Hayward Holdings, Inc. (HAYW) Q3 2026 Earnings Report, Transcript and Summary

Welcome to Hayward Holdings Third Quarter 2026 Earnings Call. My name is Carrie, and I will be your operator for today's call. [Operator Instructions] Please note that this conference is being recorded. I will now turn the call over to Kevin Maczka, Vice President, Strategic Finance and Capital Markets. Mr. Maczka, you may begin.

Thank you, and good morning, everyone. We issued our third quarter 2026 earnings press release this morning, which has been posted to the Investor Relations section of our website at investor.hayward.com. There, you can also find the earnings slide presentation referenced during this call. I'm joined today by Kevin Holleran, President and Chief Executive Officer; and Eifion Jones, Senior Vice President and Chief Financial Officer. Before we begin, I would like to remind everyone that during this call, the company may make certain statements that are considered forward-looking in nature, including management's outlook for 2026 and future periods. Such statements are subject to a variety of risks and uncertainties, including those discussed in our most recent Form 10-K and subsequent Forms 10-Q filed with the Securities and Exchange Commission that could cause actual results to differ materially. The company does not undertake any duty to update such forward-looking statements. During today's call, the company will discuss non-GAAP measures. Reconciliations of historical non-GAAP measures discussed on this call to the comparable GAAP measures can be found in our earnings release and the appendix to the slide presentation. All comparisons will be made on a year-over-year basis unless otherwise indicated. I will now turn the call over to Kevin Holleran.

