Watts Water Technologies, Inc. (NYSE:WTS) Q4 2025 Earnings Call Transcript

Watts Water Technologies, Inc. (NYSE:WTS) Q4 2025 Earnings Call Transcript February 12, 2026

Operator: Welcome to Watts Water Technologies, Inc. Fourth Quarter and Full Year 2025 Earnings Call. At the end of the presentation, we will open the line for questions. I will now turn the call over to Diane M. McClintock, Chief Financial Officer. Please go ahead. Thank you, and good morning, everyone. Joining me today is Robert J. Pagano, President and CEO. Before we begin, I would like to remind everyone that during this call,

Diane M. McClintock: We may be making certain comments that constitute forward-looking statements. These statements are subject to numerous risks and uncertainties that could cause actual results to differ materially. For information concerning these risks, see Watts Water Technologies, Inc.’s publicly available filings with the SEC. The company undertakes no obligation to update or revise any forward-looking statements, whether as a result of new information, future events, or otherwise. Today’s webcast is accompanied by a presentation, which can be found in the Investor Relations section of our website. We will reference this presentation throughout our prepared remarks. Any reference to non-GAAP financial information is reconciled in the appendix to the presentation. With that, I will turn the call over to Bob.

Robert J. Pagano: Thank you, Diane, and good morning, everyone. Please turn to slide three where I will recap 2025 and outline the key drivers for our 2026 outlook. I want to begin by expressing gratitude to the entire Watts Water Technologies, Inc. team for their dedication and meaningful contributions which made 2025 another outstanding year. We achieved record sales, operating margin, and earnings per share for both the fourth quarter and the full year. Organic sales rose 8% and reported sales were up 16% this quarter. Adjusted operating margin climbed 220 basis points to 19%. For the entire year, organic sales grew 5% and adjusted operating margin improved by 190 basis points to 19.6%, while we continued investing in strategic priorities.

We generated a record $356,000,000 in free cash flow for 2025, up 7%, reaching a conversion rate of 100%. This strong cash flow supports our robust balance sheet and gives us flexibility to invest in future growth. Our capital allocation continues to focus on strategic M&A, high-return organic investments, competitive dividends, and steady share buybacks.

Operator: Since our last earnings call, we completed two acquisitions.

Robert J. Pagano: Superior Boiler, based in Hutchinson, Kansas, is a leading designer and maker of customized fire tube and water tube for commercial, institutional, and industrial uses. Superior’s mission-critical heating and hot water solutions expand our customer offerings. Superior has about $60,000,000 in annual sales. Saudi Cast, located in Riyadh, Saudi Arabia, manufactures high-quality cast iron and stainless steel drainage products for nonresidential and industrial markets. This acquisition grows our footprint in the fast-developing Middle East region. Saudi Cast annual sales are around $20,000,000. Both acquisitions are expected to be accretive to adjusted EPS in 2026 after accounting for added interest expense and normal purchase accounting adjustments.

Integration efforts are already underway for both companies. As previously discussed, we regularly review our portfolio and phase out underperforming products under our 80/20 model within the One Watts performance system. Through this ongoing evaluation, we have identified $10,000,000 to $15,000,000 of European sales and $25,000,000 to $30,000,000 in The Americas, mainly in lower-margin retail and OEM channels that we intend to eliminate during 2026. We anticipate these changes will be neutral or potentially margin accretive in 2026. An overview of what will drive our 2026 outlook. We expect that pricing along with continued repair and replacement activity will fuel further growth in 2026. Global GDP, a proxy for our repair and replacement business, remains positive within our main end markets.

In The Americas, indicators for nonresidential new construction present a mixed picture. The ABI remains below 50, suggesting subdued market conditions in 2026. However, the Dodge Momentum Index is slightly more optimistic, indicating potential growth in nonresidential projects. Most of this growth should come from strength in institutional and data center sectors, though it could be tempered by weaker segments such as offices, retail, warehouses, and recreation. We also anticipate a soft single family and multifamily residential construction market through 2026. Lastly, Europe’s new residential and nonresidential construction is expected to remain sluggish. Uncertainty surrounding inflation, trade policies, interest rates might continue to hamper new construction projects.

