Zurn Elkay Water Solutions Corp (ZWS) Q1 2026 Earnings Call Transcript

Why It Matters

The results demonstrate Zurn Elkay’s ability to grow profitably with ample cash, positioning it for strategic acquisitions and continued investment in high‑margin, sustainable product lines.

Key Takeaways

• Revenue $407M, 10% organic growth.
• Adjusted EBITDA $104M, margin 25.6%, up 100 bps.
• Free cash flow $317M year, 17% increase.
• Net debt leverage 0.4x, lowest ever.
• 2026 guidance: mid-single digit sales growth, 35% incremental EBITDA margin.

Pulse Analysis

Zurn Elkay’s Q4 performance highlights a rare blend of top‑line growth and margin expansion in a competitive water‑infrastructure market. Revenue surged 10% organically, driven by strong demand in non‑residential segments, while adjusted EBITDA rose 14% year‑over‑year, pushing the margin to 25.6%. The company’s free cash flow generation of $317 million and a leverage ratio of just 0.4x provide a solid financial foundation, enabling aggressive share repurchases and dividend payouts without compromising balance‑sheet strength.

Beyond the numbers, Zurn Elkay is leveraging its Zurn Elkay Business System (ZEBS) to drive productivity and continuous improvement across the organization. Supply‑chain initiatives are reducing reliance on Chinese inputs, aiming for only a few points of COGS exposure by year‑end 2026. Sustainability remains a core differentiator, with 2.4 billion gallons of filtered water delivered and 20 billion plastic bottles avoided in 2025, complemented by innovative products like Pro Filtration and the SANITIZE + DRY hand dryer. These efforts reinforce the firm’s market positioning and appeal to environmentally conscious customers and investors.

Looking ahead, the 2026 outlook projects mid‑single‑digit core sales growth and incremental EBITDA margins around 35%, supported by modest price carryover from prior tariff adjustments and a generally flat to slightly positive market environment. Management’s disciplined three‑year strategic plan emphasizes organic adjacencies, targeted M&A, and further margin improvement. For shareholders, the combination of robust cash flow, low leverage, and a clear growth roadmap suggests a compelling upside potential, especially as the company continues to capitalize on sustainability trends and product innovation in the water‑solutions sector.