Thank you, Kevin, and good morning, everyone. It's my pleasure to welcome all of you to Hayward's third quarter earnings call. I'll begin on Slide 4 with key takeaways from the quarter. Hayward delivered another solid quarter. Net sales increased 6%, driven by favorable price realization and higher volumes. Adjusted diluted EPS increased 29%, reflecting the operating leverage in our model. Year-to-date net sales are up 8%. We also maintained gross margin and expanded adjusted EBITDA margin despite continued significant inflationary pressures and ongoing investment in product innovation, operational capabilities and sales and marketing initiatives. The strength and quality of our financial results underscore 2 defining advantages of our business, a large and growing installed base that generates recurring aftermarket demand and a technology adoption curve that continues to expand the addressable opportunity for connected, automated and energy-efficient pool solutions. Together, these resilient demand drivers support consistent performance across market cycles, including the currently challenged new construction environment. Data from our primary U.S. channel partners indicates healthy demand for Hayward products, durable share gains and balanced channel inventories. Against that backdrop, our early buy program for the 2027 pool season is progressing well with North America orders ahead of the prior year. Our financial position remains a source of strength. Net leverage remained at 1.5x, matching the second quarter results and the lowest level since our 2021 IPO, even as we increased share repurchases, demonstrating our confidence in the business. Our strong year-to-date performance and continued execution support our increased full year outlook. For the full year 2026, we now expect net sales to increase approximately 5% to 6% and adjusted diluted EPS to increase 12% to 14%. Overall, the quarter reinforced the strength of our strategy, the momentum behind our share gain initiatives and our ability to deliver profitable growth in a dynamic macroeconomic environment. I'm proud of the team's performance and appreciate the continued support of our dealers, partners and vendors. Turning to Slide 5, I'll review our third quarter and year-to-date results. Net sales increased 6% to $260 million in the quarter. North America grew 9% with a positive contribution from price and another quarter of volume growth, supported by the proven resilience of the aftermarket. Net sales in Europe and Rest of World declined 6% in the third quarter, but were down just 1%, including the timing of an in-transit shipment now recognized in the fourth quarter. Commercial Pool and Flow Control again delivered strong results with both product groups generating double-digit net sales growth in the quarter and year-to-date periods. Consolidated gross margin expanded 10 basis points in the quarter and remained in line with the strong prior year level on a year-to-date basis. This is an impressive accomplishment given the meaningful incremental inflation and tariff headwinds. Adjusted EBITDA margin increased in both the quarter and year-to-date. We continue to increase investments in R&D and advanced engineering to fuel product innovation, while lower SG&A spending in the quarter reflected disciplined cost management and the absence of a nonrecurring prior year expense. As a result, adjusted diluted EPS increased 29% in the quarter and 21% year-to-date. Through the first 9 months, net sales increased 8%. Adjusted EBITDA grew 9% and adjusted diluted EPS rose 21%. This is particularly strong performance given the challenging operating environment, highlighting the durability and earnings power of our model. Turning to Slide 6. I'll provide an update on the business. The 2026 pool season ended on a high note as our primary U.S. channel partners reported robust third quarter growth in Hayward sales with momentum building as the quarter progressed. We are pleased to see our strategic growth initiatives translating into share gains and strong end demand for Hayward products. This performance also reflects the stability of the aftermarket as the existing installed base drives more than 85% of our sales. While a new pool is a discretionary purchase, maintaining an existing pool is not. Once a pool is installed, its water and equipment require timely ongoing care, not only to keep it safe and swimmable, but to protect the value of the home. That essential maintenance creates recurring demand independent of new pool construction. This aftermarket stability is evident in our recent performance. Over the last 3 years, new in-ground pool construction in the United States declined over 20% towards lows not seen since the great financial crisis, yet our guidance implies a cumulative increase in Hayward net sales of nearly 20%. Our growth is driven far more by recurring demand than by new pool construction. Our broad-based share gains reflect differentiated products and deeper engagement with builders and servicers. Our new aftermarket offerings simplify the substitution for Hayward equipment on existing pool pads, making it easier for trade professionals to align with Hayward. The share gains we've earned over multiple recent quarters are the result of investments in innovation, service and dealer conversion, giving us confidence that these gains are durable. U.S. channel inventories remain balanced for Hayward, and we've continued to deliver growth even as some customers have modestly reduced days on hand. We view that as prudent inventory management rather than a reflection of demand concerns as sales out of the channel at our primary U.S. partners were strong throughout the quarter. Combined with solid early buy momentum and ongoing share gains, the data points we monitor give us confidence that inventory levels are healthy. Early buy programs are progressing well across both segments. In North America, orders were ahead of the prior year at the end of the third quarter, and we expect the program to conclude in the fourth quarter with solid year-over-year growth. Innovation remains central to our growth strategy. We are proud to recently receive the 2026 Innovation Award from the pool industry's largest distributor, recognizing the impact of our investments in research, development and engineering, specifically noting the advancements we've made in OmniX, our proprietary automation ecosystem for the aftermarket. The pool industry has historically demonstrated strong pricing discipline. This year, we implemented targeted pricing actions to address inflation and tariffs not fully offset by productivity gains, and we continue to expect mid-single-digit positive net price realization in 2026. We are also progressing with value-based pricing and SKU rationalization to better align pricing with the differentiated value we deliver, creating an additional opportunity over time. We continue to advance the strategic priorities that support profitable growth and long-term stockholder value creation. We see a tremendous opportunity in progressively automating the large installed base of manually controlled pools, and our product road map is increasingly focused on technology solutions for the aftermarket. At the same time, we are deepening relationships with the trade and converting dealers, the key decision-makers on equipment purchases to Hayward. We have a long proven track record of operational excellence, and this remains another important value driver. We are investing in automation and productivity, reducing supply chain risk and advancing value engineering across our products and processes. We are progressively repurposing our Wuxi, China facility to support a greater share of demand in Europe and Rest of World after reshoring U.S.-focused production. This makes excellent use of a cost-advantaged, efficient facility with a dedicated workforce and will support greater competitiveness and profitability in Europe and Rest of World. In summary, our business is strong and our strategies are delivering results. We are executing well in the current environment and reinvesting to position for sustained profitable growth. Turning now to Slide 7. I'd like to provide an update on Hayward Hubs. As discussed on previous calls, expanding our network of Hayward Hub customer training centers is an important priority. More than showrooms, these facilities give trade professionals hands-on experience with our products in real-world settings, guided by experienced trainers. I'm pleased to share that the Atlanta hub, our sixth location, is now fully operational. Commercial pool remains a key growth driver, making the Atlanta opening especially exciting. This is our first commercial aquatics hub, showcasing our full range of commercial as well as residential pool products. With that, I'd like to turn the call over to Eifion to discuss our financial results in more detail.