Overall, we foresee market conditions similar to those experienced in 2025. We expect to benefit over $130,000,000 in incremental revenues from the acquisitions of EasyWater, Hawes, Superior, and Saudi Cast. Collectively, these additions are projected to dilute adjusted operating margin by about 50 basis points in 2026 as we implement the One Watts performance system and realize synergies. Now let me highlight a few strategic growth initiatives including our data center and M&A strategy. On slide four, you will see examples of solutions we have developed for both air cooled and liquid cooled data centers. Our most notable product is the cooling valves that control the flow of chilled water to sustain the required temperatures in data centers.

Typically, these valves and related equipment are made of iron for air cooling and stainless steel for liquid cooling. Other important offerings include strainers, drainage, and our Cool Vault thermal storage tanks, which serve as emergency backups during chiller restarts. Our data center initiative spans the globe, and we estimate the addressable market exceeds $1,000,000,000. In 2025, sales from this sector represented just over 3% of total company sales and are growing at a double-digit rate. We will keep investing in new products and technologies to meet evolving customer needs and believe this market will continue expanding for years. Slide five covers our acquisitions over the past three years. We finalized eight deals deploying about $660,000,000 in cash and adding around $450,000,000 in annualized revenue.

These acquisitions have broadened our product range, expanded channel access, and increased our geographic reach. Just as importantly, they diversified our end market exposure and shifted our mix toward higher-growth, higher-margin, nonresidential, institutional, and industrial segments. By leveraging the One Watts performance system, driving value through successful integration, synergy realization, and improving margins. Despite the typical early-stage margin dilution from acquisitions, we have expanded adjusted operating margin by 320 basis points in three years. We are proud of our performance and pleased to add such quality brands to our portfolio. With that, I will hand things back to Diane, who will discuss our Q4 and full year 2025 results and share the outlook for Q1 and all of 2026.

Diane?

Diane M. McClintock: Thank you, Bob. Let us now turn to slide six, which outlines our fourth quarter results. Sales reached $625,000,000 reflecting a 16% increase on a reported basis and an 8% increase organically. The Americas region delivered strong organic growth of 10% and reported growth of 17%, exceeding our expectations. This performance was supported by favorable price and volume, including the benefit of one additional shipping day and growth from data center sales. Acquisitions accounted for an additional $27,000,000 in sales, contributing seven percentage points to The Americas reported growth. In Europe, organic sales rose by 1% while reported sales increased 10%. Organic growth stemmed from favorable pricing and the extra shipping day, while reported sales also benefited from positive foreign exchange effects.

In APMEA, organic sales grew 9% with acquisitions adding 6% for total reported sales growth of 15%. Adjusted EBITDA totaled $134,000,000, an increase of 28%, with an adjusted EBITDA margin of 21.4%, up 210 basis points year over year. Adjusted operating income of $119,000,000 increased 31% and adjusted operating margin improved 220 basis points to 19%. These improvements were primarily driven by favorable pricing and productivity gains, more than offsetting inflationary pressures, volume deleverage in Europe, tariffs, and acquisition dilution. Segment margins were as follows. The Americas increased by 150 basis points to 23.3%. Europe increased by 490 basis points to 15.1%, while APMEA decreased slightly by 20 basis points to 17.3%. Adjusted earnings per share equaled $2.62 representing a 28% year-over-year increase, with operational performance, acquisitions, and foreign exchange gains outweighing higher tax and net interest expense.

Turning to full year results, please refer to slide seven. As previously noted, we achieved record operating results for 2025. Total company sales were $2,400,000,000, up 8% on a reported basis and 5% organically. Organic growth in The Americas and APMEA reached 8% and 5%, respectively, partially offset by a challenging year in Europe where organic sales declined by 5%. Acquisitions contributed $52,000,000 or 2% of incremental sales growth, and favorable foreign exchange added another 1%. Adjusted EBITDA for the year was $534,000,000, up 18%, and adjusted EBITDA margin improved by 180 basis points to 21.9%. Adjusted operating income rose 19% to $477,000,000 resulting in 19.6% operating margin, up 190 basis points. These increases reflect the benefit of price, volume, and productivity gains which more than compensated for inflation, European volume deleverage, tariffs, and acquisition-related dilution.

