Watts Water Technologies Reports Record First Quarter 2026 Results

• Net sales of $677 million, up 21% on a reported basis and 12% organically
• Operating margin of 19.6%, up 390 bps; adjusted operating margin of 20.1%, up 110 bps
• Diluted EPS of $2.97, up 34%; adjusted diluted EPS of $3.04, up 28%
• Announced 21% increase in quarterly dividend payments to $0.63 per share
• Maintaining full year 2026 outlook
  
  
  
  

Note changes in performance are relative to first quarter 2025

Watts Water Technologies, Inc. (NYSE:WTS) – through its subsidiaries, one of the world's leading manufacturers and providers of plumbing, heating and water quality products and solutions – today announced results for the first quarter of 2026.

Chief Executive Officer Robert J. Pagano Jr. said, "We delivered a strong start to 2026, with organic growth across all regions and record first quarter net sales, operating income, operating margin and EPS. This is a direct result of the strong execution by the Watts team, and I would like to thank our employees who have remained diligent and focused on delivering quality and value to our customers."

Mr. Pagano continued, "We are actively managing through geopolitical and trade-related uncertainties while advancing our strategic priorities. We continue to invest in higher-growth opportunities, including data centers and digital solutions, and are driving productivity through automation to support efficiency and margin performance through the One Watts Performance System. While we are pleased with our strong performance to start the year, the macro environment remains dynamic. As a result, we are maintaining our full year 2026 outlook. Our proven operating model and execution track record position us well, and supported by a strong balance sheet and solid cash flow generation, we remain focused on disciplined capital allocation and delivering sustainable long-term value."

A summary of first quarter financial results is as follows:

First Quarter Financial Highlights

First quarter 2026 performance compared to first quarter 2025

Sales of $677 million increased 21% on a reported basis and 12% on an organic basis. Organic sales increased primarily due to favorable price and incremental volume driven by data center growth. Incremental acquisition sales within the Americas and APMEA were $37 million and contributed 7% to reported growth. Favorable foreign exchange increased reported sales by $16 million, or 3%.

Operating margin increased 390 basis points on a reported basis and 110 basis points on an adjusted basis. Operating and adjusted operating margin increased primarily due to favorable price, productivity and volume leverage which more than offset inflation, investments, tariffs and acquisition dilution. Operating margin was favorably impacted by a decrease in restructuring charges, partially offset by higher acquisition-related charges.

Regional Performance

Americas

Sales of $515 million increased 23% on a reported basis and 16% on an organic basis, primarily due to favorable price and incremental volume driven by data center growth. Acquisitions contributed $31 million of incremental sales, or 7%, to reported growth.

Segment margin increased 80 basis points as benefits from price realization, productivity, and volume leverage more than offset inflation, tariffs and acquisition dilution.

Europe

Sales of $121 million increased 12% on a reported basis and 1% on an organic basis. Reported sales growth benefitted from favorable foreign exchange, which increased reported sales by 11%. Organic sales increased primarily from favorable price, which offset a slight decline in volume.

Segment margin decreased 20 basis points as benefits from price realization, productivity, and restructuring actions were more than offset by inflation and volume deleverage.

APMEA

Sales of $41 million increased 29% on a reported basis and 3% on an organic basis, as growth in China, Australia and New Zealand offset a decline in the Middle East. Acquisition sales contributed $6 million, or 19%, and favorable foreign exchange contributed 7% to reported sales growth.

Segment margin increased 120 basis points as trade sales volume leverage, productivity and acquisition accretion more than offset inflation and affiliate volume deleverage.

Cash Flow and Capital Allocation

For the first quarter of 2026, operating cash flow was $18 million and net capital expenditures were $11 million, resulting in free cash flow of $7 million. In the comparable period last year, operating cash flow was $55 million and net capital expenditures were $9 million, resulting in free cash flow of $46 million. Free cash flow declined due to increased capital investments and elevated working capital levels which more than offset higher net income. Working capital increases were due to higher accounts receivable attributable to higher net sales, higher inventory due to incremental tariffs and strategic inventory investments to support expected end-market demand, and higher annual customer rebates due to higher net sales and timing of payments. Sequential increases in free cash flow are expected throughout 2026 as we monetize working capital with the seasonality of the business.

On May 4, 2026, the Company announced a 21% increase in quarterly dividend payments, increasing the quarterly payments from $0.52 per share to $0.63 per share beginning in June 2026.

The Company repurchased approximately 13,000 shares of Class A common stock at a cost of $3.8 million during the first quarter of 2026. Approximately $125 million remains available under the stock repurchase program authorized in 2023. There is no expiration date for this program.

Full Year 2026 Outlook

The Company is maintaining its previous full year outlook. Sales growth is expected to range from up 8% to up 12% on a reported basis and up 2% to up 6% on an organic basis. Full year operating margin is expected to be between 18.8% and 19.4%, or up 40 basis points to up 100 basis points, and adjusted operating margin is expected to be between 19.1% and 19.7%, or down 50 basis points to up 10 basis points. The full year outlook assumes the Middle East conflict is short term and incorporates estimated tariff impacts and actions as of May 6, 2026 but does not include potential tariff refunds.

Further 2026 planning assumptions are included in the first quarter earnings materials posted in the Investor Relations section of our website at www.watts.com.

For a reconciliation of GAAP to non-GAAP items and a statement regarding the usefulness of these measures to investors and management in evaluating our operating performance, please see the tables attached to this press release.

