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Watts Water reported third-quarter revenue of $728.0 million, up 19.0% from $611.7 million a year earlier. Revenue exceeded the consensus estimate by 4.41%, while adjusted earnings per share of $3.40 beat the consensus by 7.94%.
The company’s 10-Q attributed organic sales growth of 12.2% to higher volume, driven by data centers, and favorable pricing. Organic sales rose in all three regions, including 11.6% in the Americas and 29.7% in APMEA. Acquisitions also contributed to reported growth.
Diluted earnings per share rose to $4.34 from $2.45; the filing said the latest quarter included an after-tax tariff refund benefit of $0.94 per share. Operating margin increased to 26.2% from 18.2%, with refunds, pricing, volume and productivity among the drivers. Free cash flow rose to $131.9 million from $110.9 million.
Watts’ reported revenue growth and operating margin both exceeded the ranges in its own third-quarter guidance.
| Q3 FY2026 | Q3 FY2025 | Change | |
|---|---|---|---|
| Revenue | $728.0 million | $611.7 million | 19.0% |
| Diluted EPS | $4.34 | $2.45 | 77.1% |
| Gross margin | 55.1% | 48.8% | 6.3 percentage points |
| Operating margin | 26.2% | 18.2% | 8.0 percentage points |
| Free cash flow | $131.9 million | $110.9 million | 18.9% |
| Against the consensus | Reported | Consensus | Result |
|---|---|---|---|
| Adjusted EPS | $3.66 | $3.34 | Beat by 9.58% |
| Revenue | $763.2 million | $725.8 million | Beat by 5.16% |
Adjusted EPS is the figure the consensus estimates, not the GAAP EPS above.
| Against its own guidance | For | Guided | Reported | Result |
|---|---|---|---|---|
| Operating margin | Q3 FY2026 | 19.8%–20.4% | 26.2% | Above the guide |
| Revenue growth | Q3 FY2026 | 11.0%–14.0% | 19.0% | Above the guide |
What management said on the call
CEO Robert Pagano said data center demand and favorable pricing helped lift organic sales, more than offsetting the effect of Watts’ product rationalization program. CFO Diane McClure said the program reduced third-quarter Americas sales by approximately $8.0 million and European sales by approximately $1.0 million.
McClure said data center sales in China and higher volumes in Australia and New Zealand supported APMEA growth despite headwinds from the Middle East conflict. In the Q&A, Pagano said customers had accelerated some large China projects. He also said European growth benefited from pricing and renewed heat pump incentives.
Pagano said contractors and installers had business booked for the next couple of years, but he did not expect data center growth to repeat its pace from 2025 to 2026, partly because new products now had a full-year run rate. He said the backlog was up and visibility had improved, while adding, “We don’t talk about our backlogs.” On competition, he described market dynamics as normal, with nothing extraordinary.
McClure said adjusted operating margin reached 20.9% as pricing, volume and productivity offset inflation and acquisition dilution. Pagano said pricing, sourcing and productivity initiatives had kept the company’s price-cost relationship positive despite inflation across commodities, tariffs, freight, logistics, wages and benefits.
For the fourth quarter, McClure said price and volume leverage across regions were expected to be partly offset by higher inflation. She said the outlook assumed no change in the severity of the Middle East conflict or further changes in the tariff structure. Pagano said Watts was expanding factory capacity in China, using acquired capacity and expanding its supply chain with partners.
Guidance
Watts raised its full-year 2026 reported sales growth outlook to 17.0%–18.0% from 14.0%–17.0%, and its organic growth outlook to 11.0%–12.0% from 8.00%–11.0%.
The company now expects adjusted operating margin of 20.3%–20.4%, previously 19.8%–20.4%, and GAAP operating margin of 21.6%–21.7%, previously 19.4%–20.0%.
| Metric | For | Guide | Previous guide | Change |
|---|---|---|---|---|
| Revenue, Apmia Acquisitions | Q4 FY2026 | $3.0 million–$4.0 million | — | New |
| Revenue, Americas Acquisitions | Q4 FY2026 | $13.0 million–$15.0 million | Q3 FY2026: $30.0 million–$33.0 million | Cut |
| Revenue growth, Organic Growth | Q4 FY2026 | 9.00%–12.0% | — | New |
| Revenue growth | Q4 FY2026 | 11.0%–14.0% | Q3 FY2026: 11.0%–14.0%; reported 19.0% | Held |
| Free cash flow | Q4 FY2026 | Watts expects sequentially strong cash flow in Q4 FY2026. | — | — |
| Free cash flow growth, Conversion | FY2026 | 90.0% | — | New |
| Revenue, Apmia Acquisitions | FY2026 | $21.0 million–$22.0 million | — | New |
| Revenue, Americas Acquisitions | FY2026 | $107.0 million–$109.0 million | $105.0 million–$110.0 million | Held |
| Revenue growth, Non Residential Share of Sales | FY2026 | 75.0% | — | New |
| Revenue, Residential Share of Sales | FY2026 | Watts expects residential markets to account for approximately 25% of FY2026 sales. | — | — |
| Operating margin, non-GAAP | FY2026 | 20.3%–20.4% | 19.8%–20.4% | Raised |
| Operating margin, GAAP | FY2026 | 21.6%–21.7% | 19.4%–20.0% | Raised |
| Revenue growth, Organic | FY2026 | 11.0%–12.0% | 8.00%–11.0% | Raised |
| Revenue growth | FY2026 | 17.0%–18.0% | 14.0%–17.0% | Raised |
| Operating cash flow | Q4 FY2026 | Watts Water Technologies expects strong operating cash flow in Q4 FY2026. | — | — |
| Free cash flow growth, Conversion of Net Income | FY2026 | 90.0% | 90.0% | Held |
| Operating margin, Americas Change | FY2026 | −0.20%–0.40% | — | New |
| Revenue, Apmea Acquisitions | FY2026 | $21.0 million–$22.0 million | — | New |
| Revenue growth, Apmea Organic | FY2026 | 9.00%–12.0% | — | New |
| Revenue growth, Americas Organic | FY2026 | 9.00%–12.0% | — | New |
| Revenue, Data Center Share of Revenue | FY2026 | Watts expects data center sales to represent mid- to high single digits of total sales in FY2026. | — | — |
| Free cash flow | H2 FY2026 | Watts Water Technologies expects sequential increases in free cash flow in the second half of 2026. | — | — |
| Revenue, Data Center | FY2026 | Watts Water targets high-double-digit data center sales growth in FY2026. | — | — |