Watts Water Technologies Q2 2026 Earnings Call Transcript

Quartr
Provided by Quartr
August 6, 2026

Key Takeaways

  • Positive Sentiment: Second-quarter results exceeded expectations, with record sales of $763 million, 12% organic growth, adjusted operating margin of 21%, and adjusted EPS of $3.66, up 18% year over year.
  • Positive Sentiment: Watts raised its full-year outlook, now expecting 8%–11% organic sales growth, 14%–17% reported sales growth, and adjusted operating margin expansion of 20–80 basis points. Free cash flow conversion is still expected to reach at least 90% of net income.
  • Positive Sentiment: Data center sales more than tripled year over year and represented 8% of first-half sales, supported by strong demand for cooling products and the new CoolVault thermal storage tanks. The company expanded its estimated served market to approximately $2 billion and expects data centers to comprise a mid- to high-single-digit percentage of full-year sales.
  • Neutral Sentiment: Data center revenue is project-based and potentially volatile; second-quarter results included approximately $10 million of wholesale pull-forward demand and $10 million of data center project pull-forwards. Management has better visibility into the third quarter but acknowledged that fourth-quarter timing remains less certain.
  • Negative Sentiment: Residential and non-institutional new construction markets remain soft, with single-family housing weakening slightly and multifamily activity still below historical levels. Inflation, elevated commodity prices, uncertain tariffs, unchanged interest-rate expectations, and Middle East disruptions remain risks despite the company’s pricing and productivity mitigation efforts.
AI Generated. May Contain Errors.
Earnings Conference Call
Watts Water Technologies Q2 2026
00:00 / 00:00

Transcript Sections

Skip to Participants
Operator

Welcome to Watts Water Technologies Inc.'s second quarter 2026 earnings call. At the end of the presentation, we will open the line for questions. I will now turn the call over to Ray Nash, Vice President, Investor Relations.

Ray Nash
Ray Nash
VP of Investor Relations and FP&A at Watts Water Technologies

Thank you. Good morning, everyone. Welcome to our second quarter earnings conference call. Before we begin, I'd like to remind everyone that during this call, 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' 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 Robert.

Robert Pagano Jr
Robert Pagano Jr
CEO at Watts Water Technologies

Thank you, Ray. Welcome to your first earnings call with Watts. Good morning, everyone. Please turn to slide three. I'll provide an overview of the second quarter. We delivered another quarter of better-than-expected results, including record sales, operating income and earnings per share. I'd like to thank the entire Watts team for their dedication and contributions, which made these results possible. Organic sales rose 12% in the quarter as we benefited from strong growth in data centers and favorable price, as well as pull-forward demand, partly offset by our 80:20 rationalization program. Adjusted operating margin was 21%, down 60 basis points, primarily reflecting the anticipated dilution from recent acquisitions and a difficult comparison against a one-time price-cost benefit in the prior year that we discussed last quarter. Even with those headwinds, margin performance was better than expected due to favorable price, volume leverage, and productivity.

Robert Pagano Jr
Robert Pagano Jr
CEO at Watts Water Technologies

Our balance sheet remains strong and provides ample capacity to support our disciplined capital allocation strategy. This includes evaluating strategic M&A opportunities while continuing to invest in productivity, product innovation, and other key growth initiatives. Moving on to our business updates. We continue to make good progress integrating our recent acquisitions using the One Watts performance system. As a reminder, we completed five acquisitions in 2025 to expand our portfolio, strengthen our market reach, and increase exposure to non-residential markets. Overall, these businesses are performing well, and we remain on track to achieve or exceed our targeted synergies. We have also continued to proactively manage the impact of the Middle East conflict on our business. While it created some headwinds during the quarter, our teams have responded with pricing, supply chain, and productivity initiatives to help mitigate both the direct and indirect impacts.

Robert Pagano Jr
Robert Pagano Jr
CEO at Watts Water Technologies

We're also pleased with the resilience of our newly acquired Saudi Cast business as its in-country, for-country business model has limited the impact from the disruptions in the region. The tariff environment also remains fluid, with new Section 301 and Section 338 tariffs recently announced. These are in addition to the Section 232 currently in effect and replace the Section 122 tariffs, which recently expired. Based on the tariff structures currently in place, we continue to believe we're well-positioned from a price-cost standpoint. Watts offers one of the industry's broadest portfolios of water solutions, and as we discussed before, approximately 60% of our sales come from repair and replacement activity. Together, these characteristics give us a strong foundation across different economic environments.