Thank you, Kevin, and good morning. Turning to Slide 8. I'll walk through our third quarter financial performance in more detail. We delivered another solid quarter of sales and earnings growth with net sales increasing 6% to $260 million against a robust 7% growth comparison from the prior year period. Growth was primarily driven by price realization to combat inflation and tariffs, along with another quarter of volume growth. I am particularly pleased to see volume increased 2% in our primary North American market for the quarter and year-to-date, reflecting the impact of the investments we've made in new products and sales and marketing. Consolidated gross margin expanded 10 basis points in the quarter as a greater mix of higher-margin North American sales more than offset modest declines in both segments. Pricing and productivity gains primarily offset increased costs from specialty metals, resins, freight and other input costs. Year-to-date gross profit margin remained in line with the strong prior year level as our commercial and operations teams continued their impressive work to mitigate these pressures and sustain strong profitability. Research, development and engineering investment increased 21% as we continued funding new product development and advanced engineering capabilities. Sales, general and administrative costs declined 3%, reflecting disciplined cost management and the absence of nonrecurring expense in the prior year period. As a result, adjusted EBITDA increased 9% to $65 million, while adjusted EBITDA margin expanded 60 basis points to 24.8%. The effective tax rate was 21% and adjusted diluted EPS increased 29% to $0.18. Turning to Slide 9. I'll review our third quarter segment results. North America net sales rose 9% to $226 million, driven by 7% price realization and 2% volume growth. U.S. sales increased 10%, while Canada declined 9% following double-digit first half growth as customer concerns over evolving U.S.-Canada tariff policies moderated purchases. Gross margin remained approximately 49%, consistent with the prior year, while adjusted segment income margin expanded 80 basis points to a robust 30.4%. Europe and Rest of World sales declined 6% to $34 million, reflecting lower volume and a greater mix of customary late season discount programs. Europe declined 18%, largely due to the timing of initial shipments from our facility in Wuxi, China to support the European market. Establishing this new supply route temporarily extended lead times, shifting the recognition of certain third quarter shipments into the fourth quarter. Those shipments have been recognized in the fourth quarter and going forward, we expect to settle into a regular cadence. Rest of World grew 6%. Gross margin reduced 40 basis points to 40% and we were pleased to see the sequential improvement of 210 basis points. Adjusted segment income margin expanded 50 basis points to 19%, reflecting stronger operational execution. Turning to Slide 10. Year-to-date segment performance remains strong. North America net sales grew 10%, driven by 8% price realization and 2% volume growth. U.S. sales also increased 10%, while Canada grew 5%. Europe and Rest of World declined 2%, but was essentially flat after adjusting for the shipment delay from China I just discussed. Gross margin in North America declined modestly from strong prior year levels to 49.5%, while Europe and Rest of World increased 70 basis points to 37.7%. Adjusted segment income margin increased in both segments, contributing to strong year-to-date performance. Turning to Slide 11. Our strong financial position provides significant flexibility to execute our plans. Net leverage declined year-over-year to 1.5x, matching the second quarter result and the lowest level since our IPO, even as we increased share repurchases. We ended the quarter with $475 million in cash, cash equivalents and short-term investments. Including available credit capacity, total liquidity was approximately $900 million. Year-to-date, cash flow from operations was $225 million compared to $283 million in the prior year period. The decline primarily reflected higher working capital from the timing of customer orders, which resulted in a greater mix of shipments late in the quarter as well as higher inventory as we prepare to support a larger early buy program. We expect to collect most of these receivables in the fourth quarter with the remainder due under customary early buy terms. Year-to-date capital expenditures were in line with expectations at $29 million, resulting in free cash flow of $196 million. We prioritized growth capital investments this year, including further upgrading of our manufacturing facilities, and we are delivering on these plans. In summary, our low leverage, ample liquidity and cash generation position us to continue investing organically, pursuing strategic M&A and returning capital to stockholders. Turning to Slide 12. We balance investments in growth with stockholder returns while maintaining prudent leverage. Our priorities remain organic investment into manufacturing and supply chain capabilities, followed by strategic M&A. We also view share repurchases as an important capital allocation tool, and we'll continue to pursue them opportunistically. During the third quarter, we continued repurchasing shares, bringing the year-to-date deployment to approximately $115 million. At quarter end, $331 million remained available under our $450 million authorization. Turning to Slide 13. Our strong year-to-date performance and visibility into the fourth quarter support an increased 2026 outlook. We now expect full year 2026 net sales growth of approximately 5% to 6%, up from prior guidance of approximately 5%. We also expect adjusted diluted EPS of $0.86 to $0.88, an increase of approximately 12% to 14% year-over-year compared to our prior guidance of $0.84 to $0.87. As we think about the balance of the year, we are taking a thoughtful approach to our assumptions. The fourth quarter comparison includes strong late season orders in the prior year period that we do not necessarily expect to repeat. While North American early buy orders are ahead of last year and channel inventories and demand trends remain healthy, our outlook also allows for some partners to modestly tighten inventory positions as they prepare for the upcoming season. Overall, we believe the guidance appropriately balances these assumptions with the continued strength of our aftermarket and share gain momentum. We continue to expect free cash flow of around $200 million, exceeding 100% of net income. Our outlook assumes approximately $47 million of net interest expense, a normalized effective tax rate of about 24% and capital expenditures of approximately $40 million as we continue investing in operational capabilities. We remain confident in our ability to execute our strategic initiatives and the strength and the resilience of the aftermarket. With that, I'll turn the call back to Kevin.

