Water management manufacturer Watts Water (NYSE: WTS) reported Q4 CY2025 results beating Wall Street’s revenue expectations, with sales up 15.7% year on year to $625.1 million. Its non-GAAP profit of $2.62 per share was 12% above analysts’ consensus estimates.

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Chief Executive Officer Robert J. Pagano Jr. said, “I would like to recognize the Watts team for their hard work and dedication, which resulted in record fourth quarter and full year 2025 performance, including record sales, operating income and earnings per share. In addition, we continued to meet our customers’ needs for innovative solutions that address their greatest water safety, water conservation and energy efficiency challenges. We also successfully executed on our goals to develop differentiated products and further enhance productivity through the One Watts Performance System.”

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

A company’s long-term sales performance can indicate its overall quality. Any business can put up a good quarter or two, but many enduring ones grow for years. Luckily, Watts Water Technologies’s sales grew at a solid 10.1% compounded annual growth rate over the last five years. Its growth surpassed the average industrials company and shows its offerings resonate with customers, a great starting point for our analysis.

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 annualized revenue growth of 8.9% 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 2.3% 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 15.7%, and its $625.1 million of revenue exceeded Wall Street’s estimates by 2.3%.

Looking ahead, sell-side analysts expect revenue to grow 6.5% over the next 12 months, a slight deceleration versus the last two years. This projection doesn't excite us and implies its products and services will see some demand headwinds. At least the company is tracking well in other measures of financial health.

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Operating Margin

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 16.6%. 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 5.1 percentage points over the last five years, as its sales growth gave it immense operating leverage.

In Q4, Watts Water Technologies generated an operating margin profit margin of 18.2%, up 1.7 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 22.2% compounded annual growth rate over the last five years, higher than its 10.1% 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 5.1 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 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 13.1% was lower than its five-year trend. We still think its growth was good and hope it can accelerate in the future.

In Q4, Watts Water Technologies reported adjusted EPS of $2.62, up from $2.05 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 $10.58 to grow 6.9%.

Key Takeaways from Watts Water Technologies’s Q4 Results

We enjoyed seeing Watts Water Technologies beat analysts’ revenue expectations this quarter. We were also glad its EPS outperformed Wall Street’s estimates. Zooming out, we think this was a good print with some key areas of upside. The stock traded up 1.9% to $320.80 immediately after reporting.

Sure, Watts Water Technologies had a solid quarter, but if we look at the bigger picture, is this stock a buy? 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).