Robert Pagano Jr
Robert Pagano Jr
CEO at Watts Water Technologies

As a result, while residential and non-institutional new construction markets remain challenged, we have continued to execute well and have been able to allocate resources towards high-growth market opportunities, including our data center initiatives. We continue to see accelerated demand in data center cooling applications, and while data centers remain a relatively small part of our overall business today, we're encouraged by the momentum we're seeing. I'll provide more of an update on our data center initiatives in a few moments. We published our 2025 sustainability report in June. Our sustainability efforts continue to create value for both our customers and Watts. We've made meaningful progress against our second generation of environmental goals while expanding innovative solutions that improve safety, water conservation, and energy efficiency. These efforts reinforce our commitment to solving our customers' most critical water challenges while supporting long-term growth.

Robert Pagano Jr
Robert Pagano Jr
CEO at Watts Water Technologies

I'm proud of the progress our global teams have made and invite you to read more about it in the appendix of today's presentation or in our sustainability report, which can be found on our investor relations website. Now, an update on our outlook for the remainder of the year. Due to our strong first half and our expectations for the third quarter, we are increasing our full-year sales and margin outlook. Data center growth, price realization, and performance in Europe and APMEA are all better than expected versus the outlook we provided in May. However, we do continue to see weakness in some of our macro indicators. Inflation measures and commodity prices are persistently higher compared to earlier this year. In addition, the market outlook for interest rates has shifted with expectations of no further rate reductions throughout the rest of the year.

Robert Pagano Jr
Robert Pagano Jr
CEO at Watts Water Technologies

These factors are compounded by continued uncertainty around trade policies and geopolitical disruptions, especially the ongoing Middle East conflict. As a result, we continue to expect softness in residential and non-institutional new construction markets. Next, please turn to slide four for an update on our data center growth initiative. In the second quarter, our data center sales more than tripled compared with the prior year, reflecting continued strong demand for our cooling solutions, including our recently launched CoolVault thermal storage tanks. Through the first six months of 2026, our data center sales represented 8% of total sales, including some of the pull forwards I mentioned earlier, which Diane will discuss in more detail. We estimate our served addressable market is approximately $2 billion.

Robert Pagano Jr
Robert Pagano Jr
CEO at Watts Water Technologies

This is based on our view of the global market opportunity, including regions beyond China and North America, the double-digit growth rate of the market, and also the trend towards more liquid cooling solutions. As liquid cooling adoption continues to increase, we're also seeing greater content opportunities per megawatt than the traditional air-cooled systems. Because this is a project-based business, the timing and volume of sales will be more variable than in some of our other markets. This can have an impact on our quarterly outlook, as we saw with customer-driven pull forward in Q2. Our expanding global data center organization, along with investments in new product launches, have been paying off, and we feel confident in our ability to scale with our customers.

Robert Pagano Jr
Robert Pagano Jr
CEO at Watts Water Technologies

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. We've been growing faster than the market based on our ability to serve our customers and deliver quality products while continuing to develop strong relationships with contractors, OEMs, and hyperscalers. Data centers continue to represent one of our most attractive growth opportunities. With that, let me turn the call over to Diane, who will address our second quarter results and our third quarter and full-year outlook. Diane?

Diane McClintock
Diane McClintock
CFO at Watts Water Technologies

Thank you, Robert. Good morning, everyone. Please turn to slide five, which highlights our second quarter results. Sales increased to $763 million, reflecting a 19% increase on a reported basis and a 12% increase organically, both better than expected. Growth was driven by price and volume, including the benefit of growth in data center sales and pull-forward sales from the third quarter, which more than offset the impact of our 80:20 rationalization initiative. The Americas region delivered strong organic growth of 12% and reported growth of 17%, both better than expected, driven mainly by price and volume, largely from data center sales. The region also saw some pull-forward demand from wholesale customers of approximately $10 million, ahead of our SAP implementation at the end of June at our largest site, as well as approximately $5 million of pull forward of data center project sales, which shipped earlier than planned.

Diane McClintock
Diane McClintock
CFO at Watts Water Technologies

Our 80:20 product rationalization initiative resulted in a reduction of sales of approximately $8 million or a 1% impact on organic growth. Acquisitions accounted for $28 million in sales, contributing 6 points to the Americas reported growth. In Europe, organic sales rose 9% while reported sales increased 12%. Organic growth stemmed from favorable pricing and higher volumes, particularly in our HVAC business. Reported sales also benefited from positive foreign exchange. Our 80:20 product rationalization resulted in a decline of sales of roughly $1 million or a 1-point impact on organic growth. In APMEA, organic sales grew 31%, driven by an increase in data center sales in China, partly resulting from approximately $5 million of pull forward of several data center projects, which shipped early due to customer requirements, which more than offset the headwinds from the Middle East conflict.

