Hayward's Q3 2025 Earnings Call Reveals Contradictions in Tariff Mitigation, International Market Growth, and Supply Chain Realignment Strategies

Date of Call: October 29, 2025

Financials Results

• Revenue: $244.0M, up 7% YOY
• EPS: $0.14 adjusted diluted EPS, up 27% YOY
• Gross Margin: 51.2%, up 150 basis points year-over-year
• Operating Margin: 24.2% adjusted EBITDA margin, up 170 basis points year-over-year

Guidance:

• FY2025 net sales now expected to increase ~4% to 5.5% ($1.095B to $1.110B).
• FY2025 adjusted EBITDA now expected to increase ~5% to 7% ($292M to $297M).
• FY2025 free cash flow guidance increased to approximately $170M (up $20M).
• Guidance excludes potential new tariffs effective on or after October 29; company will enact further mitigation if needed.

Business Commentary:

* Revenue and Profit Growth: - Hayward Holdings reported a 7% increase in net sales for Q3 2025, reaching $244 million. - The company also saw a significant increase in gross profit margin, up 150 basis points to 51.2%, and adjusted EBITDA margin increased 170 basis points to 24.2%. - Growth was driven by increased operational efficiencies, tariff mitigation actions, and disciplined cost management.

• Strategic Initiatives and Market Demand:
• Hayward's strategic initiatives showed progress, with a 27% increase in adjusted diluted earnings per share to $0.14.
• Demand trends were positive, with improved sales out growth rates and strong participation in early buy programs.

• The company's aftermarket model remained resilient, with a significant increase in demand for technology solutions and automation products.

• Geographic Performance and Market Dynamics:

• North America net sales increased 7% to $208 million, while Europe and Rest of World increased 11% to $36 million.
• Growth in Canada was particularly strong, up over 20%, driven by a wet spring and easing macroeconomic conditions.

• The company benefited from improved inventory levels and effective price realization strategies.

• Tariff Mitigation and Supply Chain Optimization:

• Hayward's ongoing tariff mitigation actions successfully reduced the company's reliance on China, with exposure decreasing from 10% to 3%.
• The company achieved this by reshoring and diversifying manufacturing capabilities, protecting gross margins, and leveraging duty refunds.
• These efforts, combined with reduced supply chain lengths, are improving operational efficiencies and derisking the supply chain.

Sentiment Analysis:

Overall Tone: Positive

• Management said results were "ahead of expectations" and announced a guidance raise. Key metrics: net sales +7% to $244M, adjusted EBITDA +16% to $59M, gross margin +150bps to 51.2%, and net leverage reduced to 1.8x — language emphasized strong execution, margin expansion, deleveraging and confidence in growth initiatives.

Q&A:

• Question from Ryan Merkel (William Blair & Company L.L.C.): Nice quarter. Wanted to start off on demand. Just talk about how the season progress since July? And then where did you see the upside in the third quarter?
  Response: Sales-out strengthened through the quarter (very strong September); broad-based upside across categories (controls, lighting, filtration), positive OmniX reception, and geographic strength (Canada +20%+, Europe mid-teens, Asia >20%); early-buy programs tracking well.

• Question from Ryan Merkel (William Blair & Company L.L.C.): That's great color. Yes, on the early buy, which is my second question, you called it solid and it's tracking expectations. How do we think about those comments relative to the market being flat? And what was the reception to your 6% to 7% price increase that you announced?
  Response: Early-buy includes customary discounts and extended terms; pricing increases were implemented to offset tariff impact dollar-for-dollar, with internal mitigation actions reclaiming structural margin—channel participation remains solid despite inflation fatigue.

• Question from Saree Boroditsky (Jefferies LLC): Maybe just moving on those pricing commentaries, I think one of the key distributors recently talked about innovation and new products is making the recent price increases a little bit more palatable. Maybe you could talk about some of your investments in new products and how much of your sales are coming from this? And how is it helping the volumes versus price?
  Response: Targeted SG&A and engineering investments (notably OmniX) are accelerating aftermarket technology adoption; product rollouts are incremental and intended to drive volume alongside price by increasing average content per pool pad.

• Question from Saree Boroditsky (Jefferies LLC): Appreciate that. And then maybe just taking a step back on this theme. Maybe have you seen any trade-offs from price versus volume? And how do you think about that going forward as new pool construction, especially has just gotten so much more expensive?
  Response: No material price-versus-volume trade-off observed so far; aftermarket tech adoption remains strong while entry-level new pools are constrained by rates—remodel demand stable with higher-value projects persisting.

• Question from W. Andrew Carter (Stifel, Nicolaus & Company): First question I wanted to ask about given the renewed focus on private label that's out there, have you been seeing anything incremental in terms of either the positioning by the distributors, the demand from your contractors, and I know it's kind of -- it's been mentioned that it's kind of a lower commodity side? What exposure do you have? And I get the price is high, but -- and in this environment, wouldn't it be a lot more difficult to do a private label program given the tariffs, et cetera?
  Response: While lower-priced/private-label competition exists, Hayward's brand, full product line, dealer loyalty, authorized service network and predominantly U.S. manufacturing (~90% of U.S. products built in four U.S. plants) provide competitive differentiation and protect share.