Thanks, Eifion. Before we open the line for questions, let me close by reinforcing the key messages from today's call. Hayward delivered another solid quarter and an impressive year-to-date performance. We are executing our strategies around innovation, deeper customer engagement and operational excellence, and the results are evident. Mid-single-digit top line growth over the past 2 years and again year-to-date, while expanding profitability from already strong levels despite the challenging macroeconomic and new construction environment, continued inflation and geopolitical disruption. Aftermarket demand remains strong. Channel conditions are healthy and early buy orders for the 2027 pool season are encouraging. We have strong momentum and intend to capitalize on it to deliver sustained profitable growth and long-term stockholder value. With that, we're now ready to open the line for questions.

[Operator Instructions] And our first question will come from Jeff Hammond with KeyBanc Capital Markets.

Just on -- maybe just talk about inventory levels. There seems to be an approach from your distributors to kind of lean harder on inventory destock into the kind of into the season. And then I think you had said early buy, you're encouraged, but also kind of hearing in the channel that there might be a more measured approach. It doesn't seem like you're seeing that, but maybe just speak to early buy in greater detail.

Sure. On inventory first, Jeff, this is a process that we manage very closely with our primary North American partners, maintaining visibility into the sell-through and the corresponding inventory levels. Our partners tell us that they're pleased with Hayward inventory levels and the velocity that they see with our product on their balance sheet, given that retail demand pull-through that they see for Hayward products. I see this as setting up extremely well for the early buy season. As you've heard me say many times, Q2 and Q3 are critical periods where we sell out of the channel more than we sell in and thus inventory levels reduce. That occurred like it did in Q2, it did sequentially again in Q3. Most of the quarter, we actually saw beginning of the quarter kind of mid-single-digit percentage increase year-on-year. That actually depleted to more like low single-digit percentage on a year-over-year basis. So that doesn't even really cover inflation the way we look at it at low single digits while supporting out-the-door sales of Hayward product during the third quarter more in the high single-digit percentage range. So that's what we're referring to in our prepared remarks when we say we've seen modest belt tightening, and you also referenced it in the second part of your question. So we're confident with our operational capabilities and our short lead times that we can continue to support growth and share gains at these modestly lower days on hand inventory levels. In terms of early buy, as I said in the prepared remarks, the curtain has not yet dropped on the early buy period, but we're pretty well into it and giving us confidence at the end of the third quarter on a year-over-year basis, we're up on orders received. There's still a couple of other parts of our distribution base and Canada specifically that we're still waiting on a couple more weeks. But based upon everything we're hearing and seeing, we're seeing up year-on-year order capture through the early buy program despite maybe what you may be hearing with some of your channel checks, Jeff.

