Watts Raises 2026 Outlook as Data Center Demand Reshapes Its Growth

Watts Water Technologies, Inc. WTS paired a sizable second-quarter earnings beat with sharply higher data center demand as management lifted its 2026 sales outlook.

Data centers are becoming a larger part of Watts' growth mix. The shift is also raising the relevance of capacity spending, project timing and margin effects to the company's near-term earnings profile.

Watts Q2 Results Beat Expectations

Watts reported adjusted earnings of $3.66 per share, 9.6% above the Zacks Consensus Estimate of $3.34. Sales of $763.2 million beat the consensus mark of $726 million by 5.1%.

Organic sales increased 12.2%, supported by favorable pricing, higher volumes and data center growth. Adjusted operating income rose 15% to $160 million, although adjusted operating margin declined 60 basis points to 21%.

Image Source: Zacks Investment Research

WTS Data Center Sales More Than Triple

Second-quarter data center sales more than tripled year over year and represented 8% of total sales in the first half of 2026. Demand was concentrated in the Americas and the Asia-Pacific, Middle East and Africa region, with Europe emerging as another market.

Watts now expects data centers to account for a mid- to high-single-digit percentage of full-year 2026 sales, up from 3% in 2025. That shift makes cooling demand a more meaningful contributor to companywide growth.

Watts Raises Its 2026 Growth Targets

Management raised expected 2026 reported sales growth to 14%-17% from 8%-12%. Organic growth guidance increased to 8%-11% from 2%-6%, reflecting better data center demand, pricing and regional performance than expected in May.

Adjusted operating margin is now expected at 19.8%-20.4%. Price, volume leverage and productivity are expected to more than offset higher inflation and about 50 basis points of acquisition dilution, keeping profitability central to the stronger sales outlook.

Watts Water Technologies, Inc. Price and Consensus

Watts Water Technologies, Inc. price-consensus-chart | Watts Water Technologies, Inc. Quote

WTS Adds Capacity for Liquid Cooling Demand

Watts estimates its served addressable data center market at about $2 billion, with potential content of roughly $25,000-$100,000 per megawatt. Liquid-cooled projects can carry more content, particularly when thermal storage tanks are included.

The company raised 2026 capital spending to $60-$65 million from $50-$60 million, with added capacity in North America and China. Superior Boiler is also being used to expand CoolVault production. Vertiv Holdings Co. VRT, meanwhile, is expanding data center cooling manufacturing capacity in Europe.

Modine Manufacturing Company MOD provides another industry reference point. Its data center revenues increased 90% year over year in the quarter ended June 30, 2026, underscoring broad demand for thermal-management capacity.

Watts Must Manage Margin Pressure and Timing

Data center sales create a mixed margin effect. Management said the business causes some gross-margin dilution but remains accretive to operating margin because it carries a relatively low operating expense burden.

Project timing is less predictable than in some of Watts' other markets. Customer-driven pull-forwards helped the second quarter, while tariffs, inflation, acquisition dilution and soft construction activity remain variables that can affect quarterly sales and margins.

WTS Signals a Balanced Near-Term Setup

The near-term setup remains balanced. Data center growth is lifting Watts' sales outlook and capacity needs, but project timing and broader cost pressures still limit a simple read-through from the stronger demand trend.

WTS currently carries a Zacks Rank #3 (Hold), with a VGM Score of F, Value Score of F, Growth Score of D and Momentum Score of C. Those grades sit below the A and B Style Scores Zacks emphasizes most, tempering the positive earnings event without negating the data center progress.

You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Research Chief Names "Single Best Pick to Double"

From thousands of stocks, 5 Zacks experts each have chosen their favorite to skyrocket +100% or more in months to come. From those 5, Director of Research Sheraz Mian hand-picks one to have the most explosive upside of all.

This company targets millennial and Gen Z audiences, generating nearly $1 billion in revenue last quarter alone. A recent pullback makes now an ideal time to jump aboard. Of course, all our elite picks aren’t winners but this one could far surpass earlier Zacks’ Stocks Set to Double like Nano-X Imaging which shot up +129.6% in little more than 9 months.

Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report

This article originally published on Zacks Investment Research (zacks.com).

Zacks Investment Research