8-K: Zurn Elkay Water Solutions Reports Strong Fourth Quarter and Full Year 2024 Results, Exceeding Guidance

Zurn Elkay Water Solutions announced positive financial results for Q4 and full year 2024, driven by core sales growth and margin expansion.

Summary

• Zurn Elkay Water Solutions reported net sales of $371 million for the fourth quarter, a 4% increase compared to the previous year's December quarter.
• Net income from continuing operations for Q4 was $36 million, or $0.21 diluted EPS, compared to $14 million, or $0.08 diluted EPS, in the year-ago quarter.
• Adjusted EPS for Q4 was $0.32, up from $0.26 in the prior year.
• Adjusted EBITDA for Q4 reached $91 million, representing 24.6% of net sales, compared to $84 million, or 23.6% of net sales, in the same period last year.
• Net debt leverage stood at 0.8x as of December 31, 2024.
• The company deployed $20 million to repurchase 0.5 million shares of common stock during the quarter.
• For the full year 2024, net sales totaled $1,567 million, a 2% increase from $1,531 million in 2023.
• Full-year net income from continuing operations was $159 million, or $0.91 diluted EPS, compared to $104 million, or $0.59 diluted EPS, in the previous year.
• Adjusted EPS for the full year was $1.28, compared to $0.97 in the prior year.
• Adjusted EBITDA for the full year was $390 million, or 24.9% of net sales, compared to $340 million, or 22.2% of net sales, in 2023.
• The company completed $150 million in common stock repurchases and paid $57 million in common stock dividends during the year.
• Record free cash flow of $272 million was generated in 2024.
• The company anticipates first quarter core sales growth to be up low single digits and adjusted EBITDA margin between 24.5% and 25.0%.
• For the full year 2025, the company expects core sales growth similar to 2024, adjusted EBITDA of $405 million to $420 million, and free cash flow of approximately $290 million.

Sentiment

Score: 8

Explanation: The document presents a positive outlook with strong financial results, exceeding guidance, and a focus on sustainability. The management's comments are optimistic, and the company's financial position appears healthy.

Positives

• Core sales grew by 4% in both Q4 and full year 2024.
• Adjusted EBITDA margins improved by 270 basis points for the full year.
• The company has a strong balance sheet and exceptional free cash flow.
• Zurn Elkay is focused on sustainability initiatives to drive growth.
• The company increased its dividend by 12.5% year over year.

Negatives

• The company noted 'pockets of challenging end markets'.

Risks

• The company's forward-looking statements are subject to risks and uncertainties that could cause actual results to differ materially from current expectations.
• The document references risk factors detailed in the company's Form 10-K and other SEC filings.

Future Outlook

The company anticipates low single-digit core sales growth for Q1 2025, with adjusted EBITDA margin between 24.5% and 25.0%. For full year 2025, they expect core sales growth similar to 2024, adjusted EBITDA of $405 million to $420 million, and free cash flow of approximately $290 million.

Management Comments

• '2024 was another year of solid execution for us as we delivered record sales, EBITDA and cash flow performance while repurchasing $150 million of our shares and increasing our dividend 12.5% year over year,' said Todd A. Adams, Chairman and Chief Executive Officer.
• Adams continued, 'As it relates to the fourth quarter, we delivered a solid quarter as sales, margins and cash flow exceeded the guidance we provided 90 days ago.'

Industry Context

Zurn Elkay's focus on water management solutions aligns with increasing global concerns about water scarcity and sustainability, positioning them to capitalize on growing demand for efficient and environmentally responsible water solutions.

Comparison to Industry Standards

• Comparing Zurn Elkay's adjusted EBITDA margin of 24.9% for 2024 to peers like Pentair (around 22%) and Xylem (around 18-20%) suggests strong operational efficiency.
• The net debt leverage of 0.8x indicates a healthy balance sheet compared to some competitors with higher leverage ratios.
• The company's focus on sustainability aligns with industry trends and may provide a competitive advantage as environmental concerns grow.

Stakeholder Impact

• Shareholders benefit from increased dividends and share repurchases.
• Employees are part of a company with a strong financial performance and a focus on sustainability.
• Customers gain access to innovative and sustainable water management solutions.
• Suppliers benefit from the company's continued growth and success.

Next Steps

• The company will release its 2024 sustainability report in the coming weeks.
• Zurn Elkay Water Solutions will hold a conference call and webcast presentation on Wednesday, February 5, 2025, at 8:30 a.m. Eastern Time to discuss its fourth quarter and full year 2024 results.

Key Dates