Okay. Great. And then we continue to see kind of consumer pressure and rates have moved higher again. I'm just wondering if you're seeing any kind of change in sentiment, full permitting pipeline activity as you kind of move into '27 that forms any kind of early view on '27?

Yes. I mean we're going to take advantage of the last couple of months here before we land on a guide for 2027. A lot to go yet, obviously, with the midterms, with a couple more Fed meetings this afternoon included. So we -- to see whether maybe anything with the housing market loosens up through the housing bill that was passed several months ago. I know that's the early innings of that. In terms of permitting, as I think you would have heard from others that reported before us, modestly down on a year-over-year basis. Values continue to hold up okay. But I wouldn't yet say that the macro has improved to the point where we'd yet be more bullish on a new construction outlook. But again, 85-plus percent of our revenue is being driven off the installed base, which continues to be extremely resilient and durable even in these challenging macro times.

Our next question will come from Rafe Jadrosich with Bank of America.

I just wanted to start on cost inflation. Can you just talk about what you're expecting for the year? And is there any sort of visibility into '27, like what you'll be carrying forward?

Sure. I mean, for the full year, we expect inflation in '26 to be mid -- slightly higher than mid-single digits, and that's net of any recalibration we've done within our supply chain. Obviously, there's a range of outcomes when it comes to inflation and some of the more commoditized elements of our purchase basket are running hotter than that. So a lot of inflation fastballs have come our way, particularly over the last 6 months. We're managing it. We took price increase late in Q3, which started to benefit the invoice late in Q3 and will combat inflation in Q4. We're relying heavily on the operational team to manage the cost through bill of material savings, manufacturing efficiencies, freight cost reductions. And I'd say we've been quite successful there. But mid -- slightly over mid-single digits inflation this year across the whole basket. Not quite ready to call '27 yet, Rafe, but we think the pricing action that we put into place here in Q3, late Q3, early Q4 will cover us as we step into '27. If the environment changes, we'll reconsider what we need to do. But we're going to rely heavily upon our operational team to continue to drive cost out of our cost of sales, both at the raw material manufacturing overhead and freight level to help defray the need to put more pricing. But if we have to, then we'll consider that particular outcome.

That's helpful. And then can you -- you've spoken a lot about share gains, and it's definitely showing up in the results. Can you talk about where you think you're gaining the most share? Is there -- are there specific channels or product categories where have you made the most progress?

Yes. We're really encouraged by the results. I think it's become more evident over the last couple of quarters, Rafe. But frankly, the team has been delivering on share capture for several years as they've really implemented the playbook broadly around growing greater than market product line introductions, investing in the brand, serving the entirety of the market from high-end builder to the service trade and even the entry-level aboveground pool serving that entire market and then backing it up with availability and dealer support. I think it's pretty broad-based. When we look at share and market performance, we really do look across maybe 3 lenses. Regionally, product category and then dealer type, whether it's the service trade and/or new builders or dealers who refurbish existing pools. And we actually see encouraging results across all 3 of those lenses, maybe particularly on the product side with some of our sanitization and our automation and controls and some of our LED lighting specifically have seen nice growth on a year-to-date basis. We are certainly improving share in some of our historically underserved, underpenetrated markets out West and in the South Central and then really broad-based across the dealer. We're developing relationships with folks that serve all parts of the market from the top 50 builders where we have higher representation there to the service trade and all points in between. So I would say the answer is pretty broad-based and really isn't just specific around any one particular region or product category or dealer type, Rafe.

