Earnings Recap — Q2 FY2026
CY Q3 2026 · Reported August 5, 2026 · Beat 7 of last 7 quarters
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Watts' data center cooling business is scaling rapidly, with sales more than tripling and now representing 8% of H1 sales. The company raised its served addressable market to $2 billion, reflecting global expansion and liquid cooling adoption. This signals continued strength in the AI infrastructure buildout, particularly in cooling infrastructure, and validates the thesis that liquid cooling content per megawatt is increasing.
Watts delivered record Q2 sales of $763 million, up 19% reported and 12% organic, driven by price, data center growth, and customer pull-forward. Adjusted operating income rose 15% to $160 million, with margin down 60 bps to 21% due to acquisition dilution and a tough prior-year price/cost compare. Data center sales more than tripled, with H1 representing 8% of total sales. The company raised full-year guidance, citing strong momentum in data centers and Europe/APMEA, while noting continued softness in residential and noninstitutional new construction.
Management raised full-year 2026 organic sales growth guidance to 8% to 11% and adjusted operating margin expansion to +20 to +80 bps. The raise reflects stronger-than-expected data center demand, price realization, and Europe/APMEA performance. Data center sales are now expected to represent mid- to high single digits of total sales for the year, up from 3% in 2025. Management remains cautious on residential and noninstitutional new construction, citing persistent inflation, higher interest rates, and Middle East conflict uncertainty. They assume no further tariff changes and exclude any IEPA refunds. Margin expansion is expected from price, volume leverage, and productivity, partially offset by ~50 bps of acquisition dilution and higher inflation.
“We delivered another quarter of better-than-expected results, including record sales, operating income and earnings per share.”
on Q2 performance
“We now expect data center sales for the full year to represent mid- to high single digits as a percentage of overall company sales compared with just 3% of sales last year.”
on Data center outlook
“This is a really lumpy business. It – project, as Diane talked earlier about it, we had customers move different projects around and they accelerated some of our products and delayed some other projects that we were on.”
on Data center volatility
Could you give us some more color on why the TAM expanded or doubled from $1 billion to $2 billion so quickly? Does this include the opportunity in Europe?
We refined the analysis to a global number, adding Europe and other regions like the Middle East and Southeast Asia. The shift towards liquid cooling and new products like Cool Vault also expanded the opportunity.
What sort of puts and takes drive the low end versus high end of the mid- to high single-digit data center mix guidance? What is your visibility into the second half?
Data center is a lumpy project-based business. We have clear visibility on Q3 construction schedules, but Q4 is tougher as projects can shift. We feel comfortable with our guidance.
Can you update us on the geographic mix of data center revenue and any margin differences between U.S. and China?
Americas is growing faster than China, partly due to Cool Vault availability. All data center business is accretive to margins; no mix issue expected.