Zurn Elkay Water Solutions Corporation (ZWS) Q4 2025 Earnings Call Transcript
Access earnings results, analyst expectations, report, slides, earnings call, and transcript.
Overview
The earnings call reflects strong financial performance with a 17% increase in free cash flow, a 10% rise in Q4 sales, and improved EBITDA margins. Share repurchases and dividends indicate a positive shareholder return plan. Despite increased tariff costs, the company maintains a price/cost positive position. The Q&A reveals optimism about sales growth and strategic expansion into adjacencies. However, management's reluctance to provide detailed M&A predictions and spending plans slightly tempers sentiment. Overall, the raised full-year guidance and strategic focus on growth suggest a positive stock price movement.
Key Financial Performance
Organic Sales Growth Sales grew 10% organically over the prior year Q4.
EBITDA EBITDA grew 14% to $104 million, with margins expanding 100 basis points to 25.6%. The increase was driven by productivity initiatives and continuous improvement activities.
Free Cash Flow Generated $83 million in Q4, bringing the full year to $317 million, which was up 17% over 2024. The increase was attributed to strong execution and growth initiatives.
Share Repurchases Repurchased about 3% of outstanding shares for $160 million in 2025.
Dividends Paid $64 million in dividends in 2025.
Leverage Leverage declined to 0.4x, the lowest as a public company.
Q4 Sales Fourth quarter sales totaled $407 million, representing 10% core and reported growth year-over-year. Growth was driven by nonresidential end markets and positive price/cost position.
Adjusted EBITDA Margin Adjusted EBITDA margin improved 120 basis points year-over-year to 25.6% in Q4, driven by productivity initiatives and leveraging the Zurn Elkay Business System.
Full Year Adjusted EBITDA Margin Improved 120 basis points year-over-year as core sales grew by 8% in 2025.
M&A and Organic Investments Deployed $25 million to share repurchases in Q4 and $160 million for the full year. Actively working on entering organic adjacencies through internal development.
You have reached the limit. Sign up to access full content
Get started
Operating Highlights
Pro Filtration launch: Introduced Pro Filtration, an advanced evolution of the Bottle Filling Station line, enhancing water quality and sustainability. Features include top-mount filter access, 10,000-gallon filtration capacity, UVC LED lights, and filters certified to reduce microplastics, lead, and PFAS.
Liv EZ filtration expansion: Expanded filtration portfolio with Liv EZ, bringing commercial-grade water filtration to residences, commercial, and hospital applications.
SANITIZE + DRY hand dryer: Launched a sanitizing dryer with cold plasma technology neutralizing 99.99% of bacteria and viruses, including SARS, COVID, and Influenza A.
Adjacencies and underserved verticals: Identified new organic growth opportunities in adjacencies and underserved verticals, aiming to enhance growth trajectory over the next 2-3 years.
Supply chain optimization: Successfully live-tested and deployed a supply chain optimization plan, ensuring operational efficiency.
Continuous improvement culture: Increased #CI submissions by 49% in 2025, reflecting a strong culture of continuous improvement.
3-year strategic planning process: Completed annual strategic planning process, focusing on markets, competition, products, and disruptive ideas to align priorities and resources for the next 3 years.
M&A and organic growth: Actively working on entering organic adjacencies and evaluating M&A opportunities to support growth.
You have reached the limit. Sign up to access full content
Get started
Risk or Challenges
Residential Market Softness: The company experienced softness in residential markets, which could impact overall sales and growth.
Commercial Segment Weakness: Pockets of weakness were observed within the commercial segment of nonresidential markets, potentially affecting revenue.
Tariff Uncertainty: The evolving tariff environment poses risks, with potential changes in tariff rates or countries impacting costs and supply chain strategies.
Dependence on China for Materials: Although the company is reducing its reliance on China for direct material purchases, it still has exposure to this region, which could be a risk if geopolitical or trade issues arise.
Economic Uncertainty in End Markets: The overall market is expected to be flat to slightly positive, with uncertainties in institutional, waterworks, and residential end markets potentially affecting growth.
