Water management manufacturer Watts Water (NYSE: WTS) reported Q1 CY2025 results exceeding the market’s revenue expectations, but sales fell by 2.3% year on year to $558 million. Its non-GAAP profit of $2.37 per share was 11.3% above analysts’ consensus estimates.
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Watts Water Technologies (WTS) Q1 CY2025 Highlights:
- Revenue: $558 million vs analyst estimates of $547.8 million (2.3% year-on-year decline, 1.9% beat)
- Adjusted EPS: $2.37 vs analyst estimates of $2.13 (11.3% beat)
- Operating Margin: 15.7%, down from 16.9% in the same quarter last year
- Free Cash Flow Margin: 8.2%, up from 6.2% in the same quarter last year
- Organic Revenue fell 2.1% year on year (6.4% in the same quarter last year)
- Market Capitalization: $7.07 billion
Chief Executive Officer Robert J. Pagano Jr. said, “We had a solid start to the year with our first quarter results exceeding expectations as we achieved record adjusted operating income, adjusted operating margin and adjusted EPS.(1) I would like to thank our dedicated employees who continued to execute well against a challenging backdrop.”
Company Overview
Founded in 1874, Watts Water (NYSE: WTS) specializes in manufacturing water products and systems for residential, commercial, and industrial applications globally.
Sales Growth
A company’s long-term performance is an indicator of its overall quality. Any business can experience short-term success, but top-performing ones enjoy sustained growth for years. Over the last five years, Watts Water Technologies grew its sales at a mediocre 7% compounded annual growth rate. This wasn’t a great result compared to the rest of the industrials sector, but there are still things to like about Watts Water Technologies.
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 6.1% over the last two years aligns with its five-year trend, suggesting its demand was consistently weak. 
We can better understand 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 was flat. Because this number is lower than its normal revenue growth, we can see that some mixture of acquisitions and foreign exchange rates boosted its headline results. 
This quarter, Watts Water Technologies’s revenue fell by 2.3% year on year to $558 million but beat Wall Street’s estimates by 1.9%.
Looking ahead, sell-side analysts expect revenue to grow 1.4% 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 see some demand headwinds. At least the company is tracking well in other measures of financial health.
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Operating Margin
Operating margin is an important measure of profitability as it shows the portion of revenue left after accounting for all core expenses – everything from the cost of goods sold to advertising and wages. It’s also useful for comparing profitability across companies with different levels of debt and tax rates because it excludes interest and taxes.
Watts Water Technologies has been an efficient company over the last five years. It was one of the more profitable businesses in the industrials sector, boasting an average operating margin of 15.5%. 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 4.5 percentage points over the last five years, as its sales growth gave it operating leverage.
This quarter, Watts Water Technologies generated an operating profit margin of 15.7%, down 1.2 percentage points year on year. Conversely, its gross margin actually rose, so we can assume its recent inefficiencies were driven by increased operating expenses like marketing, R&D, and administrative overhead.
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 a spectacular 16.9% compounded annual growth rate over the last five years, higher than its 7% 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 declined this quarter but expanded by 4.5 percentage points over the last five years. Its share count also shrank by 1.8%, and these factors together 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 9.5% was lower than its five-year trend. This wasn’t great, but at least the company was successful in other measures of financial health.
In Q1, Watts Water Technologies reported EPS at $2.37, up from $2.33 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 $8.91 to grow 4%.
Key Takeaways from Watts Water Technologies’s Q1 Results
We enjoyed seeing Watts Water Technologies beat analysts’ organic revenue expectations this quarter. We were also glad its EPS outperformed Wall Street’s estimates. Zooming out, we think this quarter featured some important positives. The stock remained flat at $211.58 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.