And we'll hear next from Andrew Carter with Stifel.

It seems like the industry is coalescing around flat volumes next year. So I guess I would just ask, if you just took the current dealer conversions that you have in hand and like assumed a full run rate because some takes longer than others to get up to speed, what would your Hayward North America volume growth be next year in a flat market?

Well, you're right in posing the question that as conversions occur, there is lead time as training occurs as they work through the current backlog with another brand. So there is time. It doesn't happen just when maybe a contract or an agreement is signed. And we're working through some nice conversions here in the latter half of 2026. I don't know if I'm going to put a number on it right now, Andrew. I think I'm just going to leave it that, again, if the industry is coalescing around flat, I would expect our team to deliver something better than flat as we continue with the ramp-up with already won and converted accounts and then add more on top of that as we head through 2027 that conversations internally here are not holding on to what has been captured, but what's the rate of future growth.

Second question, switching gears and to ask about Europe. Macro weakness obviously has hit with -- it's been in the rest of the world. Now it's kind of in Europe with kind of France, obviously, the higher nat gas prices across the world and your factories in Spain. Of course, you are doing the China plan -- you are -- sorry, outsourcing a lot of that market to the China facility. So I guess I would ask is you have before outlined a margin improvement program there. Is the China incremental to that? Is it kind of keep you on track for it? Or was this the plan all along? Anything that can help? And of course, you're obviously likely thinking about another step down in kind of revenue in that market just given the weakness?

I'll take that, Andrew. Look, I mean, we're building a very strong team there, and they're really focused on improving the efficiency of that business. We are -- we've taken a lot of strides to improving our Barcelona facility, which is our primary manufacturing location, servicing Europe. We've done a lot around the SG&A base, progressively consolidating into our Madrid HQ for Europe. And as you mentioned, we're progressively using more of our Wuxi, China facility and repurposing that production to support our Europe and Rest of World. And that does bring a cost competitive advantage to the European business. And I would say, generally speaking, it probably is incremental to how we originally thought about the gross margin opportunity we had in Europe. And we're not at the point where we're willing to put a number exactly on how much incremental that's going to deliver. We need to demonstrate the supply chain over the next couple of quarters and get into a regular cadence of operation there. In terms of top line, look, it's a challenging environment, but we see progress. We see progress around the type of businesses we're earning, the quality of the businesses that we're involved with, and there are identified opportunities which are encouraging. As I discussed in my prepared remarks, once you give account to the in-transit delay at the end of Q3, which is now invoiced in early Q4, Europe is essentially flat year-over-year on a year-to-date basis. Rest of World, it is down admittedly, 4%, but I think we all recognize the more geopolitical pressures there, which are maybe episodic to '26 and hopefully are behind us as we step progressively into '27. But generally speaking, the quality of that business overall is steadily improving. We have a good team in place. The repurposing of Wuxi, China is a good move. It's a high-quality facility, very cost advantage. And I do expect it to progressively add to the margin profile. Just not at the point yet, Andrew, where I'm willing to put a definitive number on that. More to come as we continue the conversation.

Andrew, as you know, our European team is headquartered in Spain. I just want to give a shout out to our team over there, expressing our condolences to all the families impacted by today's terrible news of the high-speed train crash that occurred over there.

And we'll go next to Brian Lee with Goldman Sachs.

I had -- I guess, just if we think about the read across from the early buy-in program, I know like you said, Kevin, it's not -- you haven't closed the curtain on that quite yet. But the past couple of years, I feel like you guys have had good success and good read from these early buy-in programs, but the composition has generally been status quo where I see a decent amount of price, not much volume. Anything to kind of glean into the early results from the early buy-in program as we look into '27? I know most folks don't expect a lot of volume growth, but you guys have been eking out a little bit of volume. But do you anticipate your composition could shift in terms of the top line growth algorithm into next year a bit more toward volume and a little less price? One of the reasons I ask is your competition recently came out and was talking about sort of 3% to 4% price increases, maybe more low single digits versus mid-single digits. I don't know if that kind of played into your pricing views here as you headed into the early buy season.

