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Introduction & Market Context
Zurn Elkay Water Solutions Corp (NYSE:ZWS) released its first quarter 2025 financial results on April 23, showing continued growth and margin expansion despite ongoing supply chain challenges. The company reported core sales growth of 5% year-over-year, with adjusted EBITDA margin improving by 110 basis points to 25.2%. The water solutions provider continues to demonstrate resilience in its business model while proactively addressing tariff-related challenges through strategic supply chain repositioning.
The company’s stock price reacted positively to the results, with shares rising 4.85% to $31.13 in the trading session following the announcement, outperforming broader market indices and reflecting investor confidence in the company’s strategic direction.
Quarterly Performance Highlights
Zurn Elkay reported net sales of $389 million for Q1 2025, representing a 4% increase from $374 million in Q1 2024. This growth was primarily driven by a 5% increase in core sales, partially offset by a 1% negative impact from foreign exchange translation. The company’s adjusted EBITDA reached $98 million, up 9% from $90 million in the same period last year, with margins expanding by 110 basis points to 25.2%.
As shown in the following consolidated results comparison, the company demonstrated solid improvement across key financial metrics:
Free cash flow for the quarter came in at $39 million, supporting the company’s capital allocation strategy. Zurn Elkay continued to strengthen its balance sheet, reducing its net debt leverage ratio to 0.9x, down from 1.4x in December 2022. This improvement reflects the company’s disciplined approach to debt management and strong cash generation capabilities.
The following chart illustrates the company’s consistent progress in reducing leverage and total debt over the past two years:
During the quarter, Zurn Elkay returned significant capital to shareholders through share repurchases totaling $77 million (2.3 million shares), demonstrating confidence in its business model and commitment to shareholder returns.
Strategic Initiatives
A key focus of Zurn Elkay’s presentation was its ongoing multi-year strategy to reposition its supply chain away from China, a particularly relevant initiative given the current tariff environment. The company outlined its plan to reduce China direct material spend to under $30 million (2-3% of COGS) by the end of 2026, significantly reducing its exposure to potential tariff impacts.
The following slide details the company’s current cost structure and tariff exposure:
Management estimates a $45-$55 million expected tariff cost impact for 2025 but has implemented a comprehensive response strategy including price increases effective April 15 and May 15, accelerating non-China capacity, and managing customer ordering patterns. The company expressed high confidence in delivering positive results despite these challenges.
As shown in the following response strategy slide, Zurn Elkay expects to achieve a positive dollar impact from its price/cost initiatives both in the remainder of 2025 and in 2026:
Sustainability Impact
Sustainability continues to be a core strength for Zurn Elkay, with 86% of revenue coming from products with sustainable attributes. The company highlighted several impressive sustainability metrics for Q1, including 8 billion gallons of water saved from their products and 4.7 billion single-use plastic water bottles prevented.
The following sustainability impact metrics demonstrate the company’s environmental and social contributions:
Zurn Elkay’s sustainability efforts have earned external recognition, including the IR Impact Awards for Best ESG reporting (small to mid-cap) and being named one of America’s Climate Leaders 2025 by USA Today and Statista. These accolades reinforce the company’s leadership position in sustainable water solutions.
Forward-Looking Statements
Looking ahead to Q2 2025, Zurn Elkay provided a positive outlook with core sales growth expected in the low to mid-single digits. The company projects adjusted EBITDA margin to be between 25.5% and 26.0%, indicating continued margin expansion.
The Q2 outlook includes the following assumptions:
- Interest expense of approximately $8 million
- Stock compensation expense of approximately $10 million
- Depreciation & amortization of approximately $23 million
- Adjusted tax rate of 26.5% - 27.5%
- Diluted shares outstanding of approximately 172 million (assuming no additional share repurchases)
As shown in the following outlook slide, the company also highlighted a 60% year-over-year increase in Commercial Innovation Projects Submitted:
Competitive Industry Position
Zurn Elkay continues to strengthen its competitive position in the water solutions market through strategic initiatives and sustainability leadership. The company’s proactive approach to supply chain management demonstrates foresight in addressing potential tariff challenges, potentially giving it an advantage over competitors who may be more exposed to China-based manufacturing.
The company’s performance in Q1 2025 builds on its strong results from previous quarters. In its Q3 2024 earnings call, Zurn Elkay reported 4% core growth and a 9% increase in adjusted EBITDA, with margins improving by 150 basis points year-over-year to 25.6%. The company had also raised its full-year free cash flow outlook to approximately $260 million and increased its quarterly dividend by 12.5%.
The consistent performance across multiple quarters suggests that Zurn Elkay’s strategic initiatives are yielding sustainable results, positioning the company well for continued growth despite macroeconomic uncertainties and supply chain challenges. With its strong balance sheet, proactive management approach, and focus on sustainability, Zurn Elkay appears well-positioned to navigate the evolving market landscape while delivering value to shareholders.
Full presentation:
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