You have reached the limit. Sign up to access full content
Get started
Guidance & Outlook
2026 Core Sales Growth: Expected to increase by mid-single digits, driven by institutional and waterworks end markets growing at low single digits, commercial end markets remaining flat, and residential end markets continuing to face challenges.
Incremental Adjusted EBITDA Margins: Projected to be approximately 35% on the increased sales for 2026.
Free Cash Flow: Anticipated to reach approximately $335 million in 2026.
Tariff Environment: Guidance assumes tariff countries and rates remain consistent throughout 2026. The company is on track to reduce direct material purchases from China to only a few points of COGS by the end of 2026.
Q1 2026 Core Sales Growth: Projected to increase by 7% to 8% over the prior year.
Q1 2026 Incremental Adjusted EBITDA Margins: Expected to be approximately 35%, resulting in an EBITDA margin of 25.5% to 26%, representing a 60 basis point margin expansion over the prior year.
You have reached the limit. Sign up to access full content
Get started
Shareholder Return Plan
Dividends Paid: Paid $64 million in dividends over the course of 2025.
Share Repurchase: Repurchased about 3% of outstanding shares for $160 million in 2025, with $25 million deployed in the fourth quarter. The average repurchase price was $36.74.
You have reached the limit. Sign up to access full content
Get started
Key Q&A
Q:What is the core sales outlook for 2026 and how should we think about the build to mid-single digits?
A:The company is looking at 7% to 8% growth for Q1 and is off to a strong start. There is no discrete framework from 7%-8% to mid-single digits, but there is likely more price in the first half than the second. The company aims to beat its annual guidance.
Q:What is the current deal environment and how is the M&A funnel developing?
A:The company has been exhaustive in looking at adjacencies and has a fresh view on the funnel. Cultivations are progressing, and the company has not missed any transactions. There is flexibility for share repurchases, dividends, and M&A that meets criteria, but no specific predictions were made.
Q:Can you provide more detail on the adjacencies or verticals identified in the 3-year planning cycle?
A:The adjacencies are North American-based, related to water and professional-grade plumbing. They may involve leveraging lead products into different verticals, similar to the fire protection business expansion 5-7 years ago. The company aims to bundle products organically or inorganically to become a formidable supplier in these areas.
Q:Do you anticipate additional price increases due to recent metal price increases and inflation?
A:The company is monitoring metal prices and inflation but feels well-positioned due to supply chain cost reductions. Any incremental price increases will be judicious and customer-focused.
Q:How does the EPA's Lead and Copper Rule impact the drinking water business?
A:The rule helps sustain awareness and the healthy trajectory of the drinking water business, particularly in the institutional market. It is not seen as an accelerant but as a steady contributor to growth.
Q:What is the outlook for incremental margin guidance and potential for improvement?
A:The company sees 35% as a baseline for incremental margins, with potential for improvement due to supply chain optimization, new product innovation, and business mix evolution.
Q:What are the tangible signs of an inflection point in project conversion in the construction industry?
A:The company tracks various indices, including Dodge square foot data, and sees institutional markets growing, commercial markets weaker, and residential markets flat to slightly weaker. Current guidance reflects these trends.
Q:How is the filter attachment rate progressing with Pro Filtration?
A:Pro Filtration has a high attachment rate due to proprietary features requiring regular filter changes. The company expects the attachment rate to increase as Pro Filtration units grow in the installed base over the next 1-3 years.
Q:What is the price impact in Q4 and the outlook for 2026?
A:Q4 had about 5 points of price. For 2026, price impact is expected to be higher in the first half (4-5 points) and lower in the second half as it laps prior increases.
Q:How do organic and inorganic opportunities align in adjacencies and new products?
A:The company uses a dual path of internal development and cultivation for M&A opportunities. Expanding served markets by $1-2 billion enhances organic growth and M&A potential.
Q:What is the spending required for adjacent market strategy in 2026?
A:The spending is in the millions of dollars, embedded in the overall budget, and will continue to support commercialization efforts.
Q:What is the company's position in the data center market?
A:The company participates in the data center market with products related to water, plumbing, and drainage. It is a growth category but not expected to be a major segment.
Q:Review of Unclear Management Responses
A:Management avoided providing specific predictions or projections for M&A activity, and their response to the question about spending for adjacent market strategy lacked detailed breakdowns.