We certainly, based on our inflationary assumptions, which informs the price announcements that correspond with the early buy program. On a year-over-year basis, it was down modestly. So not quite as much price coming through the early buy program for 2027 as prior year. Again, with a couple more weeks to go, we'd like to see the final results before giving anything definitive. But the inventory positions that we hear from our channel partners really does give us confidence that the turns and that they're well positioned based upon the sales out activity they see for Hayward product positions them well to participate meaningfully in our early buy program. Historically, early buy is maybe 30-ish, no more than 1/3 of what the total annual purchases are. So while it's a good leading indicator heading into the year, it's not necessarily the make or break on what 2027 is going to look like. So it's -- like I said, it's a good early indication of what the channel sees, what they're hearing from the Hayward dealers out there. Inventories are well positioned for strong participation, and we look forward to seeing how everything wraps up over the next couple of weeks.

Let me just come back to the price. As Kevin mentioned, the price increase for this early buy is lower than the price increase we had over the prior year period -- in the prior early buy period. When you compare the 2, we've got mid-single-digit price increase in early buy this year before discounts, and we have low single-digit volume growth expected once the program closes.

Yes, I appreciate that color. That's super helpful. And then maybe just one more for me, and I'll pass it on. Eifion, you mentioned the leverage ratio here has gotten back to lows not seen since the IPO. You guys have been busy from a capital allocation perspective, buyback-wise. How are you thinking about the sort of strategy and priorities given the balance sheet strength here as we head into '27. Any updated thoughts on kind of the hierarchy of buybacks versus M&A versus other capital allocation priorities?

I would say our capital allocation priorities are unchanged. As I mentioned, first, we invest in the business. As I mentioned in the call, $40 million is the expected CapEx for this year. That's a larger year for us, and it reflects progressive automating and upgrading across our network of factories and warehousing. M&A is second. Admittedly, we've been somewhat quiet while we have delevered the balance sheet down to 1.5x. But we are continuing to nurture an active pipeline of opportunities. We remain very disciplined around how we think about those individual opportunities, and we'll only pull the trigger when convinced it's the right acquisition for Hayward. And then as you mentioned, we do have the ability to return our excess capital to shareholders, $115 million returned through Q3. That gives us $331 million remaining under our $450 million capacity. Share repurchases, I would say, are an important part of our capital allocation toolkit, and we'll continue to evaluate them opportunistically along the other uses of capital I just mentioned. I mean the bottom line is that the cash generation profile of Hayward supports all capital allocation initiatives, and we'll remain disciplined around those priorities while maintaining an appropriate level of net leverage.

And Robert Davies with Wolfe Research has our next question.

Two. One was just on the expectation for volume and pricing trends through the back quarter of the year. You've obviously been kind of running mid- to high single digit on pricing in the North American market year-to-date. Just implicitly kind of getting to that 5% to 6% guide for the year, obviously, kind of suggests there's going to be a bit of a squeeze on sort of price over volume through the fourth quarter. Just wanted to flesh out the details of what exactly was going on there. And then the second question, just in terms of investor questions around potential replacement cycle kind of tailwinds into 2027 from some of the installations that were put in around the kind of COVID period. Are you hearing anything on that front? Any color on that would be great.

I take the first part. Yes. When we think about Q4, what's implied within our guidance is revenue or net sales flat to positive 3%. And I would say that range is primarily based on the volume outlook. Pricing is positive, low to mid-single digits, but it's a different type of price dynamic year-over-year. If we look at what occurred last year, we had unusually strong in-season orders, which we're not assuming will repeat this year. They may, but we're not assuming they will repeat. That type of business comes at full price, undiscounted, whereas this year, we're assuming a heavy early buy participation, which is discounted pricing. So that's factoring in a lower single-digit price dynamic year-over-year. We remain cautious, I would say, generally speaking, around Europe and Rest of World. We want to make sure I get that comment through. Given the geopolitical uncertainty there, but we think it's prudent right now to give the type of forecast we've given in the current macro environment. But generally speaking, year-over-year, we're looking at flat to plus 3% in terms of net sales within the 5% to 6% full year guided range, more positive price in there than volume. Volume becomes the moving piece in the range and a different pricing dynamic implicit within the guidance given the absence of in-season orders last year, which we're not necessarily forecasting to repeat this year.

