Zurn Elkay raises 2025 full-year outlook with 8% core sales growth target while expanding share buyback program

Earnings Call Insights: Zurn Elkay Water Solutions Corporation (ZWS) Q3 2025

MANAGEMENT VIEW

* Todd Adams, CEO & Chairman, stated, "Our sales grew 11% organically year-over-year and EBITDA grew 16% to $122 million as margins expanded 120 basis points to 26.8%." He highlighted the company's repurchase of about 600,000 shares in the quarter, bringing year-to-date repurchases to $135 million, and noted the Board's refresh of the share buyback program to $500 million. Adams announced a 22% increase in the dividend. He emphasized, "We also completed our U.S. pension plan termination in the quarter, which is really just a nice thing to have behind us."
* Adams addressed the market outlook: "We think our markets in 2026 look a lot like they did in 2025... pushes that acceleration to 2027." He reiterated the company's focus on internal growth initiatives and operational control, stating, "We continue to demonstrate that our teams have got a really good handle on the tariff, supply chain and pricing dynamics."
* David Pauli, Chief Financial Officer, reported, "Our third quarter sales totaled $455 million as we continue to have solid execution on our growth initiatives. $455 million of sales represents 11% core growth year-over-year." Pauli added, "Our second quarter adjusted EBITDA was $122 million and our adjusted EBITDA margin expanded 120 basis points year-over-year to 26.8% in the quarter."
* Pauli also noted, "We exited the U.S. pension plan in the quarter. That eliminates an approximately $200 million liability and the related assets, and also eliminates the need for cash payments to support the pension plan on a go-forward basis."

OUTLOOK

* Pauli projected, "For the fourth quarter of 2025, we are projecting year-over-year core sales growth to be in the high single digits and we anticipate our adjusted EBITDA margin -- or our adjusted EBITDA to be between $99 million and $102 million." The full year outlook was raised: "We now see core sales growth of approximately 8% for the full year, adjusted EBITDA in the range of $437 million to $440 million and free cash flow greater than $300 million."
* Pauli updated tariff cost expectations: "As country-specific tariff rates were updated and new tariffs on copper came into play during the third quarter, we now believe our tariff cost impact on 2025 will be modestly higher and be approximately $50 million for the year."

FINANCIAL RESULTS

* Zurn Elkay reported third quarter sales of $455 million, representing 11% core growth year-over-year. Adjusted EBITDA reached $122 million with a margin of 26.8%. Year-to-date, sales and EBITDA have increased by $93 million and $39 million respectively, with a 42% drop-through on the year-over-year volume increase.
* The company finished the quarter with leverage at 0.6x, the lowest as a public company. Free cash flow for the quarter was $94 million.
* The share buyback program was refreshed to $500 million, and year-to-date repurchases stood at $135 million.

Q&A

* Bryan Blair, Oppenheimer: Asked about divergence in growth rates across legacy Zurn product categories and momentum into 2026. Todd Adams responded that "almost all of our core categories are experiencing solid unit growth on top of a little bit of market, on top of a little bit of price."
* Blair also inquired about Elkay Pro Filtration and Liv EZ launch. Adams replied, "We've seen a really strong uptake right away... I think a really good, solid start, but it's only a start," and described the Liv EZ as "a nice extension of what we're doing," though not a pillar for commercial offerings.
* Adam Farley, Stifel: Questioned volume expectations and capital allocation priorities. Adams noted, "I think the growth in Q3 is relatively high quality. And I think the way we're guiding Q4 is equal to that kind of momentum," and confirmed steady repurchasing remains a priority, with flexibility to increase if market conditions warrant.
* Michael Pesendorfer, Baird: Sought more detail on the M&A funnel and aspirations in residential drinking water. Adams said the funnel "hasn't changed a bunch near the bottom... the top of the funnel has gotten modestly larger really over the course of the last 12 months," and clarified, "I wouldn't characterize our appetite to go into residential filtration as high."
* Edward Magi, BNP Paribas Exane: Asked about margin levels and tariff resilience. Pauli said, "We're confident that the level that you're seeing is a new baseline in terms of where Zurn Elkay margins can be."
* David Tarantino, KeyBanc: Inquired about price vs. volume, and price carryover into 2026. Pauli reported, "Price realization in the quarter, we saw about 5 points of price in the quarter."
* Brett Linzey, Mizuho: Asked about Filter First program contribution and project cycle indicators. Pauli explained the Michigan opportunity is ongoing and Adams stated, "our flow systems business has grown at or above the fleet average the entire year."

SENTIMENT ANALYSIS

* Analysts pressed for clarity on product growth rates, pricing impact, volume trends, capital deployment, and the sustainability of margin expansion, with a generally neutral to slightly positive tone throughout the call.
* Management maintained a confident and positive stance in both prepared remarks and Q&A, reinforcing operational control, supply chain resilience, and growth strategy, as seen in Adams' consistent emphasis on internal execution and Pauli's repeated references to margin expansion and growth visibility.
* Compared to the previous quarter, both analysts and management sustained a constructive tone, though management's confidence was reinforced by the upward revision of guidance and operational achievements.

QUARTER-OVER-QUARTER COMPARISON

* Management raised full-year guidance again, now seeing 8% core sales growth for 2025, up from at least 5% previously. Adjusted EBITDA guidance was also increased from a range of $420 million to $430 million to $437 million to $440 million.
* The company completed the U.S. pension plan termination, reducing liabilities, and refreshed its share buyback program to $500 million, compared to ongoing repurchases in Q2.
* Core growth increased from 8% in Q2 to 11% in Q3, with adjusted EBITDA margins expanding further to 26.8% from 26.5%.
* Both quarters featured robust free cash flow generation and a strong balance sheet, with leverage declining further.
* Analysts' questions shifted to focus more on future momentum, product launches, M&A, and the durability of margin levels, while management's guidance language became more assertive.

RISKS AND CONCERNS

* Tariff costs for 2025 are now expected to be approximately $50 million, up from previous guidance, with ongoing uncertainty around tariff changes.
* Management noted softness in the residential market, partially offset by strength in nonresidential and internal initiatives.
* The company continues to monitor supply chain dynamics and macroeconomic indicators, but views its competitive positioning and product breadth as mitigating factors.

FINAL TAKEAWAY

Zurn Elkay Water Solutions delivered a strong third quarter with 11% core sales growth, record adjusted EBITDA margins, and increased free cash flow, leading management to raise full-year 2025 guidance for growth, profitability, and cash generation. The company refreshed its share buyback program and completed its U.S. pension plan termination, further strengthening its balance sheet. Looking ahead, management projects continued operational momentum and solid demand through the end of 2025 and into 2026, supported by robust product innovation, consistent execution, and a disciplined approach to capital allocation, while remaining vigilant to tariff and market risks.

Read the full Earnings Call Transcript [https://seekingalpha.com/symbol/zws/earnings/transcripts]

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