HAYW Q2 Deep Dive: Margin Expansion and Aftermarket Resilience Offset Discretionary Softness

Pool equipment and automation systems manufacturer Hayward Holdings (NYSE:HAYW) reported Q2 CY2025 results beating Wall Street’s revenue expectations, with sales up 5.3% year on year to $299.6 million. The company expects the full year’s revenue to be around $1.09 billion, close to analysts’ estimates. Its non-GAAP profit of $0.24 per share was 6.1% above analysts’ consensus estimates.

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StockStory’s Take

Hayward’s second quarter results were well received by the market, as the company outperformed Wall Street’s revenue and profit expectations. Management attributed the solid performance to margin expansion driven by productivity initiatives, a favorable product mix, and disciplined execution in both North America and Europe. CEO Kevin Holleran highlighted, “This represents the 10th consecutive quarter of year-over-year gross margin expansion, a direct result of the strong performance of our commercial and operations teams.” The aftermarket segment remained resilient despite ongoing pressures in more discretionary categories like new pool construction and remodeling.

For the remainder of the year, Hayward’s outlook is shaped by ongoing investments in automation, product innovation, and efforts to mitigate tariff impacts through supply chain adjustments. Management expects that tariff-related price actions and operational mitigation programs will help protect profitability, even as certain cost headwinds persist. CFO Eifion Jones noted, “As we complete our operational mitigation programs, that will be the driver to open back up again the gross profit margin percentage,” emphasizing the importance of ongoing cost control and efficiency gains in supporting the company’s guidance.

Key Insights from Management’s Remarks

Management credited the quarter’s outperformance to a combination of strong aftermarket demand, pricing actions, and operational efficiency gains, while noting continued softness in discretionary spending on new pools and remodels.

• Aftermarket strength: Roughly 85% of Hayward’s sales are tied to the aftermarket, which proved more resilient than discretionary segments. Homeowners prioritized maintenance and minor upgrades over large-scale projects, supporting steady demand for replacement parts and automation add-ons.
• Tariff mitigation strategy: The company aggressively reduced direct sourcing from China, targeting a drop from 10% to 3% of U.S. cost of goods sold by year-end. This supply chain shift, coupled with selective North American price increases, helped offset the impact of evolving tariffs on margins.
• Commercial business expansion: Hayward’s acquisition of ChlorKing contributed to doubling commercial sales in North America year-to-date, and management sees this as a cornerstone for further commercial segment growth. Integration has yielded anticipated sales and operational synergies.
• Gross margin record: Operational improvements, SKU rationalization, and increased automation drove a record 52.7% gross margin, with North America leading the gains. Management highlighted ongoing lean manufacturing initiatives and product mix optimization as central to margin expansion.
• Targeted SG&A investments: Increased spending in engineering, customer care, and marketing was highlighted as essential to fueling future growth and improving market share, especially in underpenetrated regions and higher-value product categories.

Drivers of Future Performance

Hayward’s updated guidance is underpinned by expectations for resilient aftermarket demand, tariff management, and further margin gains from operational improvements and supply chain localization.

• Aftermarket demand stability: Management anticipates that maintenance and replacement activity for the existing pool base will continue to drive the majority of sales, helping to cushion any ongoing softness in new pool construction or remodeling activity.
• Tariff and supply chain actions: The company expects to maintain profitability through targeted pricing actions and a strategic shift in sourcing, reducing exposure to volatile tariff environments by reshoring production to North America. Management believes these actions will help offset any incremental cost pressures.
• Commercial and product innovation focus: Continued investment in commercial pool product lines and the rollout of new automation solutions, like OmniX-enabled pumps, are expected to support incremental growth and market share gains. However, management is monitoring consumer repair versus replace trends, which could temper demand for full-system upgrades.

Catalysts in Upcoming Quarters

In the coming quarters, the StockStory team will be watching (1) the pace of commercial business expansion and ChlorKing integration, (2) progress toward lowering exposure to Chinese sourcing and the resulting impact on gross margins, and (3) trends in aftermarket demand versus discretionary new pool and remodel activity. The ongoing rollout of automation products and regional market share initiatives will also be critical signposts.

Hayward currently trades at $15.30, up from $14.95 just before the earnings. At this price, is it a buy or sell? Find out in our full research report (it’s free).

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