Diane McClintock
Diane McClintock
CFO at Watts Water Technologies

Acquisitions added 17% and favorable foreign exchange contributed 9% for total reported sales growth of 57%. Adjusted EBITDA totaled $177 million, an increase of 15% with an adjusted EBITDA margin of 23.1%, down 70 basis points year-over-year. Adjusted operating income of $160 million increased 15%, adjusted operating margin decreased 60 basis points to 21%. The margin declines were primarily driven by the expected acquisition dilution of 70 basis points, the difficult comparison to the prior year tariff-related price cost benefit, and inflation. This decline was partially offset by favorable price, volume leverage, and productivity gains. Segment margins were as follows: Americas decreased 150 basis points to 25.7%, while Europe increased 160 basis points to 13.3%, APMEA increased 100 basis points to 19.9%. Adjusted earnings per share were $3.66, representing 18% year-over-year growth with operational performance, acquisitions, tax, and foreign exchange driving the majority of the increase.

Diane McClintock
Diane McClintock
CFO at Watts Water Technologies

The adjusted effective tax rate in the quarter was 23.1%, favorable by 210 basis points compared to the second quarter of 2025, primarily due to a non-recurring tax benefit from the reversal of a prior year tax liability. Our free cash flow year-to-date was $108 million, compared to $105 million in the same period last year. The cash flow decrease was primarily due to an increase in accounts receivable due to higher sales and our strategic investment in inventory. We expect seasonal sequential improvement in the second half of the year and are on track to achieve our full-year goal of free cash flow conversion greater than or equal to 90% of net income, as previously communicated. The balance sheet remains strong and provides us with good flexibility to execute on our capital allocation priorities.

Diane McClintock
Diane McClintock
CFO at Watts Water Technologies

Our net debt-to-capitalization ratio at quarter end was -12%, our net leverage is -0.4x. On slide six, we'll review our outlook for the third quarter and full year 2026. As Robert mentioned, we are raising our full-year sales and margin outlook. This is based on a strong first half and our third quarter outlook. This updated guidance assumes there's no change in the current status of the Middle East conflict. We are also assuming that there are no further changes to the tariff structure that is currently in place, we are also not including any potential IEEPA tariff refunds in our outlook. Any refunds received in future periods will be treated as non-recurring special items and will therefore not be included in our adjusted results.

Diane McClintock
Diane McClintock
CFO at Watts Water Technologies

We now anticipate organic sales growth of 8%-11%, which reflects over a five-point increase to the midpoint of our previous outlook. Excluding the impact of our ongoing 80/20 product rationalization, our organic sales growth would be approximately one point higher. Our reported sales are now expected to be up 14%-17%. Regionally, organic sales in the Americas are now expected to increase by 9%-12%, driven by price and volume, especially within data centers, more than offsetting anticipated 80:20 product rationalization headwinds of $25 million-$26 million. In Europe, organic sales are now projected to increase by one point to four points, as favorable price and volume are partly offset by $6 million-$8 million in 80:20 product rationalization. APMEA is now expected to achieve organic growth between 9%-12%.

Diane McClintock
Diane McClintock
CFO at Watts Water Technologies

Incremental sales from acquisitions are expected to be between $105 million-$110 million in the Americas, a slight decline from our previous outlook as we begin to drive 80:20 actions in these businesses. We also expect between $21 million-$22 million of acquired sales in APMEA. Foreign exchange is estimated to be an $18 million favorable impact. We are raising our full-year adjusted EBITDA margin outlook to a range of up 20 basis points-80 basis points, which is a 60 basis point increase in the midpoint of our previous outlook.

Diane McClintock
Diane McClintock
CFO at Watts Water Technologies

We are also raising our full-year adjusted operating margin expansion to a range of up 20 basis points-80 basis points, which is 70 basis points higher than the midpoint of our previous outlook. Margin expansion continues to come from price, volume leverage, and productivity, which more than offset higher inflation and 50 basis points of acquisition dilution.

Diane McClintock
Diane McClintock
CFO at Watts Water Technologies

Regionally, Americas segment margin is now anticipated to range from a decrease of 20 basis points to an increase of 40 basis points, largely overcoming approximately 100 basis points of acquisition dilution. Europe segment margin is now expected to increase 20 basis points-80 basis points based on strong price and productivity, which includes the expected benefits from our France restructuring program. APMEA segment margin is forecasted to increase by 30 basis points-90 basis points. This guidance assumes no changes to the current tariff environment. Our free cash flow expectation remains in line with our previous outlook, and we expect to deliver free cash flow conversion of greater than or equal to 90% of net income. Next, a few items to consider for the third quarter. Reported sales are expected to increase by 11%-14%, with organic sales up 5%-8%.