Segment margin in The Americas increased to 24.5%, up 190 basis points. Europe increased to 13.3%, up 160 basis points. And APMEA remained flat at 18.3%. Adjusted EPS was $10.58, up $1.72 or 19% compared to prior year, with benefits from operations, acquisitions, favorable foreign exchange, and lower net interest expense exceeding higher tax costs. For GAAP reporting, after-tax charges of $22,300,000 were recorded related to restructuring and acquisition-related costs, partly offset by an $8,300,000 tax benefit from the reversal of a prior year tax liability. Free cash flow reached $356,000,000, a 7% increase from 2024, setting a new company record. This was primarily driven by higher net income, lower tax payments due to changes in U.S. tax regulations, and contributions from acquisitions, which more than offset higher inventory investment and capital expenditures.

Free cash flow conversion was 105%. Our balance sheet remains strong and continues to support our disciplined approach to capital allocation. In 2025, we returned $83,000,000 to shareholders through dividends and share repurchases, increasing our annual dividend payout by approximately 20%. On slide eight, we will review our outlook for the first quarter and full year 2026. The outlook for 2026 is based on the anticipated market conditions discussed earlier. For the full year, we anticipate reported sales growth of 8% to 12%, and organic sales growth of 2% to 6%. Excluding the impact of product rationalization, our organic sales growth would be approximately 2% higher. Organic sales in The Americas are expected to increase by 3% to 7% driven by price and volume, especially within data centers, more than offsetting anticipated product rationalization headwinds of $25,000,000 to $30,000,000.

Price contribution will be higher in the first half, particularly Q1, due to carryover effect of prior year tariff-related price increases. In Europe, organic sales are projected to range from a 4% decline to flat as favorable price is offset by lower volume, partly due to $10,000,000 to $15,000,000 in product rationalization. APMEA is expected to achieve organic growth between 4% to 8%. Additionally, we anticipate incremental sales from acquisitions of between $110,000,000 and $115,000,000 in The Americas and between $18,000,000 and $20,000,000 in APMEA, with foreign exchange favorability estimated at $18,000,000. We expect adjusted EBITDA margin to be in the range of 21.5% to 22.1%, and the adjusted operating margin between 19.1% to 19.7%.

Margin expansion from price, volume leverage, and productivity and restructuring savings is expected to be partially offset by inflation and 50 basis points of acquisition dilution. Regionally, The Americas segment margin is anticipated to decrease by 50 to 110 basis points mainly due to approximately 100 basis points of acquisition dilution. Europe segment margin is expected to be down 30 basis points to up 30 basis points and APMEA is estimated to increase by 30 to 60 basis points. This guidance assumes no changes to the current tariff environment. We expect free cash flow conversion at or above 90% of net income for 2026 reflecting planned investments in automation in our core operations and with our new acquisitions, investments in our data center capabilities, and investment in our SAP implementation.

Key considerations for Q1. Reported sales are expected to increase 12% to 16% with organic sales up 4% to 8%. We anticipate high single-digit growth in The Americas, low single-digit decline in Europe, and low single-digit growth in APMEA. These estimates incorporate a negative impact from product rationalization of approximately $1,000,000 in Europe and $6,000,000 in The Americas. Incremental sales from acquisitions projected at $25,000,000 to $30,000,000 for The Americas, and around $5,000,000 for APMEA, with a foreign exchange benefit estimated at $13,000,000. First quarter EBITDA margin is expected to be between 21.1% to 21.7%. Operating margin is expected to be between 18.6% to 19.2%. Price and volume leverage in The Americas and APMEA are anticipated to be offset by volume deleverage in Europe and acquisition dilution of approximately 70 basis points.

Additional key assumptions for the first quarter and full year are available in the appendix of the earnings presentation. With that, I will turn the call back over to Bob before moving to Q&A.

