8-K: Zurn Elkay Water Solutions Reports Strong Q2 2025 Results, Raises Full-Year Outlook

Zurn Elkay Water Solutions reported robust second-quarter 2025 financial results, exceeding expectations with significant growth in sales and profitability, leading to an upward revision of its full-year guidance.

Summary

• Net sales in the second quarter of 2025 were $445 million, an 8% increase compared to $412 million in the same period last year.
• Core sales grew by 8% year-over-year, with growth observed across all product categories.
• Net income from continuing operations for Q2 2025 was $50 million, resulting in diluted EPS from continuing operations of $0.29, up from $45 million ($0.26 diluted EPS) in the prior year.
• Adjusted EPS increased by 27% to $0.42 from $0.33 in the year-ago quarter.
• Adjusted EBITDA grew 13% to $118 million, representing a record 26.5% of net sales, compared to $104 million (25.3% of net sales) in Q2 2024.
• Net debt leverage stood at a low 0.7x as of June 30, 2025.
• The company deployed $33 million to repurchase 1.0 million shares of common stock during the quarter.
• Free cash flow exceeded $100 million in the quarter for the first time ever.
• The full-year 2025 outlook has been raised, with anticipated core sales growth of at least 5% year-over-year, Adjusted EBITDA of $420 million to $430 million (up from previous guidance of $405 million to $420 million), and free cash flow of approximately $300 million.

Sentiment

Score: 9

Explanation: The company delivered strong financial results across key metrics, including sales, adjusted EPS, and adjusted EBITDA, exceeding guidance. It achieved record free cash flow and significantly reduced net debt leverage. The full-year outlook was raised, reflecting confidence in continued performance despite market challenges.

Positives

• Net sales increased by 8% year-over-year to $445 million, demonstrating strong top-line growth.
• Core sales growth of 8% across all product categories indicates broad-based demand for products.
• Adjusted EPS grew significantly by 27% to $0.42, reflecting enhanced profitability.
• Adjusted EBITDA increased by 13% to $118 million, achieving a record margin of 26.5%, which is 120 basis points higher than the prior year.
• Free cash flow surpassed $100 million for the first time ever in a quarter, highlighting robust cash generation.
• Net debt leverage declined to a very healthy 0.7x, indicating strong financial stability and low risk.
• The company repurchased 1.0 million shares for $33 million, returning capital to shareholders.
• Full-year 2025 outlook for sales, Adjusted EBITDA, and free cash flow was raised, signaling confidence in continued strong performance.
• Positive and stable end-markets are observed across the vast majority of non-residential sectors.
• Successfully navigating global tariff dynamics through supply chain diversity, flexibility, and strategic pricing actions.

Negatives

• The residential market is modestly weaker, although it represents a smaller portion of the overall business.
• Income from operations as a percentage of net sales remained consistent year-over-year, as favorable sales growth and productivity savings were offset by LIFO adjustments and incremental restructuring expense.

Risks

• Global tariff dynamics could impact operations, although currently being navigated effectively.
• Volatility of foreign currency translation may affect financial results.
• General business risks and factors as detailed in the company's Form 10-K for the period ended December 31, 2024, and subsequent SEC filings.

Future Outlook

Zurn Elkay Water Solutions is raising its full-year 2025 outlook, anticipating core sales growth of at least 5% year-over-year, Adjusted EBITDA between $420 million and $430 million (up from $405 million to $420 million), and free cash flow of approximately $300 million. This outlook assumes the current tariff structure remains in place throughout 2025. The company expects third-quarter core sales growth and Adjusted EBITDA margin to be similar to the second quarter's performance.

