Hayward's Century of Innovation: Powering Pool Profits Amidst Market Shifts (NYSE:HAYW) - HAYW Stock Research Report

## Executive Summary / Key Takeaways * Resilient Aftermarket Core: Hayward Holdings, Inc. (HAYW) leverages a highly resilient business model, with over 80% of its revenue derived from the non-discretionary aftermarket for existing pools, providing a stable foundation amidst broader economic uncertainties. * Technological Leadership & Margin Expansion: The company is driving growth and profitability through continuous innovation, notably with the OmniX platform for cost-effective pool automation, and a disciplined focus on operational excellence and strategic pricing, leading to record gross margins. * Strategic Deleveraging & Capital Flexibility: Hayward has significantly reduced net leverage to 2.1x, near the low end of its target range, enhancing financial flexibility for organic investments, strategic acquisitions like ChlorKing, and a new $450 million share repurchase program. * Proactive Tariff Mitigation: Management is aggressively de-risking its supply chain by reducing direct China sourcing from 10% to 3% of COGS by year-end 2025, expecting to fully offset tariff impacts through operational efficiencies and targeted pricing. * Cautious Yet Confident Outlook: While acknowledging ongoing pressure on discretionary new construction and remodel segments, Hayward projects 2% to 5% net sales growth and $280 million to $290 million in Adjusted EBITDA for 2025, underpinned by strong execution and aftermarket resilience. ## A Century of Pool Innovation: Hayward's Enduring Foundation Hayward Holdings, Inc. stands as a cornerstone in the pool and outdoor living technology sector, celebrating its 100-year anniversary in 2025. Founded in 1925 as a tool and die maker, the company pivoted decisively into the swimming pool market in the 1960s under Oscar Davis, laying the groundwork for its current global leadership. This rich history underscores Hayward's deep industry expertise and its established position as a designer, manufacturer, and marketer of essential pool and outdoor living technology. The pool industry itself presents attractive market characteristics, driven by significant aftermarket requirements for existing pools, innovation-led growth opportunities, and a favorable industry structure. Hayward's business model is inherently resilient, with approximately 85% of its North American residential pool net sales aligned with the non-discretionary aftermarket. These sales are generally recurring, as products like pumps, filters, and sanitizers are critical for the ongoing operation, water quality, and sanitization of pools. With a product replacement cycle of approximately 8 to 11 years, Hayward benefits from multiple replacement opportunities over a pool's typical lifespan, creating a stable, recurring revenue stream. Hayward's overarching strategy is rooted in technological leadership and operational excellence. The company consistently invests in advanced engineering and new product development to bring innovative, energy-efficient, and automated solutions to market. This commitment to innovation is a core competitive advantage, enhancing the pool owner's experience while driving higher-value product adoption. Hayward's strong brand recognition, cultivated over decades, translates into enhanced customer loyalty and pricing power, particularly in premium segments. This brand strength, coupled with established distribution channels through specialty distributors, retailers, pool builders, and buying groups, forms a robust competitive moat. ## Technological Edge: Powering the Smart Pool Ecosystem Hayward's differentiated technology is central to its competitive strategy and future growth. The company's core technological advantage lies in its integrated pool automation and control systems, designed to enhance efficiency, ease of use, and overall pool ownership experience. A prime example is the OmniX platform, an industry-first suite of smart IoT technology for the aftermarket. This breakthrough innovation is designed to cost-effectively enable wireless control of the existing installed base of pools. Hayward estimates that approximately two-thirds of the 5.4 million in-ground pools in the U.S., or 3.5 million pools, are currently not automated. Traditionally, homeowners seeking IoT control for existing manually operated pools faced the costly and complex option of installing a centralized control unit wired to all equipment. OmniX, however, offers a decentralized wireless platform, eliminating the need for a stand-alone control unit. This design provides a far more cost-effective and simpler path to automation. Hayward is embedding control capabilities directly into its key products, starting with the newly launched OmniX variable speed pump. This allows homeowners to build their smart ecosystem one product at a time as natural equipment break-fix occurs, effortlessly controlling their pool via the OmniX app. This represents a compelling value proposition for both homeowners and service professionals, driving increased aftermarket equipment content per pool pad and accelerating technology adoption. Beyond OmniX, Hayward's R&D initiatives are yielding other significant innovations. The Microchannel Temperature Control Unit, introduced in 2024, is an industry-first single-unit product offering the ability to both heat pool water and cool it to comfortable temperatures, or even as low as 40 degrees for cold plunges. This technology addresses evolving consumer preferences for versatile pool use. Additionally, the proprietary OmniPro app provides trade professionals with a cloud-based productivity tool for real-time remote monitoring and equipment configuration, enhancing customer service and driving efficiency for its channel partners. The Paramount RDX unblockable drain combines safety with high flow, ensuring effective debris removal while blending seamlessly into the pool floor. These technological advancements are not merely product enhancements; they are strategic pillars that contribute directly to Hayward's competitive moat and financial performance. By offering superior energy efficiency, enhanced automation, and ease of installation, Hayward's products command premium pricing, contributing to higher average selling prices (ASPs) and better margins. This focus on high-value, high-margin new products, coupled with the rationalization of lower-volume SKUs, is a key driver of the company's gross margin expansion.