Operator: Bob?

Robert J. Pagano: Thanks, Diane. Let us move to Slide nine, where I will summarize before taking questions. In 2025, we posted strong outcomes across the board: record Q4 and full year sales, operating income, EPS, and free cash flow. We continue investing in strategic growth and productivity programs including data center solutions, our Nexa digital strategy, and factory automation for enhanced efficiency. Five strategic acquisitions in 2025 further diversified our business and market reach. Our broad portfolio is resilient, and our teams are positioned to capitalize on growth opportunities, including institutional and data centers. Our model, driven largely by repair and replacement, ensures steady revenue and cash flow. Our balance sheet remains strong and provides flexibility to support our balanced capital strategies.

The M&A pipeline is active, and we plan to pursue appealing opportunities to expand our solutions and global presence as we aim for sustainable profitable growth. With that, operator, please open the line for questions.

Q&A Session

Operator: We will now open for questions. To ask a question, press star then the number one on your telephone keypad. We ask that you please limit your questions to one and one follow-up. Our first question will come from the line of Nathan Hardie Jones with Stifel. Please go ahead.

Robert J. Pagano: Good morning, everyone. Morning. Morning, Nathan. I am going to start with a question on M&A. Obviously, the level of M&A that you have done over the last couple years has picked up. And it looks to be something that is going to be a little more serial.

Nathan Hardie Jones: And a little more of a contributor to the earnings growth over the next several years. So I am just interested in hearing a bit more about your philosophy around M&A, kind of, you know, on average over the next few years, what percentage of revenue you would like to be able to acquire, leverage targets that you would be comfortable going to. Just any more color you could give us around that given it is becoming a bigger piece of the value driver for Watts Water Technologies, Inc. Thanks.

Robert J. Pagano: Thanks, Nathan. But as you can imagine, we certainly have a healthy balance sheet that does that. We cultivate acquisition targets for many, many years and sometimes they break. And certainly, this year, you know, five of them broke, which is exciting. So M&A has always been a key part of our strategy. It has to make strategic and financial sense, obviously, and it also has to fit our culture. And making sure the cultures work together. So we will continue to be active as we always have been. The teams are focused on this. Where it makes sense and where it makes financially attractive. But certainly, we would like to deploy capital. You know, we look at small, medium, and large acquisitions. Certainly, in this environment, we would not want to leverage more than two, two and a half at this point in time.

But, again, it just depends on how fast cash flow, you know, drives repayment of debt. So anyways, those are philosophically what we are looking at, but team is focused on it where it makes sense.

Nathan Hardie Jones: And do you need things that are going to be, yeah, accretive to earnings in the first year? Return on invested capital 10% by year three or year five, or what are the kind of hurdles that you are looking at when you are looking at these kinds of deals?

Diane M. McClintock: Yeah, Nathan. Those are our key criteria. We like to have the acquisitions be accretive to EPS in year one. Try to get our EBITDA margins up to Watts Water Technologies, Inc. level between year three and year five. We have been pretty successful at that with the acquisitions we have had so far. You know, it is not, there are opportunities sometimes where you may not get your EPS accretive in year one, but those are certainly our key criteria.

Nathan Hardie Jones: I will just sneak one in on data center seeing as you highlighted it in the deck. 3% of sales is a meaning amount. Bob, you talked about it growing double digits, which is a pretty wide kind of range. Any more color you can give us on what kind of a bit more narrow range for double digits and potentially what you think that business could get to over the next few years? Thanks, and I will pass it on.

Robert J. Pagano: Yeah. I mean, it is the higher end of the double digits, would say. And certainly, it is a key focus of ours. You know, Asia Pacific was the leader of that several years ago. Now America is taking that, and America is over half of that. And, you know, as long as they continue to build, we will continue to be there and provide our products to support them. So it is our fastest growing initiative that teams are focused on.

Nathan Hardie Jones: Very much for taking the questions.

Robert J. Pagano: Thank you.

Operator: Our next question will come from the line of Michael Halloran with Baird. Please go ahead.