• Question from W. Andrew Carter (Stifel, Nicolaus & Company): Second question, shifting gears. Number one, why the raise in the cash flow guidance for the year of $20 million? And then just level set expectations, I believe that you have higher CapEx over the next couple of years around your supply chain efforts. Could you speak to that? And at this point, you're going to have a balance sheet probably likely below 2x over the next couple of years based on the estimates. What are your capital allocation priorities? And would you be aggressive on share repurchase?
  Response: Incremental $20M FCF driven by higher EBITDA midpoint, CapEx timing shifts and working-capital improvements; expect stepped-up CapEx (~3%+ of revenue) for automation and ERP through '26-'27; capital allocation will balance organic investment, opportunistic M&A and a $450M share-repurchase authorization.

• Question from Michael Pesendorfer (Robert W. Baird & Co.): It's Pez on for Mike. I just want to follow up on the capital allocation side and maybe dial in a little bit on the funnel. How are you thinking about the opportunities in both residential and commercial pool? I noticed that you threw flow control in there. I know that's a part of the business that doesn't get a lot of love. Maybe talk about how you're thinking about the makeup of the funnel, the actionability of the funnel. And to Andrew's point, obviously, the leverage is continuing to progress nicely. So any color on the M&A opportunities where you're spending most of your time? And what you're seeing from a valuation perspective would be helpful.
  Response: Deleveraging provides firepower for opportunistic M&A across residential, commercial and flow-control; management is prioritizing deals that add product/technology, regional diversity and leverage existing distribution—ChlorKing integration validated the commercial pathway.

• Question from Michael Pesendorfer (Robert W. Baird & Co.): Got it. And then not to stick on a smaller part of the business, but maybe now that we're a year out of the ChlorKing acquisition, maybe talk about the success that you've seen in being able to expand ChlorKing's reach within your distribution channels and being able to bring that up to scale a little bit? And then on the flip side, maybe talk about what type of successes you've seen in pushing legacy Hayward product through that commercial market.
  Response: ChlorKing acquisition expanded Hayward's presence into larger 'Class A' commercial projects; integration enabled cross-selling into new architect/engineer channels and broadened commercial product coverage with positive early traction.

• Question from Jeffrey Hammond (KeyBanc Capital Markets): Just on -- I got on a little late, so I don't know if you touched on this, but last year, there was a lot of storms and I think your fourth quarter benefited from some kind of repair work, and I'm just wondering how you're contemplating that comp given a quiet hurricane season?
  Response: Management does not expect the hurricane-driven Q4 2024 uplift to repeat; guidance already factors that out—early-buy participation is positive, but absent storm demand Q4 volumes are expected slightly down year-over-year.

• Question from Jeffrey Hammond (KeyBanc Capital Markets): Okay. And then as we go through the different pieces, it seems like aftermarket holding up fine. Just maybe touch on what you're seeing on that repair replace dynamic that came up over the last couple of quarters. And then new pool I get it kind of not going down, but maybe just expand on what you're seeing on upgrade remodel, if that's still kind of the biggest question mark or any signs of improvement there?
  Response: Aftermarket remains resilient with no widespread repair-over-replace trend; parts sales are up high-single digits YTD (Q3 weaker YOY), remodel/upgrades show pent-up demand while new-construction permits remain moderated but higher-value projects persist.

• Question from Brian Lee (Goldman Sachs): I just had 2 hopefully quick questions. I know a lot of ground has been covered. And sorry if you already covered this. But first question was just around the strong increase in margins in the international markets, if you could kind of provide some color around what drove that and how sustainable that is? And then the second question, it looks like net pricing in North America has kind of ticked up a little bit from the beginning of the year, even from last quarter to this quarter in terms of net price realization. As we think about kind of the trend you're seeing into year-end, the early buy season, et cetera, do you think '26 ends up being more of a normal kind of low-single-digit price year? Or are we going to see some of the factors from this year spill over into next where we're probably still going to be elevated, maybe more mid-single digits than the historical low? Just trying to get a sense of where kind of that pricing paradigm is heading to in '26.
  Response: ERW margin improvement reflects non-repeat of discrete Q3'24 items, stabilization of Spanish operations and a cumulative tariff refund plus other one-time items (≈200bps of the lift), though underlying sequential improvement is sustainable; pricing realized step-up in Q3 and company expects mid-single-digit net pricing carry into 2026 (U.S. mid-to-high single digits announced), subject to early-buy discounts and macro uncertainty.