Diane McClintock
Diane McClintock
CFO at Watts Water Technologies

We anticipate high single digit to low double digit growth in the Americas, which is sequentially lower than the second quarter due to the pull-forward demand previously discussed and the sequential decline in price as we comp prior year price increases. We expect flat to low single digit growth in Europe and mid to high single digit growth in APMEA, with our expected data center sales offsetting the impact of the Middle East conflict. These estimates incorporate the negative impact from product rationalization under our 80:20 initiative of approximately $2 million in Europe and $6 million in the Americas. Incremental sales from acquisitions are projected at $30 million-$33 million for the Americas and around $5 million-$6 million for APMEA. We also estimate an unfavorable foreign exchange impact of approximately $3 million. Third quarter EBITDA margin is expected to be between 22.2%-22.8%.

Diane McClintock
Diane McClintock
CFO at Watts Water Technologies

Operating margin is expected to be between 19.8%-20.4%. Across all regions, price and volume leverage are anticipated to be partly offset by higher inflation and acquisition dilution of approximately 50 basis points. Additional key assumptions for the third quarter and full year are available in the appendix of the earnings presentation. With that, I'll turn the call back over to Robert before moving to question-and-answer. Robert?

Robert Pagano Jr
Robert Pagano Jr
CEO at Watts Water Technologies

Thanks, Diane. To wrap up, we delivered another strong quarter with record sales, operating income, and EPS. As we discussed throughout the call, data centers are an important growth opportunity and also a good example of how we are successfully targeting additional growth markets. At the same time, our diverse market exposure and significant repair and replacement business continue to provide a consistent foundation for revenue and cash flow generation across different economic conditions. Based on our strong first half performance and third quarter expectations, we are increasing our full year sales and margin outlook. We are monitoring the macro environment, including tariffs, interest rates, and geopolitical developments, and we believe we are well-positioned to navigate those uncertainties. Our balance sheet is strong and our cash flow is healthy, and we have ample flexibility to support our disciplined capital allocation priorities.

Robert Pagano Jr
Robert Pagano Jr
CEO at Watts Water Technologies

We'll continue to deploy capital to high return opportunities that will help us deliver sustainable, profitable growth and create value for our shareholders. With that, operator, please open the lines for questions.

Operator

Thank you. We will now begin the question-and-answer session. If you have dialed in and would like to ask a question, please press star one on your telephone keypad to raise your hand and join the queue. If you would like to withdraw your question, simply press star one again. If you are called upon to ask your question and are listening via speakerphone on your device, please pick up your handset to ensure that your phone is not on mute when asking your question. We do request for today's session that you please limit to one question and one follow-up question only. Thank you. Our first question comes from the line of Andrew Krill with Deutsche Bank. Your line is open.

Andrew Krill
Andrew Krill
Analyst at Deutsche Bank

Hi. Thanks. Good morning, everyone.

Robert Pagano Jr
Robert Pagano Jr
CEO at Watts Water Technologies

Morning.

Diane McClintock
Diane McClintock
CFO at Watts Water Technologies

Good morning, Andrew.

Andrew Krill
Andrew Krill
Analyst at Deutsche Bank

I want to first on data centers, could you just give some more color on why the TAM expanded or doubled from $1 billion you were saying pretty recently to $2 billion so quickly? Does this include the opportunity in Europe, or would that be incremental to this $2 billion? On Europe, have you made any data center sales there, or is that in the forward look? Thanks.

Robert Pagano Jr
Robert Pagano Jr
CEO at Watts Water Technologies

Yeah. We've been fine-tuning that analysis, really, where we increase it from $1 billion-$2 billion. Yes, we added Europe inside of that, and we have been selling some business inside of Europe. In my prepared remarks, I talked about some of the shift towards liquid cooling, some of the growth we're seeing, and then adding our thermal storage tank with our CoolVault. Again, refining it, more of a global number now versus just an APMEA North America number.

Andrew Krill
Andrew Krill
Analyst at Deutsche Bank

Thanks. That's helpful. Then related topic for the data centers, can you give us some color on how hard that you're running your manufacturing sites? I noticed the CapEx in the guide moved modestly higher. Is it fair? That's all related to data centers? Are we ever going to get to a point where there needs to be a more major footprint expansion? Thanks.

