflation, remain risks. Management is responding with selected global price increases and supply chain initiatives, but highlighted that higher input costs could pressure margins if inflation accelerates or tariffs are further adjusted.
• Repair and replacement resilience: The company continues to rely on its repair and replacement business for consistent revenue and cash flow, which helps offset cyclical pressures from softer residential and nonresidential construction markets. This stability supports ongoing investments in new products and productivity initiatives, even as macroeconomic indicators remain mixed.

Catalysts in Upcoming Quarters

In the coming quarters, our analysts will be watching (1) the pace and sustainability of data center sales growth, especially as project timing remains variable; (2) the company’s ability to manage margin headwinds from tariffs and inflation; and (3) integration progress and synergy realization from recent acquisitions. We will also monitor any changes in the repair and replacement segment’s stability and the impact of new product launches in high-growth sectors.

Watts Water Technologies currently trades at $379.61, up from $363.84 just before the earnings. At this price, is it a buy or sell? See for yourself in our full research report (it’s free).

High Quality Stocks for All Market Conditions

ONE MORE THING: Top 5 Growth Stocks. The biggest stock winners almost always had one thing in common before they ran. Revenue growing like crazy. Meta. CrowdStrike. Broadcom. Our AI flagged all three. They returned 315%, 314%, and 455%, respectively.

Find out which 5 stocks it’s flagging this month — FREE. Get Our Top 5 Growth Stocks for Free HERE.

Stocks that have made our list include now familiar names such as Nvidia (+1,460% between June 2020 and June 2025) as well as under-the-radar businesses like the once-micro-cap company Kadant (+214% between June 2020 and June 2025). Find your next big winner with StockStory today.