Hayward Holdings (HAYW): Turning Tariff Headwinds into Tailwinds Through Margin Resilience and Automation Innovation

In a landscape of global trade tensions and macroeconomic uncertainty, Hayward Holdings (NASDAQ: HAYW) is proving that strategic foresight and operational discipline can transform headwinds into growth catalysts. With tariff-related costs climbing to $85 million annually, the company has already implemented a multi-pronged mitigation plan that positions it to outperform peers in the coming quarters. Meanwhile, its dominance in the non-discretionary $3.5 billion aftermarket and the transformative potential of its new OmniX IoT platform are unlocking structural advantages that demand investor attention. Here’s why HAYW is a compelling buy at current levels.

Margin Resilience: Mitigating Tariffs Without Compromising Growth

Hayward’s Q1 2025 results underscore its ability to navigate inflationary pressures while maintaining margin expansion. Gross margins rose to 49.5%, marking the ninth consecutive quarter of improvement, even as tariffs shaved $30 million off earnings this year. This resilience stems from three key strategies:
1. Supply Chain Restructuring: By slashing reliance on Chinese-sourced components from 10% to 3% of COGS by year-end, HAYW is reducing exposure to tariffs while insourcing production to U.S. facilities.
2. Price Optimization: A 3% price hike in April and a 4% increase in June are being timed to avoid channel overstocking, with further adjustments in the pipeline. Management estimates 5%-6% net price gains will offset tariff impacts fully by year-end.
3. Supplier Negotiations: Renegotiated contracts and volume discounts are further cushioning costs, even as organic volume growth (up 3% Y/Y) and the ChlorKing acquisition add incremental sales.

The result? A balance sheet that remains bulletproof, with net leverage at 2.8x (well within its 2x–3x target) and $398 million in total liquidity. This financial flexibility allows HAYW to invest in U.S. manufacturing and innovation without sacrificing near-term results.

The 80% Aftermarket: A Shield Against Economic Volatility

While new construction and remodeling markets face headwinds from rising interest rates and housing market softness, Hayward’s non-discretionary aftermarket—which accounts for 80% of sales—remains a steady cash generator. Pool maintenance, repairs, and incremental upgrades are essential for homeowners, creating a recurring revenue stream even during downturns.

In Q1, aftermarket sales growth was 3% organic, driven by demand for replacement parts, pumps, and filtration systems. Management emphasized that this segment’s stability offsets risks in discretionary spending, a stark contrast to peers reliant on volatile new pool installations.

OmniX: The $3.5 Billion IoT Opportunity

Hayward’s crown jewel is its OmniX platform, a decentralized IoT system targeting the 3.5 million non-automated pools in the U.S. This wireless solution allows homeowners to retrofit their pools with smart technology piece by piece—starting with the OmniX variable speed pump—without costly rewiring or full-system overhauls.

Key growth drivers include:
- Modular Adoption: Customers can upgrade gradually, aligning with natural equipment replacement cycles. This lowers the barrier to entry versus traditional automation systems.
- Dealer Network Leverage: Training programs at HAYW’s new “Hubs” in Arizona and North Carolina are equipping dealers to upsell OmniX as a premium service.
- Margin Boost: IoT-enabled products typically carry higher margins than traditional equipment, complementing HAYW’s already industry-leading 49.5% gross margin.

Management views OmniX as a decadal growth lever, with the addressable market expanding to $3.5 billion as adoption scales. Early traction is promising: the platform’s app-driven simplicity and cost efficiency are resonating with both homeowners and technicians.

Valuation: A Bargain in a Growth Story

Despite its strategic advantages, HAYW’s stock trades at just 10.5x forward EV/EBITDA, a discount to peers like Pentair (PNR) (12.2x) and Ecolab (ECL) (21.8x). This valuation overlooks several critical factors:
- Free Cash Flow Stability: HAYW projects $150 million in free cash flow in 2025, up from $137 million in 2024, driven by disciplined capital allocation.
- Low Debt Costs: Fixed-rate debt (5.8% average interest) and a 4.2% yield on cash deposits provide a hedge against rising rates.
- Undiscounted Long-Term Catalysts: The OmniX rollout and aftermarket dominance are underappreciated in current multiples.

Conclusion: A Rare Combination of Resilience and Innovation

Hayward Holdings is navigating tariff headwinds with the precision of a seasoned operator while betting big on a secular shift toward smart pool automation. Its 80% aftermarket shield, margin resilience, and the $3.5 billion OmniX opportunity form a moat that few competitors can match.

Investors should view current pricing as a rare entry point: a company with unwavering balance sheet strength, non-discretionary cash flows, and industry-leading innovation is trading at a valuation that doesn’t reflect its growth runway. With shares down 15% YTD on tariff fears, the risk-reward here is compelling.

Action Item: Add HAYW to your portfolio. The near-term tariff noise is a buying opportunity for the long-term structural story.

Disclosure: This analysis is for informational purposes only and should not be considered investment advice.