Watts Water Technologies, Inc. (WTS) Cash Flow Statement

The gap between net income and operating cash flow is the central signal in this data, and it swings widely rather than holding a steady ratio. The 2026Q1 conversion of 0.18 appears to reflect a large working capital build of roughly $108M, which suggests earnings in that quarter were not yet backed by collections. Investors should monitor whether the strong 2025Q4 and 2026Q3 conversion ratios of 1.85 and 1.09 represent sustained cash generation or partly reflect the unwinding of working capital absorbed earlier.

Free cash flow margins have expanded from roughly 8% to 13% in 2025 and 2026 quarters, with peak readings of 22.4% and 23.6% in fourth quarters, reflecting the seasonal release of working capital. The sharp 2026Q1 trough indicates that quarterly FCF is heavily dependent on working capital timing rather than on steady earnings power. Underlying cash generation appears stronger than the first-quarter figure suggests, but the quarterly volatility warrants caution when extrapolating any single period.

The magnitude of working capital movements relative to quarterly net income is substantial, implying that receivables and inventory build materially shape reported cash flow. The pattern of heavy absorption in the first half followed by release in the fourth quarter suggests a recurring seasonal cycle tied to construction and distributor purchasing. Investors should examine whether the 2026 absorption reflects inventory build ahead of demand or slower collections, as the data alone cannot distinguish these explanations.

Capital spending has risen from about 1.1% of revenue in 2024 to 3.6% in 2026Q3, which may indicate investment in capacity or the smart and connected product initiatives. Capex remains well below depreciation and amortization in most quarters, suggesting that the asset base is not being fully replaced at current spending levels. Investors should monitor whether the rising capex intensity reflects growth investment or a need to catch up on maintenance spending.

Dividend payments have held steady, but the acquisition outflows in late 2025 were large relative to quarterly free cash flow and appear to explain much of the cash deployed beyond shareholder payouts. Buybacks have been small by comparison, which suggests management is prioritizing bolt-on M&A and dividends over share count reduction. The return on these acquisitions is not disclosed in the data provided, so their contribution to future cash flow remains unverified.