Hayward (HAYW) Earnings Preview: Can Strong Margins Offset Modest Growth?

Hayward Holdings, Inc. (NYSE:HAYW) is set to report its first-quarter 2025 earnings tomorrow, May 1, 2025, with investors closely watching whether the company can sustain its recent operational momentum amid a challenging industry backdrop. Analysts project modest revenue growth and a potential earnings beat, but lingering concerns about sales stagnation and mixed signals from valuation models cloud the outlook. Here’s what investors need to know.

Key Earnings Expectations

The consensus calls for $0.09 EPS, a 12.5% year-over-year increase, driven by margin improvements and a lower share count. Revenue is forecasted to reach $213 million, a marginal 0.2% rise from Q1 2024. While Hayward has beaten EPS estimates in three of the last four quarters—including a +12.5% surprise in Q4 2024—the Zacks Earnings ESP model’s -1.92% reading suggests analysts have recently grown cautious, with downward revisions to near-term forecasts.

Financial Deep Dive: Strengths and Weaknesses

Positive Trends:
- Margin Resilience: Gross margin expanded to 51.4% in Q4 2024 (up 2.1 percentage points YoY), while operating margins rose to 23.4%, reflecting better cost control and pricing power.
- Zacks Rank #2 (Buy): Indicates favorable short-term momentum, though tempered by the negative ESP.
- Innovation Pipeline: Investments in IoT-connected products like the SmartPad™ system and energy-efficient pumps align with ESG trends, potentially driving long-term differentiation.

Red Flags:
- Sales Growth Slump: Revenue has declined 10.5% annually over the past two years, with FY2025 guidance projecting only 2.7% growth—a slowdown from FY2024’s 5.6% pace.
- Cash Flow Volatility: Free cash flow turned negative in Q4 2024 (-$70.4 million), worsening from -$40.8 million a year earlier due to seasonal inventory buildup.
- Valuation Concerns: Trading at 18.2x forward P/E, analysts label HAYW a “value trap” given its -56.6% five-year EPS growth and stagnant sales.

Industry Context: Headwinds and Opportunities

Hayward operates in the building products sector, which faces cyclical challenges like rising interest rates and raw material cost pressures. Peers such as Simpson Manufacturing (SSD) and Masco (MAS) reported mixed Q1 results, with Simpson’s flat revenue growth and Masco’s 6.5% sales decline underscoring sector-wide softness.

Hayward’s niche focus on pool equipment offers resilience through its #1 brand position among U.S. pool professionals, but its reliance on discretionary spending makes it vulnerable to economic downturns. Management’s emphasis on ESG initiatives—such as energy-efficient pumps saving 2.4 billion kWh annually—could help mitigate risks by appealing to eco-conscious consumers.

Analyst Sentiment: Cautious Optimism

• Zacks Investment Research assigns a Hold rating, citing the negative ESP and weak sales trends but acknowledging margin strength. The $16.07 average price target (21% upside from $13.33) reflects optimism if Hayward delivers a beat and reassures on free cash flow.
• StockStory Analysts warn investors to prioritize peers like Microsoft (MSFT) or Google (GOOG), given Hayward’s ROIC decline to 8.5% over five years, signaling poor capital allocation.

Risks to Watch

1. Earnings Surprise Potential: A beat could lift shares, but the negative ESP and flat revenue guidance pose risks.
2. Free Cash Flow Sustainability: Management must clarify whether the Q4 cash burn is seasonal or structural.
3. Competitive Landscape: Direct rivals like Pool Corp (POOL) and Pentair (PNR) could intensify pricing wars or steal market share.

Conclusion: A Critical Inflection Point

Hayward’s Q1 results will test whether its margin discipline and innovation can overcome tepid sales growth. While the $0.09 EPS consensus is achievable, the stock’s valuation hinges on two key factors:
1. Sales Turnaround: Management must show FY2025 revenue guidance is achievable, particularly in the face of a 10.5% two-year sales decline.
2. Cash Flow Stability: A rebound to positive free cash flow in 2025 would alleviate concerns about liquidity and support buybacks.

With a Zacks Rank #2 (Buy) and a 21% upside to $16.07, Hayward offers potential for investors willing to bet on its niche leadership and operational improvements. However, the 18.2x forward P/E demands clear evidence of sustainable growth.

Investors should tune in to the May 1 earnings call for insights on:
- The sustainability of Q4’s 17.5% revenue surge.
- Strategies to boost sales growth beyond 2.7% in 2025.
- Free cash flow trends and capital allocation plans.

In a sector grappling with macro headwinds, Hayward’s fate rests on executing its ESG-driven innovation while navigating the delicate balance between margin gains and sales momentum. Tomorrow’s report will be the first step in determining whether this bet pays off.