Robert Pagano Jr
Robert Pagano Jr
CEO at Watts Water Technologies

You're correct. We did expand our CapEx, and that is directly related to some of the additions we're doing at both our sites in North America as well as inside of China, as well as we're growing our global supply chain. The teams are really focused on that, and we're adding shifts where we need to. As we look and look for the future here, we'll adjust our CapEx accordingly. We're not seeing huge CapEx, and we're really focused on our existing facilities and some of our new acquisitions. Superior Boiler, for example, is making some of those cool tanks. We're adjusting their capabilities inside their factories to allow them to continue to expand and leverage their capacity that they have.

Andrew Krill
Andrew Krill
Analyst at Deutsche Bank

Great. Thank you.

Robert Pagano Jr
Robert Pagano Jr
CEO at Watts Water Technologies

Thank you.

Operator

Our next question comes from the line of William Griffin with Barclays. Your line is open.

William Griffin
William Griffin
Analyst at Barclays

Hi. Good morning, and thanks for the time here.

Robert Pagano Jr
Robert Pagano Jr
CEO at Watts Water Technologies

Good morning.

William Griffin
William Griffin
Analyst at Barclays

I guess just to start here on data centers, maybe not surprisingly, but it feels like growth has been much stronger even than maybe your own internal expectations. Just curious if you could provide a little more color here on where you're seeing the most success. How has adoption been of new products as you roll those out? Could you give us a flavor of sort of what maybe products are in development, what could be next, and how could that continue to drive growth in this customer segment?

Robert Pagano Jr
Robert Pagano Jr
CEO at Watts Water Technologies

Yeah. Yes. Look, in this business, customers rely on quality products delivered on time, our teams are doing exactly that. It's all about profitable growth in this market, so we're very selective to make sure we can meet the customer requirements. Certainly, our focus on the new CoolVault that we talked about earlier, we did not have that product last year, and we do have it now, and that's been growing with the thermal storage tank. We'll continue to expand. We're developing new products, especially in the stainless steel side, really as things move to more towards liquid cooling is where we're focused some of our R&D efforts. We're working closely with our customers and looking forward to sharing more as some of these new products come online.

William Griffin
William Griffin
Analyst at Barclays

Appreciate that. I think the guidance encompasses mid to high single-digit revenue mix for data centers. What sort of puts and takes, I guess, or how are you thinking about what would drive you to the low end versus the high end of that range, and what is your visibility into the second half? I know you talked about this being a project-based business, so maybe it's some of that, would just be curious there for some more color.

Robert Pagano Jr
Robert Pagano Jr
CEO at Watts Water Technologies

Yeah, this is a really lumpy business. Project, as Diane talked earlier about it, we had customers move different projects around, they accelerated some of our products and delayed some other projects that we weren't on. It is lumpy. We have clearer visibility on construction schedules for Q3. Gets a little tougher in Q4 because some of these delays could push some of the projects out or in. Again, we monitor that very closely. We have our project management teams working very closely with customers to stay on top of that and continuing to work and leverage that. Again, these are large projects, so it gets lumpy in some of these quarters. All things came together in the second quarter, quite honestly, we shipped a lot. We'll monitor that.

Robert Pagano Jr
Robert Pagano Jr
CEO at Watts Water Technologies

Our best visibility is in Q3 right now, we feel comfortable with our guidance.

William Griffin
William Griffin
Analyst at Barclays

All right. Thank you very much.

Robert Pagano Jr
Robert Pagano Jr
CEO at Watts Water Technologies

Thank you.

Operator

Our next question comes from the line of Mike Halloran with R.W. Baird. Your line is open.

Michael Halloran
Michael Halloran
Analyst at Robert W. Baird

Hey, good morning, everyone.

Robert Pagano Jr
Robert Pagano Jr
CEO at Watts Water Technologies

Good morning.

Michael Halloran
Michael Halloran
Analyst at Robert W. Baird

Hey, maybe just a state of the union on what you're seeing on the more legacy construction markets, non-data center, which is obviously exciting for you guys. Any signs of change either way in the quarter? I know the environment cumulatively remains challenging, but if you think about the sub-segments that you serve within the non-res landscape, or multifamily, are you seeing any real change either way in any of those sub-areas?

Robert Pagano Jr
Robert Pagano Jr
CEO at Watts Water Technologies

Mike, when I look at the residential side, single family is probably getting slightly worse than it was last quarter. Multifamily is hanging in there, still soft compared to what we've seen before. Institution, both healthcare and education is holding up, which is good. Other than data centers, the other non-residential product, new construction is still soft. It varies by region, but I would say in general, it's similar to what we talked about last quarter, maybe slightly worse in the residential side.

