Water management manufacturer Watts Water (NYSE: WTS) announced better-than-expected revenue in Q2 CY2025, with sales up 7.8% year on year to $643.7 million. Its non-GAAP profit of $3.09 per share was 17.7% above analysts’ consensus estimates.

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Chief Executive Officer Robert J. Pagano Jr. said, “We delivered another strong quarter that surpassed our expectations as we achieved record sales, operating income, operating margin and EPS. We continue to demonstrate our ability to execute through periods of uncertainty, enabled by the Watts team’s unwavering focus and commitment to serving our customers. As a result of our strong first half performance and our third quarter expectations, we are increasing our full year 2025 sales and margin outlook.”

Company Overview

Founded in 1874, Watts Water (NYSE: WTS) specializes in manufacturing water products and systems for residential, commercial, and industrial applications globally.

Revenue Growth

Reviewing a company’s long-term sales performance reveals insights into its quality. Any business can have short-term success, but a top-tier one grows for years. Thankfully, Watts Water Technologies’s 8.6% annualized revenue growth over the last five years was decent. Its growth was slightly above the average industrials company and shows its offerings resonate with customers.

Long-term growth is the most important, but within industrials, a half-decade historical view may miss new industry trends or demand cycles. Watts Water Technologies’s recent performance shows its demand has slowed as its annualized revenue growth of 7.1% over the last two years was below its five-year trend.

Watts Water Technologies also reports organic revenue, which strips out one-time events like acquisitions and currency fluctuations that don’t accurately reflect its fundamentals. Over the last two years, Watts Water Technologies’s organic revenue was flat. Because this number is lower than its two-year revenue growth, we can see that some mixture of acquisitions and foreign exchange rates boosted its headline results.

This quarter, Watts Water Technologies reported year-on-year revenue growth of 7.8%, and its $643.7 million of revenue exceeded Wall Street’s estimates by 5%.

Looking ahead, sell-side analysts expect revenue to grow 1.7% over the next 12 months, a deceleration versus the last two years. This projection is underwhelming and indicates its products and services will face some demand challenges. At least the company is tracking well in other measures of financial health.

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Operating Margin

Operating margin is one of the best measures of profitability because it tells us how much money a company takes home after procuring and manufacturing its products, marketing and selling those products, and most importantly, keeping them relevant through research and development.

Watts Water Technologies has been a well-oiled machine over the last five years. It demonstrated elite profitability for an industrials business, boasting an average operating margin of 16.1%. This result isn’t surprising as its high gross margin gives it a favorable starting point.

Analyzing the trend in its profitability, Watts Water Technologies’s operating margin rose by 4.9 percentage points over the last five years, as its sales growth gave it operating leverage.

This quarter, Watts Water Technologies generated an operating margin profit margin of 21%, up 2.4 percentage points year on year. Since its gross margin expanded more than its operating margin, we can infer that leverage on its cost of sales was the primary driver behind the recently higher efficiency.

Earnings Per Share

We track the long-term change in earnings per share (EPS) for the same reason as long-term revenue growth. Compared to revenue, however, EPS highlights whether a company’s growth is profitable.

Watts Water Technologies’s EPS grew at an astounding 20.7% compounded annual growth rate over the last five years, higher than its 8.6% annualized revenue growth. This tells us the company became more profitable on a per-share basis as it expanded.

Diving into the nuances of Watts Water Technologies’s earnings can give us a better understanding of its performance. As we mentioned earlier, Watts Water Technologies’s operating margin expanded by 4.9 percentage points over the last five years. On top of that, its share count shrank by 1.5%. These are positive signs for shareholders because improving profitability and share buybacks turbocharge EPS growth relative to revenue growth.

Like with revenue, we analyze EPS over a more recent period because it can provide insight into an emerging theme or development for the business.

For Watts Water Technologies, its two-year annual EPS growth of 11.7% was lower than its five-year trend. We still think its growth was good and hope it can accelerate in the future.

In Q2, Watts Water Technologies reported adjusted EPS at $3.09, up from $2.46 in the same quarter last year. This print easily cleared analysts’ estimates, and shareholders should be content with the results. Over the next 12 months, Wall Street expects Watts Water Technologies’s full-year EPS of $9.54 to stay about the same.

Key Takeaways from Watts Water Technologies’s Q2 Results

We were impressed by how significantly Watts Water Technologies blew past analysts’ organic revenue expectations this quarter. We were also excited its revenue outperformed Wall Street’s estimates by a wide margin. Zooming out, we think this was a good print with some key areas of upside. The stock remained flat at $263.73 immediately following the results.

Is Watts Water Technologies an attractive investment opportunity at the current price? The latest quarter does matter, but not nearly as much as longer-term fundamentals and valuation, when deciding if the stock is a buy. We cover that in our actionable full research report which you can read here, it’s free.