Watts Water Technologies, Inc. will hold a live webcast of its conference call to discuss first quarter 2026 results on Thursday, May 7, 2026 at 9:00 a.m. EST. This press release and the live webcast can be accessed by visiting the Investor Relations section of the Company's website at www.watts.com. Following the webcast, the call recording will be available at the same address until May 6, 2027.

Watts Water Technologies, Inc., through its subsidiaries, is a world leader in the manufacturing of innovative products to control the efficiency, safety, and quality of water within residential, commercial, and institutional applications. Watts' expertise in a wide variety of water technologies enables us to be a comprehensive supplier to the water industry.

This press release includes "forward-looking statements" as defined in the Private Securities Litigation Reform Act of 1995, including statements relating to expected full year 2026 financial results, including sales and organic sales growth, operating margin and adjusted operating margin, future dividends, improvements in operating and free cash flow throughout 2026, our strategy, investments, the impact of tariffs and any potential tariff refunds due to invalidation of tariffs imposed under the International Emergency Economic Powers Act, the benefits from and integration of recent acquisitions, our ability to manage uncertainty and current market conditions, including the fluid trade environment, our portfolio offerings, long-term growth and shareholder value creation and return of capital to stockholders. These forward-looking statements reflect our current views about future events. You should not rely on forward-looking statements because our actual results may differ materially from those predicted as a result of a number of potential risks and uncertainties. These potential risks and uncertainties include, but are not limited to: the imposition of or changes to tariff rates and related impacts to our business and the broader market; the effectiveness, timing and expected savings associated with our cost-cutting actions, restructuring and initiatives; integration of acquired businesses in a timely and cost-effective manner, retention of supplier and customer relationships and key employees, and the ability to achieve synergies and cost savings in the amounts and within the time frames currently anticipated; current economic and financial conditions, which can affect the housing and construction markets where our products are sold, manufactured and marketed; shortages in and pricing of raw materials and supplies; our ability to compete effectively; changes in variable interest rates on our borrowings; inflation; failure to expand our markets through acquisitions; failure to successfully develop and introduce new product offerings or enhancements to existing products; failure to manufacture products that meet required performance and safety standards; foreign exchange rate fluctuations; cyclicality of industries where we market our products, such as plumbing and heating wholesalers and home improvement retailers; environmental compliance costs; product liability risks and costs; changes in the status of current litigation; the impacts and duration of the Middle East conflict, the war in Ukraine and other global crises; supply chain and logistical disruptions or labor shortages and workforce disruptions that could negatively affect our supply chain, manufacturing, distribution, or other business processes; and other risks and uncertainties discussed under the heading "Item 1A. Risk Factors" and in Note 17 of the Notes to the Consolidated Financial Statements in our Annual Report on Form 10-K for the year ended December 31, 2025, filed with the Securities and Exchange Commission ("SEC").We undertake no duty to update the information contained in this press release, except as required by law.

Segment Earnings and Non-GAAP Financial Measures

In this press release, segment earnings is our GAAP performance measure used by our chief operating decision-maker ("CODM") to assess and evaluate segment results. Segment earnings exclude the impact of non-recurring and unusual items, such as restructuring costs and acquisition-related costs. The CODM uses segment earnings for insight into underlying trends comparing past financial performance with current performance by reporting segment on a consistent basis. Segment margin is defined as segment earnings divided by segment revenue.

We refer to non-GAAP financial measures (including adjusted operating income, adjusted operating margin, adjusted net income, adjusted diluted earnings per share, organic sales, organic sales growth, free cash flow, cash conversion rate of free cash flow to net income and net debt to capitalization ratio) and provide a reconciliation of those non-GAAP financial measures to the corresponding financial measures contained in our consolidated financial statements prepared in accordance with GAAP. We believe these financial measures enhance the overall understanding of our historical financial performance and give insight into our future prospects. Adjusted operating income, adjusted operating margin, adjusted net income and adjusted diluted earnings per share eliminate certain expenses incurred and benefits recognized in the periods presented that relate primarily to our global restructuring programs, acquisition-related costs and the related income tax impacts on these items and tax adjustment items (with respect to adjusted net income and adjusted diluted earnings per share only). Management then utilizes these adjusted financial measures to assess the run rate of the Company's operations against those of comparable periods. Organic sales and organic sales growth are non-GAAP measures of net sales and net sales growth excluding the impacts of foreign exchange, acquisitions and divestitures from period-over-period comparisons. Management believes reporting organic sales and organic sales growth provides useful information to investors, potential investors and others, and allows for a more complete understanding of underlying sales trends by providing sales and sales growth on a consistent basis. Free cash flow, cash conversion rate of free cash flow to net income, and the net debt to capitalization ratio, which are adjusted to exclude certain cash inflows and outlays, and include only certain balance sheet accounts from the comparable GAAP measures, are an indication of our performance in cash flow generation and also provide an indication of the Company's balance sheet leverage relative to other industrial manufacturing companies. These non-GAAP financial measures are among the primary indicators management uses as a basis for evaluating our cash flow generation and our capitalization structure. In addition, free cash flow is used as a criterion to measure and pay certain compensation-based incentives. For these reasons, management believes these non-GAAP financial measures can be useful to investors, potential investors and others. The Company's non-GAAP financial measures may not be comparable to similarly titled measures reported by other companies. The presentation of this additional information is not meant to be considered in isolation or as a substitute for financial measures prepared in accordance with GAAP.

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Diane McClintock

Chief Financial Officer

email: investorrelations@wattswater.com