ZWS — Zurn Elkay Water Solutions Corporation

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

1. Key Financial Results and Metrics

• Sales: Q1 2026 sales totaled $433 million, reflecting an 11% year-over-year growth (both core and reported).
• 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.
• Share Repurchase: $50 million of shares repurchased at approximately $47 per share.
• Leverage: Net debt leverage stood at 0.5x, indicating a strong balance sheet and liquidity position.

2. Strategic Updates and Business Highlights

• The company is on track with its supply chain initiatives and is managing tariff impacts effectively.
• Growth initiatives have been successful, particularly in non-residential markets, though there was some softness in residential markets.
• The company is seeing strong performance in its Drinking Water segment, with double-digit growth in both the installed base of filtered bottle fillers and the Pro Filtration product line.
• The mix of business is shifting towards retrofit and replacement, now evenly split with new construction, enhancing resilience and margin potential.

3. Forward Guidance and Outlook

• For Q2 2026, ZWS projects core sales growth of 8% to 9% and an adjusted EBITDA margin of 27% to 27.5%, representing further year-over-year margin expansion.
• The full-year outlook for free cash flow remains at approximately $335 million, with updates to the second-half outlook expected after Q2 results.
• The company is adopting a deliberate and conservative approach to its full-year guidance, awaiting further clarity on market conditions and tariff impacts.

4. Bad News, Challenges, or Points of Concern

• There are ongoing uncertainties regarding tariffs, particularly with potential changes from the 122 and 301 tariff schemes, which could impact costs.
• While the company has managed to pass through some price increases, there is caution regarding customer fatigue with pricing and the potential need for future price adjustments.
• The residential market remains a concern, with expectations of low single-digit declines.

5. Notable Q&A Insights

• Drinking Water Trends: Strong performance in the Drinking Water segment, with high adoption rates for new products like Pro Filtration.
• Margin Expansion: Continued focus on continuous improvement and strategic product introductions is expected to support ongoing margin expansion.
• Growth Adjacent Markets: The company is exploring new product categories that could either sustain growth in a slowing market or enhance growth in stable conditions.
• Visibility into Backlogs: Contractor backlogs and regional growth initiatives suggest a consistent outlook for the second half of the year, with no immediate concerns about derailing growth.

Overall, Zurn Elkay Water Solutions demonstrated solid financial performance in Q1 2026, with strategic initiatives supporting growth and margin expansion, while remaining cautious about external market conditions and potential tariff impacts.