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This technological differentiation allows Hayward to compete effectively against broader water solution providers like Pentair plc (TICKER:PNR) and global pool equipment leaders like Fluidra (TICKER:FDR), by offering specialized, intuitive, and integrated solutions that deepen customer loyalty and capture market share in the evolving smart home landscape. ## Competitive Dynamics and Strategic Positioning Hayward operates in a competitive landscape alongside major players like Pentair plc (TICKER:PNR), Fluidra (TICKER:FDR), and Pool Corporation (TICKER:POOL). Hayward's estimated North American residential pool market share of approximately 33% underscores its significant presence. Compared to Pentair (TICKER:PNR), a diversified water solutions provider, Hayward's specialized focus on pool equipment allows for a deeper emphasis on pool-specific innovations. Hayward's automation systems are often perceived as notably more intuitive for end-users, providing a qualitative edge in ease of use and customization. While Pentair's broader portfolio offers diversified revenue streams, Hayward's targeted approach aims for stronger customer loyalty in niche pool technology markets. Financially, Hayward's Gross Profit Margin (TTM 50.99%) is notably higher than Pentair's (TTM 39%), suggesting superior profitability from its focused operations and operational efficiencies. Against Fluidra (TICKER:FDR), a global leader in pool and wellness equipment, Hayward compares favorably in product reliability and IoT feature integration. Hayward's systems are described as materially more seamless for automated pool management, potentially offering greater efficiency for energy-conscious consumers. Fluidra's strength lies in its extensive global distribution, while Hayward's strategy focuses on strengthening its North American brand presence and customer-focused innovations. While Fluidra's global scale might lead to broader growth, Hayward's focused R&D investment relative to its size could enable faster innovation in specific pool technology areas. Pool Corporation (TICKER:POOL) primarily operates as a distributor. Hayward differentiates itself by being a manufacturer, offering significantly greater control over product quality and customization, particularly in heaters and automation systems. Hayward's proprietary designs aim to outperform Pool Corporation's aggregated offerings in reliability and integration. Hayward leads in technological capabilities like IoT-enabled controls, while Pool Corporation excels in market access through its vast distribution networks. Hayward's manufacturing efficiencies contribute to its higher gross margins compared to Pool Corporation (TTM 30%), reflecting its value capture as a producer. Hayward's competitive advantages are further bolstered by its long-standing culture of operational excellence and continuous improvement. This includes ongoing Kaizen events and lean manufacturing practices that drive out inefficiencies and waste, contributing directly to margin expansion. The company's strategic investments in customer care, including new leadership, productivity tools like the OmniPro app, and training facilities like the Hayward Hubs, are designed to strengthen relationships with trade professionals and drive incremental growth by attracting new partners. A critical strategic response to the evolving global trade situation is Hayward's aggressive supply chain diversification. The company is reducing its direct sourcing from China into the U.S. from approximately 10% to 3% of its cost of goods sold by year-end 2025. This initiative, regardless of future tariff resolutions, aims to de-risk the supply chain and limit geopolitical exposure. This involves transferring and duplicating tooling, bringing value-added assembly to domestic U.S. facilities, and prioritizing capital investments for automation. Management estimates the incremental COGS impact to reorient the supply chain away from China to be less than $10 million, or less than 1% of net sales, which they expect to recover through operational mitigation programs and increased automation in North American facilities. With U.S. facilities currently operating at approximately 60% utilization, this reshoring will increase utilization to the high 60s, providing operating leverage and potential for further bill of material reductions. ## Financial Performance and Outlook Hayward Holdings delivered a strong financial performance in the second quarter of fiscal year 2025, exceeding expectations and demonstrating the effectiveness of its strategic initiatives. Net sales increased 5% to $299.6 million, driven by a 5% positive net price realization, a 2% contribution from the ChlorKing acquisition, partially offset by a 2% decline in volume due to order timing. For the six months ended June 28, 2025, net sales increased 6.3% to $528.4 million. Profitability metrics showed significant improvement. Consolidated gross profit margins expanded by 170 basis points year-over-year to a record 52.7% in Q2 2025. This marks the tenth consecutive quarter of year-over-year gross margin expansion, a direct result of strong performance from commercial and operations teams, positive net price impact, and operational efficiencies. Adjusted EBITDA increased 7% to $88.2 million in Q2 2025, with the Adjusted EBITDA margin expanding by 50 basis points to 29.5%. For the six-month period, Adjusted EBITDA grew 7.6% to $137.3 million, with a margin of 26.0%.