Michael Halloran
Michael Halloran
Analyst at Robert W. Baird

Thanks for that. When you think about the pricing side of things, kind of a twofold question here. Do you think the pricing actions you've taken position you for favorability or at least neutrality as you work through the back half of the year? Maybe help just understand how that cadences the price cost piece cadences and the guidance in the back half of the year.

Diane McClintock
Diane McClintock
CFO at Watts Water Technologies

Yeah, Mike. We saw about 6% price in the second quarter. We do expect that to sequentially decline in the back half. We feel okay about our price-cost dynamic right now. We did do a couple of selected price increases globally just to address some of the inflation from the Middle East conflict, and we're watching that closely. We feel pretty good about where we're at.

Michael Halloran
Michael Halloran
Analyst at Robert W. Baird

Thank you. Much appreciated.

Robert Pagano Jr
Robert Pagano Jr
CEO at Watts Water Technologies

Thank you.

Diane McClintock
Diane McClintock
CFO at Watts Water Technologies

Thank you.

Operator

Next question comes from the line of Jeff Hammond with KeyBanc Capital Markets. Your line is open.

Jeff Hammond
Jeff Hammond
Analyst at KeyBanc Capital Markets

Hey, good morning, everyone.

Robert Pagano Jr
Robert Pagano Jr
CEO at Watts Water Technologies

Good morning, Jeff.

Jeff Hammond
Jeff Hammond
Analyst at KeyBanc Capital Markets

Robert, I'd call doubling your TAM more than fine tuning.

Robert Pagano Jr
Robert Pagano Jr
CEO at Watts Water Technologies

Well, Jeff, I always said greater than $1 billion, certainly $2 billion is greater than $1 billion.

Jeff Hammond
Jeff Hammond
Analyst at KeyBanc Capital Markets

Can we just unpack that a little bit? How much is the Europe TAM expansion? Do you have a TAM for this thermal tank piece? Then, as you look at your product portfolio, and I think you mentioned some of the work you're doing in liquid cooling, other products or applications that you are finding you can sell into that market would be helpful.

Robert Pagano Jr
Robert Pagano Jr
CEO at Watts Water Technologies

Yeah. There's a lot of puts and takes here. It's not only Europe. We looked at the Middle East. We also looked at Southeast Asia and some of the other markets. Before, the number was primarily, let's call it North America and China related. We've now expanded it global. We're seeing opportunities that we're quoting on a global basis. That's the big shift. Certainly, we had a little more weighted towards air-cooled, and we're seeing more of a shift towards liquid-cooled. A bunch of math, but it gets us closer there. When we said $1 billion before, we were around $1.4 billion, but we rounded it to $1 billion. Now we're leaning more up towards that $2 billion. Again, we believe it's a good number. We've cross-referenced it, tied it globally, and feel better about that overall number.

Jeff Hammond
Jeff Hammond
Analyst at KeyBanc Capital Markets

Okay. You think of the thermal tank TAM and then other products that you can pull in. I want to say you've mentioned EasyWater in the past, a newer acquisition.

Robert Pagano Jr
Robert Pagano Jr
CEO at Watts Water Technologies

Yeah. The thermal tanks is a part of that, especially in the liquid cooling side of that. Each customer is different in how they're using thermal storage tanks, and we are leveraging our Superior Boiler because they had the ability to make large custom boilers. They have the capacity to do these very large tanks as well as what we can do in our Texas location. Again, those are opportunities. We've seen some really strong success, especially in Q2, in winning some projects that we have visibility through the rest of this year on that market.

Jeff Hammond
Jeff Hammond
Analyst at KeyBanc Capital Markets

Okay, last one. You mentioned the market 15%-20% growth, which seems a little bit low. Maybe just talk about your outgrowth. It seems like you're crushing market growth in the near term, but just how much do you think, what do you think your data center business can grow at versus that 15%-20%?

Robert Pagano Jr
Robert Pagano Jr
CEO at Watts Water Technologies

Yeah. Prior to this, I go back to that CoolVault and those thermal storage tanks. We're shipping a lot more of that, than we had last year. We didn't ship any last year, quite honestly. As we're looking at that, we are outgrowing the market from that point of view because of our new product development. As I said earlier, we're focused on profitable growth. There's more activity you can get, but we're driving profitable growth. We're being disciplined in making sure we can meet the customer demand. Although the market might be growing, we're going to focus on the more profitable side of that market, where the people and our customers trust our quality and on-time delivery, and value that. Again, that's where we're focused and why we believe that number is the right number for us to look at.

Jeff Hammond
Jeff Hammond
Analyst at KeyBanc Capital Markets

Okay. Thanks for the time, Robert.

Robert Pagano Jr
Robert Pagano Jr
CEO at Watts Water Technologies

Thank you.