Michael Halloran: Good morning, everyone. Good morning, Mike. So first question, just want to make sure I understand moving pieces in the organic guide. I think the 80/20 revenue is included

Robert J. Pagano: In that organic number? Just want to confirm. And then, how I think about price versus volumes. At the midpoint, are volumes roughly flattish embedded in the guide?

Diane M. McClintock: Yeah, Mike. That is right. The 80/20 is included in the organic guide. So the organic growth would be two points higher excluding that 80/20. And from a price volume perspective, from a full year, we kind of expect price to be low single digits. There will be a little bit of volume. Maybe more in The Americas than in Europe. And most of that volume is going to be offset by the 80/20 efforts.

Michael J. Pesendorfer: Great. Appreciate that. And then and then staying on the 80/20 piece, kind of a twofold question here. Maybe just discuss what you saw this year that gave the opportunity. I think Bob, you said it was retail.

Robert J. Pagano: And then secondarily, I mean, I think it was a little more than I was expecting, probably more in The Americas at this point. How much opportunity do you see broadly over the next chunk of years here to continue to push on this type of thing to streamline the organization, products, etcetera. You know, I know Europe has always been a focal point for this more consistently. So I suppose the question is a little geared to The Americas on that side. Yeah, Mike. So we are always looking for productivity through the One Watts performance system. And certainly with tariffs and all the adjustments and refocus on more, let us call it faster growing, higher margin type businesses. So we make profit on some of this retail OEM business, but really it is about focus, keeping our team focused on the growing more types of business and reallocating resources in the organization.

So we will keep looking at it and keep driving it. But certainly, you know, our expectations are to gain higher returns, higher margins, and we will continue to look at it. It presented an opportunity where our team said, hey. Let us focus more on data centers and on retail. And that is what we are doing. Thank you. Thank you.

Operator: Our next question comes from the line of Jeffrey David Hammond with KeyBanc Capital Markets. Please go ahead.

Robert J. Pagano: Hey. Good morning. Good morning, Jeff.

Jeffrey David Hammond: So, Bob, we should put you down for 99% growth in data center. Is that

Robert J. Pagano: That is a little high, Jeff.

Jeffrey David Hammond: Just on maybe just a quick one on data center. One, if you look at that billion dollar TAM, I am just wondering, like, how much that really has expanded as we have shifted from just air cooling to liquid cooling. Just the liquid cooling opportunity, which seems, you know, early and nascent. And then as you shift to stainless, can you talk about how that impacts price mix within data center?

Robert J. Pagano: Yeah. So certainly, the stainless steel is growing faster as you are seeing the shift there, and we are moving towards that. And stainless steel, because of its metallurgies and properties, is more of a solution. So it has higher margins. So the teams are focused on that. Driving that, and, you know, that will be accelerating our growth into the market. And we took that into consideration when we did develop the basically $1,000,000,000 plus market.

Jeffrey David Hammond: Okay. And then I was at your HR booth, and a lot of excitement around Nexa, but also this EasyWater, which I know is small, but it seems like the technology is pretty disruptive and seems like they could benefit from your scale and manufacturing expertise. Maybe just talk about uptake on Nexa as you roll it out. And maybe a little more on this EasyWater deal and the opportunity there?

Robert J. Pagano: Yeah. Well, Nexa is, you know, you certainly see the focus, the buzz is, you know, it is getting out there. We are excited about it. We are making very good progress. We completed the installation of a very large real estate investment group in their house with their hospitality properties and we are gaining, they have gained significant insights and benefits. And we are also growing in other hospitality and stadiums and multifamily. So we are excited about the growth. A lot of potential there. But I think as I have told many of you, that also supports selling our core products. And that is where we are focused on. In EasyWater, what they are known for is their salt and chemical free treatment solutions, which, you know, they are offsetting a lot of places that use chemicals.

