Water management manufacturer Watts Water (NYSE: WTS) reported Q3 CY2025 results topping the market’s revenue expectations, with sales up 12.5% year on year to $611.7 million. Its non-GAAP profit of $2.50 per share was 10.5% above analysts’ consensus estimates.

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Chief Executive Officer Robert J. Pagano Jr. said, “We achieved strong third quarter results that exceeded our expectations driven by strong execution in our Americas region, which more than offset market weakness in Europe. Our global supply chain strategy, and targeted pricing actions have enabled us to mitigate tariff related cost increases. As a result of our strong third quarter performance and our fourth 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

Examining a company’s long-term performance can provide clues about its quality. Even a bad business can shine for one or two quarters, but a top-tier one grows for years. Thankfully, Watts Water Technologies’s 9.3% annualized revenue growth over the last five years was solid. Its growth beat the average industrials company and shows its offerings resonate with customers, a helpful starting point for our analysis.

We at StockStory place the most emphasis on long-term growth, but within industrials, a half-decade historical view may miss cycles, industry trends, or a company capitalizing on catalysts such as a new contract win or a successful product line. Watts Water Technologies’s annualized revenue growth of 8.2% over the last two years is below its five-year trend, but we still think the results were respectable.

We can dig further into the company’s sales dynamics by analyzing its 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 averaged 1.2% year-on-year growth. 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 12.5%, and its $611.7 million of revenue exceeded Wall Street’s estimates by 6.2%.

Looking ahead, sell-side analysts expect revenue to grow 2.5% over the next 12 months, a deceleration versus the last two years. This projection doesn't excite us and implies 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 16.3%. This result isn’t surprising as its high gross margin gives it a favorable starting point.

Looking at the trend in its profitability, Watts Water Technologies’s operating margin rose by 4.7 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 18.2%, up 1.1 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

Revenue trends explain a company’s historical growth, but the long-term change in earnings per share (EPS) points to the profitability of that growth – for example, a company could inflate its sales through excessive spending on advertising and promotions.

Watts Water Technologies’s EPS grew at an astounding 21.8% compounded annual growth rate over the last five years, higher than its 9.3% annualized revenue growth. This tells us the company became more profitable on a per-share basis as it expanded.

We can take a deeper look into Watts Water Technologies’s earnings to better understand the drivers of its performance. As we mentioned earlier, Watts Water Technologies’s operating margin expanded by 4.7 percentage points over the last five years. On top of that, its share count shrank by 1.2%. 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 shorter period to see if we are missing a change in the business.

For Watts Water Technologies, its two-year annual EPS growth of 12.6% was lower than its five-year trend. We still think its growth was good and hope it can accelerate in the future.

In Q3, Watts Water Technologies reported adjusted EPS of $2.50, up from $2.03 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 $10.01 to grow 3%.

Key Takeaways from Watts Water Technologies’s Q3 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 quarter featured some important positives. The stock traded up 1.2% to $285.70 immediately following the results.

Indeed, Watts Water Technologies had a rock-solid quarterly earnings result, but is this stock a good investment here? When making that decision, it’s important to consider its valuation, business qualities, as well as what has happened in the latest quarter. We cover that in our actionable full research report which you can read here, it’s free for active Edge members.