You have reached the limit. Sign up to access full content
Get started
Earnings Word Cloud
The most frequently occurring keywords in this quarter's earning call
Adams Chairman
Elkay System
Elkay Water
PFAS
Pro Filtration
TerraCycle
ZEBS
Zurn Elkay
access
adjacency vertical
advantage
approach
associate
breakthrough
capability
carbon
chemical
development
filter life
filtration
gallon
hand dryer
hospital
idea
increase
investment
line
list
location
month
opportunity adjacency
plan
planning
plastic
program
record
risk
school
slide
ZWS Transcript
Zurn Elkay Water Solutions Corporation (ZWS) Q4 2025 Earnings Call Transcript
Positive2-4
The earnings call reflects strong financial performance with a 17% increase in free cash flow, a 10% rise in Q4 sales, and improved EBITDA margins. Share repurchases and dividends indicate a positive shareholder return plan. Despite increased tariff costs, the company maintains a price/cost positive position. The Q&A reveals optimism about sales growth and strategic expansion into adjacencies. However, management's reluctance to provide detailed M&A predictions and spending plans slightly tempers sentiment. Overall, the raised full-year guidance and strategic focus on growth suggest a positive stock price movement.
Zurn Elkay Water Solutions Corporation (ZWS) Q3 2025 Earnings Call Transcript
Positive10-29
The earnings call reveals strong financial performance with EBITDA growth, increased free cash flow, and expanded margins. The company's strategic initiatives, such as reducing tariff impacts and launching new products, are well-received. Share repurchases and dividend hikes show confidence in financial health. Despite some management vagueness, the overall sentiment is positive, supported by raised guidance and strong product uptake.
Zurn Elkay Water Solutions Corporation (ZWS) Q2 2025 Earnings Call Transcript
Positive7-30
The earnings call summary indicates positive sentiment overall. Basic financial performance shows growth across all product categories, with significant unit volume growth and sustainable share gains. The product development update is optimistic, with double-digit growth in new filtration offerings. Market strategy remains robust, with M&A readiness and strong end-market outlooks. Financial health is stable, with balanced inventory and positive margin expectations. The shareholder return plan is not explicitly detailed, but the overall narrative suggests confidence in continued growth, leading to a positive stock price movement prediction.
Zurn Elkay Water Solutions Corporation (NYSE:ZWS) Q4 2024 Earnings Call Transcript
Positive2-6
The earnings call indicates strong financial performance with an 8% increase in adjusted EBITDA and a 100 basis points margin expansion. The company is actively reducing exposure to China, which is a proactive risk management strategy. Despite some market challenges, the company's guidance remains optimistic with continued growth in institutional markets. The significant share repurchase and dividend increases further support a positive outlook. However, uncertainties around tariffs and economic factors are noted, but overall sentiment leans positive given the strategic actions and financial health.
ZWS Report
Frequently Asked Questions
Where does this earnings call transcript come from?
All transcripts are sourced directly from the official live webcast or the company’s official investor relations website. We use the exact words spoken during the call with no paraphrasing of the core discussion.
How soon is the transcript available after the earnings call ends?
Full verbatim transcripts are typically published within 4–12 hours after the call ends. Same-day availability is guaranteed for all S&P 500 and most mid-cap companies.
Is the transcript edited or altered in any way?
No material content is ever changed or summarized in the “Full Transcript” section. We only correct obvious spoken typos (e.g., “um”, “ah”, repeated 10 times”, or clear misspoken ticker symbols) and add speaker names/titles for readability. Every substantive sentence remains 100% as spoken.
Why do some answers appear as “Unclear” or “Inaudible”?
When audio quality is poor or multiple speakers talk over each other, we mark the section instead of guessing. This ensures complete accuracy rather than introducing potential errors.
Who creates the AI Summary and Key Q&A highlights shown above the transcript?
They are generated by a specialized financial-language model trained exclusively on 15+ years of earnings transcripts. The model extracts financial figures, guidance, and tone with 97%+ accuracy and is regularly validated against human analysts. The full raw transcript always remains available for verification.