Operator

Our next question comes from the line of Brian Lee with Goldman Sachs. Your line is open.

Keshav Choudhary
Keshav Choudhary
Analyst at Goldman Sachs

Hey, guys. This is Keshav Choudhary on for Brian Lee. Thanks for taking my question.

Keshav Choudhary
Keshav Choudhary
Analyst at Goldman Sachs

Earlier this year, you had mentioned that Asia Pacific used to be the leader for your data center business, and then Americas accounted for more than half of the revenue. With the high growth highlighted in the Q2 for China data center demand, can you update us on the geographic mix and how you expect it to evolve over the next 12 months to 24 months? More importantly, are there any meaningful differences in the margin profile between U.S. and China and maybe other markets? Could a shift towards China be a tailwind or a headwind to the margins? Thank you.

Robert Pagano Jr
Robert Pagano Jr
CEO at Watts Water Technologies

I'll take the first part of the question. We continue to grow specifically in the China market, but we're expanding beyond that. We've had some really strong growth in Asia Pacific, at least from the inquiries point of view, other than China. As we look in Americas is growing faster than China right now, primarily because of that CoolVault, which we're really only have in the U.S. at this point in time. That's where the U.S. is growing even faster than that region. Again, we're continuing to grow in all of our regions around the world, including Europe. It's a global initiative where we're focused on leveraging our global capabilities to win in that market.

Diane McClintock
Diane McClintock
CFO at Watts Water Technologies

I think on your margin question, Robert's right. I think the Americas is growing faster than the Asia Pacific region. From a margin perspective, all of it's accretive. I don't think we're going to see a mix issue going forward.

Keshav Choudhary
Keshav Choudhary
Analyst at Goldman Sachs

Okay, cool. Thank you. Just to maybe continue on the data center part, you disclosed a content opportunity of about $25,000-$100,000 per MW content. Can you just help us identify what will drive a project towards the high end versus the low end of that range, and whether the average content per megawatt opportunity is increasing over time? Additionally, is the content higher in the U.S. region versus the other regions?

Robert Pagano Jr
Robert Pagano Jr
CEO at Watts Water Technologies

Going back to your previous question, yes, there's more content inside the U.S. only because we're selling that CoolVault. Overall, when we look at it, each project varies depending on what part of the project and what we're getting. A project could be as low as $50,000 or as high as $30 million. Again, it varies based on content, based on customer need, and based on it's going to be higher in a liquid cooling application because there's more content inside of that. That drives you towards the higher liquid cooling with a tank, would drive you to that higher one versus smaller content on the bottom of that. Again, it varies by project. We're giving a range, and the ranges adjust accordingly based on each one of the customer and based on project timing or where customers need us the most.

Robert Pagano Jr
Robert Pagano Jr
CEO at Watts Water Technologies

It's a big range, but again, that's what we're seeing in the market.

Keshav Choudhary
Keshav Choudhary
Analyst at Goldman Sachs

Cool. Thank you. That helps a lot.

Robert Pagano Jr
Robert Pagano Jr
CEO at Watts Water Technologies

Thank you.

Operator

Next question comes from the line of James Ko with Jefferies. Your line is open.

James Ko
James Ko
Analyst at Jefferies

Good morning. Thanks for taking questions here, and congrats on the quarter.

Diane McClintock
Diane McClintock
CFO at Watts Water Technologies

Good morning.

James Ko
James Ko
Analyst at Jefferies

Morning. I wanted to touch on the data center again. Sorry for keep getting on this, on project visibility, I think other companies kind of serving the data center construction kind of supply chain kind of described it as kind of multi-year backlog, and they have all that design win pipelines and everything. Does Watts have similar visibility into its data center pipeline longer term, or is the nature of your product such that orders are placed closer to the construction date with kind of less lead times? Yeah, any color on that would be helpful.

Robert Pagano Jr
Robert Pagano Jr
CEO at Watts Water Technologies

Yeah. I think the answer is both, right? We have longer visibility, in particular with the CoolVaults, because they're very large and take a long time to do it. Some of the other products, we have lower visibility. We don't have two years' worth of visibility. I would say at the largest amount, we have maybe five months, and then it is down from there. We stay very close to customers. We understand where their plans are, construction contractors, et cetera, on what their needs are, and we're anticipating their future needs based on discussions with them, and we have a great pipeline. We're working with them. It's also a timing of their release. A lot of them change their designs won't finalize a design till very close to the end, which impacts the piping and the valve structure inside that business.