Management Comments

• "We continue to navigate the global tariff dynamic extraordinarily well as the diversity and flexibility of our supply chain, selective pricing actions and the Zurn Elkay Business System drove strong results in the quarter." Todd A. Adams, Chairman and Chief Executive Officer.
• "Second quarter core sales growth was 8% year over year and includes some customer buy ahead as well as some early benefit from our pricing actions implemented in the quarter." Todd A. Adams.
• "Adjusted EBITDA margins were above the high end of our guidance range at a record 26.5% and up 120 basis points over the prior year second quarter." Todd A. Adams.
• "Free cash flow, inclusive of the $33 million we deployed to buy back shares, exceeded $100 million in the quarter for the first time ever while our leverage declined to 0.7x." Todd A. Adams.
• "We continue to see positive and stable end-markets across the vast majority of our non-residential end markets and a modestly weaker residential market, albeit a smaller piece of our business." Todd A. Adams.
• "Our targeted growth initiatives are delivering solid organic growth and we believe we are poised to continue to enhance our underlying organic growth rates." Todd A. Adams.
• "We're raising our full year outlook for sales, adjusted EBITDA and free cash flow based on our outperformance in the second quarter and a modestly higher perspective on the second half of the year than we had 90 days ago." Todd A. Adams.

Industry Context

The company operates in the water management solutions sector, primarily serving non-residential end markets. Its strong performance, particularly in core sales and profitability, suggests resilience and effective strategy execution despite global tariff dynamics and a 'modestly weaker residential market.' This indicates robust demand in the non-residential construction and infrastructure sectors, where Zurn Elkay's 'specification-driven water management solutions' are utilized. The company's ability to achieve record margins and free cash flow, coupled with low leverage, positions it strongly within the industry, potentially outperforming peers facing similar macroeconomic headwinds.

Comparison to Industry Standards

• The company's Adjusted EBITDA margin of 26.5% is a record for Zurn Elkay, indicating strong operational efficiency and profitability within its sector.
• Net debt leverage of 0.7x is exceptionally low, suggesting superior financial health and a conservative capital structure compared to many industrial peers.
• While specific comparable companies or projects are not mentioned in the filing, the reported growth rates and profitability metrics suggest a leading position in the water management solutions market, especially given the successful navigation of global tariff dynamics.

Stakeholder Impact

• Shareholders: Positive impact due to strong financial performance, increased profitability, share repurchases ($33 million for 1.0 million shares), and raised full-year guidance, which could lead to increased shareholder value.
• Employees: Positive impact from continued strong business performance and strategic initiatives, though 'restructuring and other similar charges' and 'supply chain optimization and footprint repositioning initiatives' might imply some operational changes.
• Customers: Positive impact from 'selective pricing actions' and 'targeted growth initiatives' which could imply new product offerings or improved service, but also potentially higher prices.
• Creditors: Positive impact due to significantly reduced net debt leverage (0.7x) and strong free cash flow, enhancing the company's ability to service debt obligations.

Next Steps

• Hold an investor conference call and webcast presentation on Wednesday, July 30, 2025, at 8:30 a.m. Eastern Time to discuss second quarter 2025 results, provide a general business update, and respond to investor questions.
• Continue to navigate global tariff dynamics effectively.
• Continue to enhance underlying organic growth rates through targeted growth initiatives.

Key Dates

Recommendation

The company has demonstrated exceptional financial performance in Q2 2025, with significant growth in core sales, adjusted EPS, and adjusted EBITDA, surpassing its own guidance. The achievement of record free cash flow and a very low net debt leverage of 0.7x indicates robust financial health and operational efficiency. The upward revision of the full-year outlook for sales, EBITDA, and free cash flow signals strong management confidence and potential for continued outperformance. Despite a 'modestly weaker residential market,' the company's focus on stable non-residential markets and effective navigation of global tariffs positions it for sustained growth. The share repurchase program further enhances shareholder value. These factors collectively suggest a strong investment opportunity.

Keywords

Water Management, Plumbing, Commercial Building Products, Industrial Solutions, Financial Results, Earnings, Q2 2025, Zurn Elkay, ZWS, Adjusted EBITDA, Free Cash Flow, Share Repurchase, Outlook, Non-residential Construction