Why Is Watts Water (WTS) Down 9.8% Since Last Earnings Report?

A month has gone by since the last earnings report for Watts Water (WTS). Shares have lost about 9.8% in that time frame, underperforming the S&P 500.

But investors have to be wondering, will the recent negative trend continue leading up to its next earnings release, or is Watts Water due for a breakout? Well, first let's take a quick look at its latest earnings report in order to get a better handle on the recent drivers for Watts Water Technologies, Inc. before we dive into how investors and analysts have reacted as of late.

Watts Water's Q4 Earnings Surpass Estimates

Watts Water reported fourth-quarter 2025 adjusted earnings per share (EPS) of $2.62 compared with $2.05 in the prior-year quarter. The bottom line beat the Zacks Consensus Estimate by 11%.

The company’s quarterly net sales increased 16% year over year to $625.1 million. The top line beat the Zacks Consensus Estimate by 2.3%. Organic sales were up 8% year over year due to favorable prices and the benefit of an additional shipping day in the quarter.

In the fourth quarter, the company completed the acquisitions of Haws Corporation, Superior Boiler and Saudi Cast. These strategic and complementary deals broaden its product portfolio, strengthen channel access and expand geographic reach, while increasing exposure to specified, code-driven products across non-residential, institutional and industrial end markets. Integration efforts for all three businesses are underway and progressing as planned.

Management highlighted that the company has entered the new year with confidence in its growth strategy and execution capabilities, even as it continues to navigate geopolitical uncertainty and uneven global market conditions. Supported by a resilient and diversified business model, a strong balance sheet and solid cash flow generation, the company remains focused on disciplined capital allocation, continued investment for long-term growth and delivering value to shareholders.

Segment Results

Americas: Net sales were up 17% on a reported basis to $467 million, while organic sales jumped 10%. Growth was primarily driven by favorable pricing and the benefit of an additional shipping day. Acquisitions added $27 million in incremental sales, contributing 7% to reported growth. Adjusted operating margin expanded 150 basis points (bps) to 23.3%, supported by favorable price realization and productivity gains, which more than offset the impact of inflation, tariffs and acquisition-related dilution.

Europe: Net sales were up 10% year over year to $120 million on a reported basis and increased 1% on an organic basis. Sales growth was driven by favorable foreign exchange, which boosted reported sales by 9%. Organic sales increased as favorable pricing and an additional shipping day, partly offset by lower volumes amid ongoing market weakness. Adjusted operating margin increased 490 bps to 15.1%, driven by improved pricing, productivity initiatives and restructuring benefits, which more than offset inflation.

APMEA: Net sales increased 15% to $39 million on a reported basis and 9% on an organic basis. Growth was broad-based across all major countries in the segment. The acquisition of Saudi Cast added $2 million in incremental sales, contributing 6% to reported growth.

Adjusted operating margin decreased 20 bps to 17.3% due to inflation and affiliate volume deleverage, which more than offset the benefits from productivity gains and acquisition accretion.

Other Details

Gross profit increased 22.4% year over year to $309.2 million. Selling, general and administrative expenses rose 19.3% to $194.4 million. Operating income was $113.7 million, up 27.8% year over year. Adjusted operating income was $119 million, up 31%.

Operating margin expanded 170 bps to 18.2%. The adjusted operating margin was 19%, up 220 bps year over year. Margin performance was driven by favorable pricing and productivity gains, which more than offset inflation, investments and tariffs impacts. However, operating margin was negatively impacted by higher acquisition-related and restructuring charges.

Cash Flow & Liquidity

For the year ended Dec. 31, 2025, Watts Water generated $402 million of cash from operating activities compared with $361.1 million in the prior-year period.
For the year ended Dec. 31, 2025, free cash flow was $356.3 million compared with $331.7 million a year ago. Operating and free cash flow improved, driven by higher net income and lower tax payments following the One Big Beautiful Bill Act. These gains were partially offset by increased inventory tied to strategic investments and incremental tariffs. Free cash flow was further pressured by higher net capital expenditures, partly reflecting property sale proceeds recorded in the prior year.

During the fourth quarter of 2025, the company repurchased about 15,000 shares for $4.2 million. In 2025, total buybacks reached roughly 67,000 shares for $16 million. The company still has approximately $129 million remaining under its 2023 stock repurchase authorization, which has no expiration date.

As of Dec. 31, 2025, the company had $405.5 million in cash and cash equivalents with $197.7 million of long-term debt compared with the respective figures of $457.7 million and $197.5 million as of Sept. 28, 2025.

Guidance

For 2026, the company expects reported sales to increase 8–12%, with organic growth projected at 2–6%. Adjusted EBITDA margin is estimated to be 21.5% to 22.1%, reflecting a 40-bps decline to a 20-bps increase.

Operating margin is forecast in the range of 18.8–19.4%, representing an expansion of 40 to 100 bps. Adjusted operating margin is anticipated to be between 19.1% and 19.7%, ranging from a 50-bps decline to a 10-bps increase. Free cash flow is projected to be at least 90% of net income.

For the first quarter of 2026, reported sales are expected to increase 12% to 16%, with organic growth of 4% to 8%. Adjusted EBITDA margin is expected in the range of 21.1% to 21.7%, reflecting a 30-bps decline to a 30-bps increase, and adjusted operating margin is projected at 18.6% to 19.2%, representing a 40-bps decline to a 20-bps improvement. Free cash flow is expected to be seasonally slower.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed a upward trend in estimates revision.

VGM Scores

At this time, Watts Water has a nice Growth Score of B, a grade with the same score on the momentum front. However, the stock has a score of F on the value side, putting it in the lowest quintile for this investment strategy.

Overall, the stock has an aggregate VGM Score of C. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been trending upward for the stock, and the magnitude of these revisions looks promising. It comes with little surprise Watts Water has a Zacks Rank #2 (Buy). We expect an above average return from the stock in the next few months.

Just Released: Zacks Top 10 Stocks for 2026

Hurry – you can still get in early on our 10 top tickers for 2026. Handpicked by Zacks Director of Research Sheraz Mian, this portfolio has been stunningly and consistently successful.

From inception in 2012 through November, 2025, the Zacks Top 10 Stocks gained +2,530.8%, more than QUADRUPLING the S&P 500’s +570.3%.

Sheraz has combed through 4,400 companies covered by the Zacks Rank and handpicked the best 10 to buy and hold in 2026. You can still be among the first to see these just-released stocks with enormous potential.

See New Top 10 Stocks >>

Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report

Watts Water Technologies, Inc. (WTS): Free Stock Analysis Report

This article originally published on Zacks Investment Research (zacks.com).

Zacks Investment Research