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The North America (NAM) segment, which accounts for 85% of total net sales, saw net sales increase 6% in Q2 2025 to $255.2 million. This was fueled by 6% net price realization and a 3% contribution from the ChlorKing acquisition, despite a 3% lower volume. NAM's gross profit margin reached a robust 55.1% (up 220 basis points YoY), and its adjusted segment income margin increased 150 basis points to 32.7%. The ChlorKing acquisition, completed in June 2024, has been a successful integration, contributing to a doubling of commercial sales in North America year-to-date Q2 2025. The Europe Rest of World (ERW) segment, representing 15% of net sales, saw a 3% increase in Q2 2025 net sales to $44.4 million, driven by favorable foreign currency translation and positive net price, partially offset by a volume decline. While ERW's gross profit margin decreased year-over-year to 38.9% due to unfavorable mix and higher manufacturing costs, it showed strong sequential progress, increasing 390 basis points from Q1 2025 and 750 basis points from Q4 2024, reflecting ongoing operational improvements and a more favorable market environment in the Middle East and Asia. Hayward's balance sheet has significantly strengthened. Net debt to Adjusted EBITDA improved to 2.1x by the end of Q2 2025, near the low end of its targeted 2x to 3x range and the lowest level in over three years. This enhanced financial flexibility is a key enabler for strategic growth.

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Total liquidity stood at $528 million, including $365 million in cash and equivalents. The company has no near-term debt maturities, with its First Lien Term Facility and ABL Revolving Credit Facility maturing in 2028. Hayward also benefits from $600 million in debt tied to fixed interest rate swap agreements, limiting its cash interest rate on term facilities to 6% in Q2 2025. Cash flow from operations for the six months ended June 28, 2025, was $188.4 million, reflecting strong earnings quality and effective working capital management, including $99.1 million in net proceeds from the sale of receivables.

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For the full fiscal year 2025, Hayward Holdings has refined its guidance, raising the low end of its net sales range. The company now expects net sales to increase approximately 2% to 5%, reaching $1.07 billion to $1.1 billion. Adjusted EBITDA is projected to be between $280 million and $290 million. This outlook anticipates a positive full-year net price contribution of at least 4%, driven by a 3% out-of-cycle price increase in North America implemented in late April to offset tariff-related inflation. Management expects to fully offset current tariff-related cost increases. The guidance assumes nondiscretionary aftermarket maintenance demand remains resilient, while discretionary elements like new construction and remodel continue to face pressure. Hayward also expects solid cash flow generation, with conversion greater than 100% of net income, approximately $150 million. ## Risks and Challenges Despite a strong performance and positive outlook, Hayward faces several pertinent risks. The tariff environment remains fluid and unsettled. While current guidance assumes existing tariff rates, any new tariffs or changes could impact market demand, increase supply costs, or affect competitiveness. Hayward's aggressive mitigation efforts, including supply chain diversification, aim to counter this, but the situation requires continuous monitoring. The discretionary elements of the market—new pool construction and remodels—continue to be pressured by macroeconomic conditions and higher interest rates. While permit values for new pools show resilience in the high-end segment, the overall unit count remains challenged. This could lead to continued volume pressures in these segments. Furthermore, a trend of consumers opting to repair rather than fully replace existing equipment, evidenced by increased parts sales, could temper demand for higher-value replacement units. Hayward is also involved in litigation, including securities class action lawsuits alleging misleading statements regarding inventory and demand trends in 2022, and a shareholder derivative lawsuit. While the company is vigorously defending itself, the complexity and uncertain nature of these proceedings mean the ultimate financial loss or range of loss cannot be reasonably estimated at this time. The company's use of artificial intelligence technologies also presents potential business, intellectual property, compliance, and reputational risks, given the rapidly evolving regulatory landscape. ## Conclusion Hayward Holdings, Inc. stands as a compelling investment thesis, rooted in its century-long legacy of innovation and a highly resilient business model. The company's strategic focus on the non-discretionary aftermarket, coupled with its leadership in differentiated pool technology like the OmniX platform, provides a stable and growing revenue base. Hayward's commitment to operational excellence and proactive supply chain de-risking, particularly its aggressive reduction of China sourcing, underpins its impressive gross margin expansion and ability to offset external headwinds. The significant deleveraging of its balance sheet to a multi-year low, combined with a disciplined capital allocation strategy that prioritizes organic growth, strategic acquisitions like ChlorKing, and shareholder returns, positions Hayward for continued value creation. While the discretionary segments of the pool market and the evolving tariff landscape present challenges, Hayward's proven execution, robust cash flow generation, and clear strategic roadmap for innovation and market penetration reinforce its long-term growth prospects. Investors should recognize Hayward's ability to power through dynamic environments, leveraging its technological edge and operational prowess to maintain its leadership in the evolving pool industry.