Robert Pagano Jr
Robert Pagano Jr
CEO at Watts Water Technologies

It's based on size, et cetera, as it gets closer. We've been combating that by having inventory available on the various sizes and adjust accordingly. As you can see, we've been investing in inventory to have that variability inside of each one of those customer requirements.

James Ko
James Ko
Analyst at Jefferies

Got it. Thank you. I guess kind of similar question, can you kind of walk us through how you actually kind of go to market on this data center cooling loop? Are you selling primarily through a distribution, like direct to mechanical contractors or directly to hyperscalers and OEMs that are doing actual system? At what stage product design process does Watts typically get specified in? Do they usually sole source or do they usually use multiple sourcing?

Robert Pagano Jr
Robert Pagano Jr
CEO at Watts Water Technologies

Well, I think in this market, I think that all of them are multiple sourcing based on projects and where they're doing it. We involved a lot of with our rep network. We're working closer with the customer, so we're partnering with our reps and the contractors, working directly with them. In some cases, especially on the CoolVault, we're really working with some of the hyperscalers and the contractors directly with that. Each one of it varies. You get qualified by the hyperscalers and working directly with all the channel partners to do it. We're in the whole process. We see the pipelines, we see the jobs, we're speaking with them, and we stay very close with them until the final release is out there.

James Ko
James Ko
Analyst at Jefferies

Great. Thanks for taking questions here.

Robert Pagano Jr
Robert Pagano Jr
CEO at Watts Water Technologies

Thank you.

Operator

If you would like to ask a question, press star then the number one on your telephone keypad. Our next question comes from the line of Jeffrey Reive, which has happened to disconnect his line. Okay, everyone, that concludes the question and answer session. I would like to turn the call back over to Ray Nash for closing remarks.

Robert Pagano Jr
Robert Pagano Jr
CEO at Watts Water Technologies

Operator. It looks like he came back into the queue.

Operator

Okay. Jeff Reive, your line is now open.

Jeff Reive
Jeff Reive
Analyst at RBC Capital Markets

Yeah, sorry about that. The long pause made me question if I was logged in for a question. I just want to go back to some of the data center stuff. I'm sorry for kind of going so much of this discussion, but the $25,000-$100,000 per MW, I think is a new disclosure. Can you just help us understand where within the range your current mix sits and maybe what your pipeline looks like? Should we just think about the $100,000 as like a data center with both air and liquid cooling, or is there something else?

Robert Pagano Jr
Robert Pagano Jr
CEO at Watts Water Technologies

We talked a little bit about this in the previous questions. Again, I would say the high end would assume it's a liquid cooled that also has thermal storage tanks. That's on the high end and very high end. I would say the answer is always in between some of those numbers. I see that's kind of where we're seeing a lot of these, but again, every project's different. These are just general discussions. We've had a lot of inquiries over the past quarter, people asking us, "Could you quantify this for us?" We did our best job of doing it. Anytime you give a range like this, it gets very difficult because it can be on the small end. It depends on whether liquid cooled, air cooled, whether it's in the U.S., whether it's in China or wherever in Europe.

Robert Pagano Jr
Robert Pagano Jr
CEO at Watts Water Technologies

Again, we participate throughout the whole cycle. We're just trying to give you the ranges for each one of these to give you some clarity when you look at inside of an overall data center in how we play.

Jeff Reive
Jeff Reive
Analyst at RBC Capital Markets

Appreciate that. I guess directionally, we can then make an assumption kind of where liquid cooling growth is and kind of your opportunity. Maybe just one more on just the gross margin compressed this quarter. I think SG&A improved. Is that related to the data center business mix? Should we expect that to continue, and maybe is there a natural floor on gross margins as the portfolio shifts?

Diane McClintock
Diane McClintock
CFO at Watts Water Technologies

Yeah, from the gross margin perspective, remember, there's a little bit of acquisition dilution in there. We did have the challenging price cost compared to last year. Those are a couple pieces of it. Yeah, on the data centers, we do have a little bit of gross margin dilution from that, but it's actually accretive to operating margin because there's a very low operating expense burden on that data center business. You will see that a little bit going forward.

Jeff Reive
Jeff Reive
Analyst at RBC Capital Markets

Great. Thank you.

Operator

There are no further questions at this time. I would like to turn the call back over to Ray Nash for closing remarks.

Ray Nash
Ray Nash
VP of Investor Relations and FP&A at Watts Water Technologies

Thank you, operator. Thank you for joining us today. We appreciate your continued interest in Watts and look forward to speaking with you again during our third quarter earnings call in early November. Have a great day and stay safe.

Operator

Ladies and gentlemen, that concludes today's call. Thank you all for joining. You may now disconnect

Executives
Analysts
Powered by Quartr