And certainly, you know, using less chemicals is obviously more environmentally friendly, etcetera. So that is an opportunity. It was something we had smaller versions of that in our portfolio, and now we are expanding that. So, yes, we are really excited about that. There are many opportunities. There are some new codes out there in the health care industry that are on things like medical device cleaning, etcetera, which should be a nice fit for that, you know, because there are no chemicals. So yeah, the teams are excited, and I am glad you saw the momentum inside the booth.

Jeffrey David Hammond: Great. Thank you.

Michael J. Pesendorfer: Thank you.

Operator: Our next question comes from the line of James Kho with Jefferies. Please go ahead.

Robert J. Pagano: Good morning. Thanks for taking questions here. I wanted to touch on the data center. Good morning. Yeah. I wanted to talk about the data center here again. You kind of talk about like, competitive landscape for cooling valves? And who are the main competitors, and what share do you estimate you have today? And what are kind of the risk if new competitors kind of enter into the market? Well, certainly, you know, we do not talk about competitors usually in general, but I would say there is a handful of competitors. In this market, it is about quality, delivery, and reputation and standing by the product. So we are, you know, I would say we are in the top three competitors in this area based on the products we sell.

And I would say we have gained a great reputation based on our performance in the industry. And so different people can enter it, but you have to make sure you have the reputation. With our 151-year history, I think that gives us credibility, and we have been delivering on time and having great results with our customers. So that is a key area of focus for us, and, you know, we will continue to grow, and we believe it is a great opportunity in more working with the general contractors, the architects, and the entire value chain. And, you know, penetrating more into the hyperscaler. So it, you know, that just does not happen. It takes time to do that. And our multiyear effort here is starting to really pay off. Great. Thanks for the color. And I guess touching on the Europe margin here,

Shashank Patel: Obviously, it improved pretty meaningfully this quarter in 2025. Looking at 2026, I think you are guiding for roughly flattish. So, does that kind of suggest that restructuring benefits are largely done, or are there still more margin opportunities remaining in that region.

Diane M. McClintock: Yeah. Hi, James. Q4 really benefited from that extra shipping day and some of the volume leverage in Q4. We expect volume to be muted in 2026. We do expect to continue to get some of the restructuring savings, primarily really in the first quarter. And in the second quarter, it will trail off after that. But we are expecting to have some headwinds with the 80/20 as well and with volume deleverage. Also, a little bit of the mix is at play there.

Michael J. Pesendorfer: So

Diane M. McClintock: But we expect margins will be flat. As you know, we are always a little bit cautious on Europe when we are starting the year, and we will see how things go as we go through the year.

Shashank Patel: Great. Thanks for taking questions.

Robert J. Pagano: Thank you.

Operator: Our next question comes from the line of Jeffrey Hammond with RBC Capital Markets.

Shashank Patel: Good morning. Thanks for all the detail thus far.

Andrew Jon Krill: It is really great to see the data center opportunity highlighted. I was hoping, can you just walk us through your go-to-market model in data centers? Are you selling through distribution directly to liquid cooling OEMs? Are you engaging with hyperscalers? And also, how customized are your solutions here versus more standardized?

Robert J. Pagano: We are playing with all of those. We are leveraging our distribution chain as well as working with general contractors all the way through the value chains. We have to hit all of them for various reasons, and it depends on what type of product. I would say, for the most part, these are more standardized products. We are starting to work with them on more technical finite solutions on that, and that is as we grow with confidence in them in going up the value chain. So yeah, it has been an exciting ride and we are working very closely and with all of them.

Andrew Jon Krill: That is great to hear. As you scale your data center deployments, is there a meaningful opportunity for Nexa or digital monitoring solutions here? Maybe how should we think about the long term opportunity?

Robert J. Pagano: Yeah. That is an opportunity for the long run. Right now, they have their own systems that they have developed over many years. The last thing we want is a new system. But we are leveraging some of our smart and connected products where it makes sense with them. So those would be the next evolution we are working with them on that. And but right now, that is early innings on that.

Andrew Jon Krill: Got it. Thank you.

Robert J. Pagano: Thank you.

Operator: Our next question comes from the line of Andrew Creel with Deutsche Bank. Please go ahead.