And Robert, as for that COVID replacement cycle, I would think that, that should start to appear. That volume surge really occurred, call it, late 2020 over the next couple of years or so. We think of replacement cycle in the 7- to 10-year period. All that equipment that was set early in the COVID experience is now out of warranty. We don't necessarily see any recent trend about repair versus replace. So call it, over the next year plus or so, we should start to see some of that replacement appear.

And we'll hear next from Steve Volkmann with Jefferies.

This is James on for Steve. I guess I wanted to touch on the early buy. And can you just kind of help me understand what is like driving the growth in early buy as of now when the market really hasn't inflected here. And you talked about distributors being more prudent on kind of working capital management. And I think the pricing ran higher. So I think distributors had more incentive to buy more last year versus this year. So are you guys putting different cap on early buy this year or doing anything differently that's driving the growth in early buy?

Yes. Firstly, no real change in the parameters for early buy in terms of caps. Obviously, every early buy has a different gross price and discounting structure, but no differential in caps. What I would say is we're expecting a bigger early buy than last year, as Kevin mentioned, there's some positive volume growth in there. You know we're gaining share in the marketplace. That's going to be reflected in the early buy program this year. As that new business rolls into the channel, that's very positive for us. And I would say, coming back to my previous remarks, there's an expectation that the channel is leaning more into the early buy than they would probably in in-season orders because early buy comes with very, very favorable payment terms. They don't have to pay for that working capital until Q2 of next year. So there's a lot of incentive as they manage their balance sheets to lean into early buy as a preference to in-season orders. So we're feeling good about early buy given where it's progressing. Right now, the program remains constructed in the same way it did last year. Pricing is slightly lower at the gross level. Discounts are somewhat similar. We expect the channel partners, given the favorability of terms that are implicit within these programs to lean heavily into the working capital advantage of this program.

Great. And I wanted to touch on the margin here a bit. I mean 3Q margin was pretty good, but it seems like the guidance kind of suggests a year-over-year contraction in margins for 4Q. Can you kind of talk about your expectation for gross margin and SG&A leverage and how the price/cost dynamic is kind of flowing through? And if there are any one-off items that we need to be mindful of and any thoughts into kind of 2027 here in terms of margins?

Yes. No, look, we're super pleased with the margin profile earned year-to-date, flat year-over-year through the end of Q3 despite all the inflation, as I call them fastballs that have been thrown at us, we're dealing with those exceptionally well. As we think about quarter 4, again, there's a little bit of different mix in the type of business. That's not a structural issue with the gross margin level. It's less in-season orders, which are at full price list. It's more early buy, which has been purchased on some discounts. That's going to factor in. But as I've said repeatedly, I think throughout this year, we feel very good as a management team that the full year gross margin is still expected to be in line at approximately 48% as last year -- last year was a record gross margin. So that's still the target and the outcome we are moving towards this particular year. We're dealing with inflation as it comes through. We've put price in. We're operating in a leaner, more efficient way, and that's protecting that gross margin as we complete out the year. But we feel very good about where the margin is right now.

And this now concludes our question-and-answer session. I would like to turn the floor back over to Kevin Holleran for closing comments.

Thanks, Carrie. In closing, I want to thank our employees and partners around the world. Your dedication and hard work continue to be critical to the progress we're making across our business. We're encouraged by our strong year-to-date performance and remain confident in our strategy. If you have any follow-up questions, please reach out to our team. We appreciate your continued interest in Hayward and look forward to speaking with you again on our next earnings call. Carrie, you can now end the call.

Ladies and gentlemen, thank you for your participation. This does conclude today's teleconference. You may disconnect your lines, and have a wonderful day.