ZWS — Zurn Elkay Water Solutions Corporation

Zurn Elkay Water Solutions Corporation (ZWS) Q1 2026 Earnings Call Summary

1. Key Financial Results and Metrics

• Sales Growth: Q1 2026 sales reached $433 million, reflecting an 11% organic growth year-over-year.
• EBITDA: Adjusted EBITDA increased by 18% to $116 million, with an EBITDA margin expansion of 160 basis points to 26.8%.
• Free Cash Flow: Generated $43 million in free cash flow during the quarter.
• Share Repurchase: $50 million of shares repurchased at approximately $47 per share.
• Leverage: Net debt leverage stood at 0.5x, including the share repurchase.

2. Strategic Updates and Business Highlights

• Market Conditions: The company reported stable market conditions with growth in non-residential sectors, although residential markets showed some softness.
• Product Mix: The strategic shift towards higher-margin products, particularly in drinking water and filtration, has positively impacted margins.
• Supply Chain Initiatives: Continued advancements in supply chain management are expected to mitigate tariff impacts and enhance profitability.
• Business System: The Zurn Elkay Business System emphasizes continuous improvement, contributing to ongoing margin expansion and operational efficiency.

3. Forward Guidance and Outlook

• Q2 2026 Projections: Anticipated core sales growth of 8% to 9% and adjusted EBITDA margins between 27% and 27.5%.
• Full Year Outlook: The company remains confident in achieving a full-year free cash flow of approximately $335 million, with a deliberate approach to revisiting the second half of 2026 after Q2 results.

4. Bad News, Challenges, or Points of Concern

• Tariff Environment: Ongoing uncertainties regarding tariffs, including potential changes under Section 301 and 122, could impact costs. The company is cautious about future price increases and is not currently counting on passing through additional costs to customers.
• Residential Market Weakness: Softness in the residential market could pose challenges, although it has been somewhat offset by strength in other sectors.
• Market Volatility: General market conditions and geopolitical factors, including inflation and conflicts, remain potential headwinds that could affect performance.

5. Notable Q&A Insights

• Drinking Water Trends: Strong performance in the drinking water segment, with double-digit growth in the installed base of filtered bottle fillers and high adoption rates for new products like Pro Filtration.
• Growth Adjacent Markets: The company is exploring new product categories, which could enhance growth and provide a buffer against potential market slowdowns.
• M&A Strategy: ZWS is maintaining a disciplined approach to M&A, focusing on strategic fits that meet return hurdles, while also continuing share buybacks and paying dividends.
• Visibility into Second Half: The company expressed confidence in contractor backlogs and regional growth, indicating a stable outlook for the second half of the year despite a cautious approach to guidance.

Overall, Zurn Elkay Water Solutions demonstrated strong financial performance in Q1 2026, with positive growth metrics and strategic initiatives in place, while remaining vigilant about market conditions and potential challenges ahead.