Jeffrey David Hammond: Going back to the, you know,

Michael J. Pesendorfer: Good morning. So 2026 organic

Andrew Jon Krill: Sales guide for The Americas. I was hoping you could put a little finer point on the level of growth or declines you expect for some of your bigger verticals. You know, institutional, commercial, and then in resi, you know, single family multifamily, maybe just some help on how you are thinking about those different markets? Thanks.

Robert J. Pagano: Yeah. So when we look at the residential, we are to be down, right? Single family, low single digits. Multifamily, mid single digits. Institutional, we are seeing up low single digits. Data centers up double digits, and I would say all the other commercial types of businesses would be down low single digits. So that is how we are kind of framing it. Very similar to what we saw here in last year in 2025. Kind of the markets are kind of about the same here, maybe a little more softness in residential than what we saw, but that is how we are framing it at this point in time.

Shashank Patel: Okay.

Diane M. McClintock: Great. That is helpful. And then going back to 80/20, you know, I think the

Michael J. Pesendorfer: Acceleration to it being a two point headwind, you know, it had been, I think, a

Andrew Jon Krill: Point or a little bit less in 2025. Just what

Michael J. Pesendorfer: Were these existing businesses you just found new opportunities? Or like, what changed? And then as we look forward into 2027, do you think

Andrew Jon Krill: This could flip to being more neutral or maybe it is even a positive as, you know, you start to overserve, you know, some of your better customers. Thanks.

Robert J. Pagano: Yeah. So, again, we look at the portfolio. I think in the residential section, it has been more competitive, especially after all the tariffs and stuff. And, you know, we are always looking at making sure we have differentiated products and solutions that customers are going to pay for. Right? So in the end, we are trying to get rid of lower margin type products and focusing our teams on higher margin business. So we have identified a portion of that that, you know, it is just not worth us spending the time and effort, and it is better for us to reallocate our resources to the faster, higher growing margin businesses. So that is all it is. We took a second look, another look, especially after all these tariffs have settled down and pricing actions and looked at this and where we are going and said it is time to exit some of this business.

Diane M. McClintock: And, Andrew, just a little more color on that. It is products and channels within our core Americas business. So it is not within the acquisition. It is our core Americas business. Retail and OEM.

Shashank Patel: Thank you. Our next

Operator: Question will come from the line of Ryan Michael Connors with Northcoast Research. Please go ahead.

Jeffrey David Hammond: Good morning. Morning. Good morning, Ryan. I am not going to ask about data centers.

Ryan Michael Connors: Although I would say your call is going to screen really well here with the AI bots on the data center mentions. So I might set a new record. But, yeah, back to the basics. You know, talk about price for a minute. I was a little bit surprised, underwhelmed, I guess, would be the word. Low single-digit price you mentioned, Diane, in 2026. When I think about copper year to date and the fact that we have set a new record there, I was just curious how that fits into the equation on these thoughts around price. I know we have taken a lot of price the last few years. Just kind of reset us with the move in copper, how we feel about price cost going forward. You know, just conceptually.

Diane M. McClintock: Yeah. So we expect, certainly, we expect higher price in the first quarter as we carry over some of the price increases we had in the fourth quarter. So think about that as higher in Q1 and then ramping down over the year and probably averaging out to maybe low single digits. But we expect to be high single digits Q1 and then sequentially going down after that across the year. In terms of copper, we are watching that very carefully. Bob, do you want to add some color on that? Yeah. I mean, we are looking at copper just like you are, Ryan. And, as you know, we are not

Robert J. Pagano: Bashful about pushing prices. So if this continues, we will probably be looking for another price increase mid-year.

Operator: Yep.

Ryan Michael Connors: Okay. Yeah. That is kind of what I figured. Okay. And then just a real quick one on, so you have talked quite a bit in the Q&A here about these product lines you are exiting. And I am just curious the mechanics on that. So these are not any kind of divestiture. There is no monetization here. We just literally stop taking orders, kind of just stop making the products, and let whoever else is out there take that share. I mean, is that what happens here? You just sort of just walk away?

