Hayward Holdings Navigates Tariff Headwinds with Strong Q1 Performance and Confident Guidance

Hayward Holdings (NYSE: HAYW) delivered a resilient first quarter 2025 performance, demonstrating its ability to navigate escalating tariff pressures and macroeconomic uncertainties. With net sales rising 8% year-over-year to $228.8 million and adjusted diluted EPS jumping 25% to $0.10, the company reaffirmed its full-year guidance, signaling confidence in its strategic initiatives. Yet beneath the surface, the results reveal both strengths and vulnerabilities—most notably, the $85 million annualized tariff-related cost increase that Hayward is aggressively mitigating through pricing, sourcing shifts, and innovation.

Key Financial Highlights

The Q1 results were driven by three pillars: pricing (3%), volume growth (3%), and the contribution from the ChlorKing acquisition (3%), with only a 1% drag from foreign exchange. Gross profit margin expanded 30 basis points to 49.5%, while adjusted EBITDA rose 9% to $49.1 million, fueled by strong execution in North America and sequential improvements in Europe. The company’s North American segment, which accounts for 82% of sales, grew 7.9% to $187.1 million, though Canada saw a 5% decline—a potential warning sign of regional demand softness.

Tariffs: The Elephant in the Pool

The $85 million annual tariff-related cost increase—$30 million of which will impact 2025—remains Hayward’s most pressing challenge. To counter this, the company is:
1. Reducing China exposure: Direct sourcing from China into the U.S. will drop from 10% to 3% of COGS by year-end.
2. Aggressive pricing: A 3% increase in April 2025 and a 4% hike planned for June aim to offset costs.
3. Innovation bets: The launch of the OmniX wireless automation platform targets 3.5 million non-automated U.S. pools, expanding beyond its traditional new-construction focus.

The latter strategy is critical. With a 94% attachment rate for its Omni app, Hayward is leveraging its aftermarket dominance, which tends to be less cyclical than new construction. This focus aligns with its guidance: management expects the non-discretionary aftermarket to remain resilient, even as new construction faces headwinds from high interest rates and economic uncertainty.

Balance Sheet: Progress Amid Strain

Hayward’s financial position shows improvement but also strain. Net leverage fell to 2.8x from 4.0x a year ago, thanks to strong cash flow management. However, Q1 operating cash flow was negative $6 million, though this marked an $71 million improvement from Q1 2024. The company also utilized $99 million from accounts receivable sales to bolster liquidity—a tactic that may signal caution about near-term working capital needs.

Full-year 2025 guidance calls for net sales of $1.06–$1.10 billion, adjusted EBITDA of $280–$290 million, and free cash flow of ~$150 million. These targets assume incremental pricing of 5-6%, which management believes will fully offset the tariff impact.

Conclusion: A Steady Hand in Turbulent Waters

Hayward’s Q1 results underscore its operational discipline and strategic agility. While tariffs and macroeconomic pressures loom large, the company is executing decisively: reducing China exposure, pricing aggressively, and doubling down on high-margin aftermarket opportunities. The launch of OmniX—targeting a $1.2 billion addressable market in the U.S. alone—positions Hayward to capitalize on its leadership in pool automation.

Crucially, its financial fortress remains intact: $181 million in cash, declining leverage, and a $450 million buyback program (with $400 million remaining) signal confidence in its long-term trajectory. While risks persist—particularly in new construction and European margin pressures—the company’s focus on innovation and operational efficiency provides a solid foundation.

Investors should monitor two key metrics: adjusted EBITDA margin trends (which expanded 30 bps in Q1 but face tariff headwinds) and free cash flow generation. If Hayward can sustain margin stability and achieve its $150 million free cash flow target, its shares—currently trading at ~9x 2025E EBITDA—could offer compelling value in a volatile market. For now, the 100-year-old company is proving that even in turbulent waters, steady hands can navigate toward dry land.