• Question from Nigel Coe (Wolfe Research): Eifion, I just wanted to follow up on your -- I think you said 100 basis points benefits in the quarter from tariff refunds. Just a bit more color there. I mean, are you winning some exemptions on some of the imports? And is this a one-timer? Or would you expect this to continue in '26, recognizing that you are rebalancing away from China? And then maybe just give us an update on where you are with that supply chain realignment.
  Response: Q3 included a cumulative duty-clawback related to exports (a catch-up benefit, not purely recurring); company will continue pursuing eligible refunds. Tariff-mitigation is well-progressed—U.S. China sourcing being reduced from ~10% to ~3% by year-end with lower-than-expected recalibration costs.

• Question from Nigel Coe (Wolfe Research): Okay. That's great color. And then a quick crack at the early buy. You sound like you're quite pleased with the program. If you could maybe just put a finer point on that. Are you seeing sort of flattish participation? Are we seeing some smallest growth here? And then when you think about going back in time, is there a coalition between sort of early buy strength and what actually transpires in the following year? Or is it just a reflection of other things? I mean, is there any -- if we see a strong early buy, does it tend to call it with a strong following year?
  Response: Early-buy participation is solid with modest incremental volume versus prior-year targets; management will analyze historical correlation between early-buy strength and subsequent-year demand but currently sees early-buy as signaling channel enthusiasm and inventory positioning.

Contradiction Point 1

Tariff Mitigation and Cost Reduction

It involves the company's strategy to mitigate the impact of tariffs, which directly affects operational costs and profitability.

Why the increase in cash flow guidance, and what are the capital allocation priorities for the next few years? - W. Andrew Carter (Stifel, Nicolaus & Company)

2025Q3: Half of the cash flow increase is due to EBITDA midpoint increase. There are project timing adjustments in CapEx and working capital improvements. - Eifion Jones(CFO)

What cost levers exist beyond pricing and China exposure reductions to offset tariffs? - David Tarantino (KeyBanc)

2025Q1: We are variabilizing production in U.S. facilities and focusing on SKU rationalization, value engineering, and automation to reduce costs without compromising quality. We are transferring production from China to the U.S., further leveraging our existing facilities with automation. - Eifion Jones(CFO)

Contradiction Point 2

Impact of Tariffs

It involves the impact of tariffs on the company's operations and costs, which directly influence financial performance.

How to interpret solid early buy participation in a flat market, and how was the reception to the 6% to 7% price increase? - Ryan Merkel(William Blair & Company L.L.C.)

2025Q3: There is inflation fatigue, and we offset tariffs with internal actions. - Kevin Holleran(CEO)

How are recent tariffs affecting your import exposure? - Saree Boroditsky (Jefferies)

2024Q4: About 15% of North American net sales are sourced from outside of North America. The impact of the Tier 1 10% tariff from China is known, but Mexico and Canada's impacts are less clear. - Kevin Holleran(CEO)

Contradiction Point 3

International Market Growth and Margin Performance

It involves differing perspectives on the growth and margin improvements in international markets, which are critical for assessing Hayward's global strategy and financial performance.

How did the third quarter progress, and where was the upside? - Ryan Merkel (William Blair & Company L.L.C.)

2025Q3: International regions also showed growth. - Kevin Holleran(CEO)

What are your expectations for the new pool market this year and its long-term outlook? - Unidentified Analyst (Jefferies)

2025Q2: International markets were a bit softer than Q1, primarily related to weakness in Europe. - Kevin Holleran(CEO)

Contradiction Point 4

Supply Chain Realignment and Tariff Refunds

It involves differing statements regarding the progress and impact of supply chain realignment and tariff refunds, which are crucial for understanding Hayward's operational and financial strategies.

Can you detail the tariff refunds and supply chain realignment progress? - Nigel Coe (Wolfe Research, LLC)

2025Q3: We've seen good progress in reshoring and tariff refunds. Tariff refunds provide cumulative benefits, not one-time. - Eifion Jones(CFO)

What are the cost implications of reshoring? - Nigel Edward Coe (Wolfe Research)

2025Q2: We've executed a considerable amount of supply chain realignment activities. We've moved a significant portion of production, and I would say, it's cost-neutral for us. - Eifion Jones(CFO)

Contradiction Point 5

Early Buy Programs and Their Impact on Future Demand

It involves the company's interpretation of early buy programs and their implications for future demand, which is crucial for forecasting and strategic planning.

How do early buy programs reflect on next year's demand? - Nigel Coe (Wolfe Research, LLC)

2025Q3: We have goals for modest volume growth in early buy, reflecting positive channel participation. We'll look into whether there is a historical correlation between early buy strength and following-year demand. - Kevin Holleran(CEO)

How is Hayward balancing price increases with demand, and have you seen any customers trading down or repairing/replacing equipment? - Saree Boroditsky (Jefferies)

2025Q1: As we look at early buy 2024 compared to 2023, we expect to exit Q1 2024 with higher new product inventory on hand and higher total inventory levels relative to channel demand compared to the year-ago period. - Kevin Holleran(CEO)