Watts Water Lifts 2026 Outlook as Data Centers Drive 19% Sales Jump

Watts Water Technologies raised its 2026 sales and margin outlook after third-quarter sales rose 19% to a record $728 million, powered by data center demand and pricing gains that offset soft patches in construction markets.

Adjusted earnings per share increased 36% to $3.40, while adjusted operating margin expanded 240 basis points to 20.9%, Chief Financial Officer Diane McClintock said on the earnings call. Organic growth (sales excluding acquisitions and currency) came in at 12%. Adjusted EBITDA (earnings before interest, taxes, depreciation and amortization) climbed 32% to $169 million, with its margin up 230 basis points to 23.2%. Adjusted operating income rose 34% to $152 million.

The numbers came with a boost to expectations: Watts now guides to 11% to 12% organic sales growth for 2026, a two-percentage-point increase at the midpoint of its prior outlook, with reported sales projected up 17% to 18%. That's the headline, and it's driven by one segment above all.

What's doing the heavy lifting?

Data centers, clearly. CEO Bob Pagano said data center demand plus better-than-expected performance in Europe supported the higher forecast. Data centers represented a high-single-digit percentage of company sales in the quarter, and Watts now expects that business at the high end of its previous mid- to high-single-digit range for the full year.

Some large Chinese data center projects had been accelerated by customers, Pagano added. The company is expanding factory and supply chain capacity, including plant expansions in China, to support that demand.

He still flagged risks: weak leading indicators for new construction, inflation, trade policy and uncertainty from the Middle East conflict.

How did each region perform?

• Americas: reported sales up 19%, organic up 12%, driven primarily by pricing and volume — much of it data centers. Acquisitions added $35 million in sales; product rationalization under the company's 80/20 initiative (a strategy of focusing on the most productive products and customers) trimmed about $8 million.
• Europe: reported sales rose 7%, organic up 9%, on higher pricing and volumes in both original equipment manufacturer and wholesale businesses. Pagano credited an easier comparison against customer destocking a year earlier, pricing actions and renewed heat pump incentives.
• Asia-Pacific, Middle East and Africa (APMEA): reported sales jumped 54%, organic up 30%. McClintock attributed the growth to better-than-expected China data center sales and higher volumes in Australia and New Zealand, more than offsetting Middle East conflict headwinds.

One caveat on the earnings quality: adjusted figures exclude $39 million in tariff refunds received during the quarter.

What does the raised guidance say?

Beyond the top line, Watts lifted both margin forecasts. Adjusted EBITDA margin and adjusted operating margin are each now expected to increase 70 to 80 basis points for the year — a 25-basis-point improvement at the midpoint from the previous outlook.

For the fourth quarter, the company expects reported sales growth of 11% to 14% and organic growth of 9% to 12%. Adjusted operating margin is forecast at 19.1% to 19.7%, versus 20.9% in the third quarter.

McClintock said the updated guidance assumes no change in the severity of the Middle East conflict and no further changes to the company's tariff structure. Watts maintained its expectation that full-year free cash flow will equal at least 90% of net income.

The message is straightforward: a record quarter, a higher bar for the year, and assumptions management admits are conditional.

What's the outlook beyond 2026?

Pagano said North American construction markets outside data centers look softer than management expected three to six months ago. Residential new construction and non-institutional commercial markets show weakness, while institutional demand and repair-and-replacement work hold up.

The portfolio is shifting accordingly. Residential markets should represent about 25% of 2026 sales, down from 40% in 2022, as acquisitions and product development push Watts toward non-residential markets. About 60% of the residential exposure is repair and replacement; company-wide, repair and replacement represents roughly 60% of the business.

On data centers, Pagano was measured. Contractors and installers have solid books of business for the next couple of years, but Watts shouldn't be expected to repeat its 2025-to-2026 growth pace. He pointed to an estimated 15% to 20% market growth rate as the assumption for next year, alongside difficult comparisons after this year's gains.

The company also plans a price increase of approximately 2% at the start of next year.

Watts Water, founded in 1874 by Joseph Watts and rooted in the water pressure regulator, designs and manufactures flow-control, safety and water-quality products — from backflow preventers and valves to drainage and treatment systems — for residential, commercial and industrial applications.