Zurn Elkay Q2 2025 slides: 8% core sales growth with expanding margins

Zurn Elkay Water Solutions (NYSE:ZWS) presented its second quarter 2025 financial results on July 30, 2025, showcasing strong performance with accelerating growth and margin expansion. The company reported robust core sales growth of 8% year-over-year while improving its adjusted EBITDA margin by 120 basis points to 26.5%. The water solutions provider also highlighted progress in strategic initiatives, including new product launches and effective navigation of tariff challenges.

Quarterly Performance Highlights

Zurn Elkay delivered impressive financial results for the second quarter of 2025, with net sales reaching $445 million, an 8% increase compared to $412 million in Q2 2024. This represents an acceleration from the 5% core sales growth reported in Q1 2025. Adjusted EBITDA grew 13% year-over-year to $118 million, with margins expanding to 26.5% from 25.3% in the same period last year.

As shown in the following quarterly results table:

For the first half of 2025, the company reported net sales of $833 million, up 6% from $786 million in H1 2024, with 7% core growth partially offset by a 1% negative impact from foreign exchange. Year-to-date adjusted EBITDA reached $216 million, an 11% increase from the prior year, with margins expanding by 120 basis points to 25.9%.

The company’s stock closed at $38.42 on July 29, 2025, showing significant recovery from its trading price of $32.34 following Q1 results, reflecting investor confidence in the company’s performance trajectory.

Financial Position & Cash Flow

Zurn Elkay continued to strengthen its financial position, generating $102 million in free cash flow during Q2 2025, a substantial improvement from $80 million in the same period last year. The company’s net debt leverage ratio improved to 0.7x, down from 0.9x in June 2024 and 1.4x in December 2022, demonstrating consistent deleveraging.

The following chart illustrates the company’s improving leverage and cash flow metrics:

The strong cash generation has enabled Zurn Elkay to return capital to shareholders through share repurchases, with $33 million (approximately 1.0 million shares) bought back in Q2 and $110 million (approximately 3.2 million shares) in the first half of 2025.

Strategic Initiatives & Innovation

Zurn Elkay highlighted several strategic developments in its presentation, including the launch of Elkay Pro Filtration, representing the company’s next generation of drinking water innovation. This new product line focuses on reliable performance, simplified maintenance, high-capacity filtration, and connected features.

The following image showcases the new Elkay Pro Filtration products:

These innovations align with the company’s focus on providing sustainable water solutions while addressing growing concerns about water quality and conservation. The products are certified for total PFAS reduction, addressing an increasingly important consumer concern regarding "forever chemicals" in drinking water.

Sustainability Impact

Sustainability remains a core focus for Zurn Elkay, with 86% of its revenue coming from products with sustainable attributes. The company reported that its products saved 16.6 billion gallons of water year-to-date in 2025 and delivered 1.2 billion gallons of safer, cleaner filtered water.

The following graphic details the company’s sustainability achievements:

Additional sustainability highlights include preventing 9.6 billion single-use plastic water bottles, achieving 570,000 kWh of annual electricity savings from projects completed in 2025, and contributing $1.4 million in philanthropic giving.

Supply Chain & Tariff Management

Zurn Elkay addressed the challenges posed by the current tariff environment, projecting a $35-45 million tariff cost impact in 2025 based on the tariff structure in place as of July 29, 2025. Despite these headwinds, the company expressed confidence in achieving price increases in the market to offset these costs.

As part of its supply chain strategy, Zurn Elkay is reducing its China direct material spend, targeting to be under $30 million (2-3% of COGS) by the end of 2026. Management expressed high confidence in delivering price/cost positive results in both the near and long term.

This approach aligns with comments made during the Q1 earnings call, where CEO Todd Adams had stated, "By the end of twenty twenty-six, only 2% to 3% of our COGS will be coming from China," highlighting the company’s proactive approach to mitigating supply chain risks.

Forward-Looking Guidance

For Q3 2025, Zurn Elkay expects core sales growth and adjusted EBITDA margin to be similar to Q2 levels. The company provided detailed below-the-line assumptions, including interest expense of approximately $7 million, stock compensation expense of approximately $10 million, and depreciation and amortization of approximately $22 million.

For the full year 2025, Zurn Elkay projects:

• Core sales growth of at least 5%
• Adjusted EBITDA of $420-430 million
• Free cash flow of $300 million

These projections suggest continued strong performance through the remainder of 2025, with the company maintaining its trajectory of sales growth and margin expansion. The full-year guidance reflects confidence in the company’s ability to navigate challenges while capitalizing on opportunities in the water solutions market.

Zurn Elkay’s performance in Q2 2025 demonstrates the company’s ability to execute its strategic initiatives while delivering strong financial results. With its focus on innovation, sustainability, and effective supply chain management, the company appears well-positioned to continue its growth trajectory in the coming quarters.

Full presentation:

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