Watts Water shares rose 1.4% to $363.29 on Wednesday. The filing behind that move had the easy headline: revenue jumped 18.6% to $763.2 million in the three months ended June 28.
The harder part is underneath. Inventory rose 21.9% to $546.5 million, accounts receivable climbed 19.8%, and cash fell 5.8% to $347.9 million from the comparable period a year earlier. Watts sold more, earned more, and carried a larger amount of the business on its balance sheet.
That matters because the growth did not arrive with more margin. Gross profit increased 14.8%, slower than sales, and gross margin slipped to 49.0% from 50.6%. Operating income still rose 13.8% to $154.0 million, but operating margin also narrowed, to 20.2% from 21.0%.
Management attributes the gross-profit increase to price realization, productivity, volume leverage, and acquisitions. The company also says inflation and tariffs were in the mix, and that acquisitions plus the fading benefit of earlier tariff-related price increases diluted gross margin.
The 10-Q puts the margin trade-off plainly:
"Gross margin declined primarily due to the dilutive impact of acquisitions and the prior year benefit of tariff-related price increases ahead of related cost recognition."
10-Q, August 6, 2026
In plain English, Watts kept more dollars from pricing and volume, but not at last year’s rate. The latest annual results show a business that had expanded operating margin to 18.4% in 2025, which makes the current compression a specific comparison point rather than a broad change in direction.
The balance-sheet movement adds another layer. Watts says higher accounts receivable followed higher net sales, while inventory reflected incremental tariffs and strategic investments to support expected end-market demand.
"Working capital increases were due to higher accounts receivable attributable to higher net sales, higher inventory due to incremental tariffs and strategic inventory investments to support expected end-market demand. Our net debt to capitalization ratio, a non-GAAP financial measure used by management, at June 28, 2026 was (12.3%) compared to (11.4%) at December 31, 2025."
10-Q, August 6, 2026
The company remains in a net-cash position, with $207.8M of net cash in the latest annual balance-sheet data. That gives the working-capital build a different shape from a debt-funded expansion, but it does not make the cash movement disappear. Free-cash-flow margin also fell 1.9 percentage points on the comparable-period measure.
One disclosed source of demand is data-center growth, primarily in the Americas. Management says higher price realization, incremental volume, and productivity savings lifted organic operating income, partially offset by inflation and tariffs. Management’s comments identify operating-income contributions beyond acquisitions, though acquisitions are part of the margin arithmetic.
At $12.2B of market value, Watts carries a 35.7x trailing P/E and a 4.9x EV-to-sales multiple. Those figures frame the filing’s central tension without resolving it: the business is growing at a faster clip than its recent annual record, while the latest three-month gross margin and cash balance moved in the other direction.
The filing leaves inventory intensity higher than in the comparable period.
Source: Watts Water Technologies 10-Q filed August 6, 2026.