Robert J. Pagano: Or walk away from various channels. Of inventory. In other words, we will still make it and sell it through other channels, but some of the channels we are deemphasizing based on competitive nature and profitability in those markets.

Ryan Michael Connors: Oh, I see. So it is not a product walk away. It is just on the channel. I see. Okay. Helps so much. Thanks for your time.

Shashank Patel: Thank you. Hey, Ryan. Thank you.

Operator: Our next question comes from the line of Joseph Craig Giordano with TD Cowen. Please go ahead.

Michael J. Pesendorfer: Hi. Good morning. This is Chris on for Joe. Good morning, Chris. The fifth. Good morning. For the 2026 Americas guide, could you elaborate on how much growth is anticipated from repair, replace versus new construction?

Robert J. Pagano: Yeah. I mean, we usually, you know, basically repair replace. We assume GDP, right? So around 2%. That is kind of what we are assuming on repair and replace. Got it. And

Michael J. Pesendorfer: Could you elaborate on how you are set from a capacity standpoint to meet the demand from the data center end market?

Robert J. Pagano: Yeah. So we are leveraging our global supply chain in our facilities around the world, whether it be in North America, Europe, and our facilities in Asia Pacific, and our global supply chain. So we have been adding capacity, building capacity, and, you know, we feel good about our ability to ramp up for this market.

Michael J. Pesendorfer: Thank you very much.

Robert J. Pagano: Thank you. Thank you.

Operator: Again, that is star one for any questions, and our next question comes from the line of Brian Blair with Goldman Sachs. Brian, you might be on mute.

Shashank Patel: Hello? Can you hear can hear you now. Good morning.

Michael J. Pesendorfer: Okay. Sorry about that. Good morning. Yeah. Just a couple questions around the outlook. A lot has been covered already on the call. But when I look at the top line outlook here for 2026,

Andrew Jon Krill: You know, it seem to be growing well ahead of many water peers at, you know, the 2% to percent organic, which actually, you know, two points lower due to the 80 as you mentioned, so even better than on paper. Maybe kind of walk us through what is

Michael J. Pesendorfer: Driving some of that performance. Is it price? Is it geo? Is it specific end markets? Just seems like you guys even off of a good 2025 performance. Position better here in terms of growth versus peers?

Robert J. Pagano: Yeah. I think it is a combination of all of the above. Right? We are leveraging the institutional market, the data center market, certainly price, repair and replacement is growing. Again, our new solutions, which are around Nexa and I would call some of our electrification products in our heating and hot water solutions group with our Aegis heat pump. So again, those are all growing and we are leveraging those capabilities. As you know, we have been investing a lot in R&D and we are starting to see the benefits of some of that new product even in difficult markets.

Michael J. Pesendorfer: Yep. Fair enough. And then on the margin guidance here as well, you called out the 50 basis points of dilution due to acquisitions.

Andrew Jon Krill: If you strip that out, I think you guys would have been guiding to basically a typical annual margin expansion targets that you have maintained for the past several years. How should we think about sort of the recapture of that margin into the out years

Nicklaus Marin Cash: As you kind of realize some of these synergies. Is that something that comes right back in 2027?

Robert J. Pagano: Yeah. I mean, that is our goal and focus as an organization. 30 to 50 basis points improvement on margins or operating income. Really at that point. And we will get that through leveraging the One Watts performance system, through factory automation, productivity initiatives, and some of our products that are, you know, we can charge higher prices because they are having better solutions to our customers. So again, it is not just one thing, it is a combination of things that give us confidence that we will continue to grow the 30 to 50 basis points on a go-forward basis.

Nicklaus Marin Cash: Okay. Appreciate the color. I will pass it on. Thank you.

Robert J. Pagano: Thank you.

Operator: And that will conclude our question and answer session. I will hand the call back over to Robert J. Pagano for closing remarks.

Robert J. Pagano: Thank you for joining us today. We appreciate your ongoing interest in Watts Water Technologies, Inc. and look forward to speaking with you again in May for our first quarter results. Have a great day, and stay safe.

Operator: This concludes today’s call. Thank you all for joining. You may now disconnect.