Zurn Elkay Water Solutions Cor Q2 Earnings Call Highlights

Zurn Elkay Water Solutions Cor NYSE: ZWS reported second-quarter organic sales growth of 10% and adjusted EBITDA growth of 15%, supported by demand in its Water Safety and Control and Drinking Water product lines, higher pricing, and margin expansion.

Second-quarter sales totaled $491 million, while adjusted EBITDA reached $136 million. Adjusted EBITDA margin expanded 120 basis points from a year earlier to a record 27.7%, exceeding the company’s prior guidance range of 27% to 27.5%.

Chairman and Chief Executive Officer Todd Adams said the company generated $112 million in free cash flow during the quarter and repurchased $50 million of shares at roughly $48 per share. Year-to-date share repurchases totaled $100 million.

Demand, pricing and profitability

Chief Financial Officer Dan Klun said institutional end markets continued to show positive momentum, partly offset by residential weakness and pockets of softness in commercial markets. Price contributed approximately 5% to second-quarter growth, consistent with the first quarter.

Water Safety and Control and Drinking Water grew faster than the company average during the quarter, according to Klun. During the question-and-answer session, Adams said those two platforms were growing somewhat faster than Flow Systems, while Hygienic and Environmental remained positive but grew at a slower rate.

The company attributed margin improvement to operating leverage on higher volume, productivity efforts under its Zurn Elkay Business System, and favorable mix as higher-margin products led growth. First-half sales and EBITDA increased $91 million and $36 million, respectively, from the prior year. The company’s first-half adjusted EBITDA margin was 27.3%, up about 140 basis points year over year.

Klun also noted that the company received $48 million in cash related to IEPA and reciprocal tariff refunds, including $2 million of accrued interest. The refund was recorded in cost of goods sold and affected reported GAAP earnings and earnings per share, but was excluded from adjusted earnings and free cash flow. As of June 30, Zurn Elkay had about $60 million of IEPA and reciprocal tariffs that remained uncollected and unrecognized in its financial statements.

Net debt leverage ended the quarter at 0.3 times, the lowest level in the company’s history as a public company, Klun said.

Intellihot acquisition expands water-heating presence

Zurn Elkay recently completed its acquisition of Intellihot, a producer of commercial tankless condensing water heaters. Adams said the company paid $109 million for the business, or $100 million net of a tax asset. Intellihot is expected to generate about $37 million of sales in 2026, with gross margins of about 50% and EBITDA margins in the low teens.

Management said the transaction adds a $1.1 billion commercial water-heating market to its addressable market, including a tankless segment of more than $200 million. President Jeff Schoon said tankless water heating is growing faster than the broader commercial water-heating category, driven by efficiency regulations, building-owner concerns around Legionella risk, smaller mechanical-room requirements, and operating-cost savings.

Adams said Zurn Elkay sees a path for Intellihot to become a $100 million business with a 30% EBITDA margin within five to six years, and expects a double-digit return on invested capital in three years. The company plans to use its specification, contractor, wholesaler and end-user relationships to expand Intellihot’s reach, while also pursuing supply-chain and operational improvements.

Management said Intellihot was not acquired for a near-term earnings contribution. For the final five months of 2026, Klun estimated the acquisition would contribute about $18 million in net sales.

Drinking Water and portfolio initiatives

Chief Operating Officer Dave Pauli said adjusted EBITDA margins have improved 660 basis points on a trailing 12-month basis from the first quarter of 2023 through the second quarter of 2026. On a point-to-point basis, margins rose 820 basis points over 14 quarters, from 19.5% in the first quarter of 2023 to 27.7% in the latest quarter.

Pauli cited continuous-improvement initiatives, growth in higher-margin product lines, portfolio pruning under the company’s 80/20 strategy, manufacturing footprint consolidation, and sourcing changes as contributors. He said the company’s efforts to reduce sourcing from China have provided both geopolitical risk mitigation and a lower landed-cost profile.

In Drinking Water, the company said its filtration business has grown from less than $25 million of sales before the Elkay merger to more than $60 million expected this year. Zurn Elkay expects more than 60% of Drinking Water units sold in 2026 to be filtered, compared with 50% in 2023, and is targeting 70% in 2027.

The company highlighted its Elkay Pro Filtration platform, which adds easier filter replacement, options for two filters, connectivity features and proprietary filter heads intended to prevent use of counterfeit filters.

Outlook raised

Following its first-half performance, Zurn Elkay raised its full-year outlook for sales, adjusted EBITDA and free cash flow. The company expects third-quarter core sales growth of 6% to 7% and adjusted EBITDA margin of about 28%. Fourth-quarter core sales growth is expected to be in the mid-single digits.

For 2026, including Intellihot, the company expects adjusted EBITDA of $503 million to $513 million and free cash flow of at least $350 million, excluding past and future IEPA reciprocal tariff refunds.

Adams said the company’s full-year assumptions include three to four percentage points of pricing, about one point of market growth, and additional growth from share gains and exposure to higher-growth categories. He said the outlook incorporates the transition from expired Section 122 tariffs to newly announced Section 301 tariffs.

About Zurn Elkay Water Solutions Cor (NYSE:ZWS)

Zurn Elkay Water Solutions Corp, trading on the NYSE under the ticker ZWS, is a global provider of water delivery and plumbing products. The company was established in October 2022 through a spin-off from Rexnord Corp, creating a standalone business focused on designing, manufacturing and marketing water system components for residential, commercial and industrial customers.

Through its Zurn segment, the company offers solutions for water delivery, drainage and waste evacuation. Product lines include valves, hydrants, backflow prevention devices, piping systems, fittings and commercial waste stations.

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