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    ZWS
    Earnings call· Mar 2026(Q1 FY26)

    Zurn Elkay Water Solutions Q1 FY26 earnings call ZWS

    Apr 22, 2026 Source

    Executive summary

    Zurn Elkay Water Solutions Q1 FY26 — Strong Sales Growth and Margin Expansion

    Zurn Elkay Water Solutions delivered a strong first quarter, driven by robust organic sales growth and significant adjusted EBITDA margin expansion, continuing a multi-year trend. The company is effectively navigating a complex tariff environment and remains confident in its full-year outlook, planning to provide an update after Q2. Strategic focus on high-margin products and continuous improvement initiatives are enhancing resilience and profitability.

    Highlights

    5

    • First quarter sales grew 11% organically.

    • Adjusted EBITDA grew 18% to $116 million.

    • Adjusted EBITDA margins expanded 160 basis points to 26.8%.

    • Generated $43 million of free cash flow.

    • Repurchased $50 million of Zurn Elkay shares at roughly $47 a share.

    Concerns

    2

    • Softness in residential end markets partially offset growth in nonresidential.

    • Uncertainty around tariff changes (122, 232, 301) creates potential for net adverse changes, though management is confident in mitigation.

    Guidance & targets

    5
    CategoryTargetConfidence
    Full-year free cash flow
    approximately $335 million
    high materiality
    High
    Q2 FY26 core sales growth
    8% to 9%
    medium materiality
    High
    Q2 FY26 adjusted EBITDA margin
    27% to 27.5%
    medium materiality
    High
    Full-year 2026 outlook
    first half outperformance flows through to the year
    high materiality
    High
    Full-year 2026 tariff impact assumption
    assumes that the current tariff structure in place as of today remains in place throughout 2026
    medium materiality
    High

    Operational metrics

    16
    Adjusted EBITDA
    $116 million18% growth
    Q1 FY26

    Reported for the first quarter of 2026.

    Adjusted EBITDA margin
    26.8%160 basis points expansion YoY
    Q1 FY26

    This continues a trend of year-over-year margin expansion since the Elkay merger.

    Adjusted EBITDA margin (TTM)
    630 basis pointsimproved from Q1 2023
    Q1 FY26 TTM

    Improvement from Q1 2023 to Q1 2026 on a trailing 12-month basis.

    Adjusted EBITDA margin (point-to-point)
    730 basis pointsup over last 13 quarters
    Q1 FY26

    Improvement from 19.5% in Q1 2023 to 26.8% in Q1 2026.

    Net debt leverage
    0.5x
    Q1 FY26

    Inclusive of $50 million deployed for share repurchases in the quarter.

    Revolver capacity
    $550 millionupsized from $200 million
    Q1 FY26

    Upsized and extended, providing more liquidity.

    Share repurchases
    $50 million
    Q1 FY26

    Amount repurchased in the first quarter.

    Organic sales growth
    11%
    Q1 FY26

    Reported for the first quarter.

    Price contribution to sales growth
    5 points
    Q1 FY26

    Contribution to the 11% core sales growth.

    Volume contribution to sales growth
    6 points
    Q1 FY26

    Contribution to the 11% core sales growth (derived from 11% total growth minus 5% price).

    Weather impact on growth
    1 point
    H1 FY26

    Incremental break-fix activity from unusually cold weather in portions of the U.S. in Q1, expected to play out over the first half.

    Retrofit/replace mix
    50%up from 45% five years ago
    Q1 FY26

    Now evenly split, driven by growth in drinking water, filtration, and water/safety control products.

    Retrofit/replace mix target
    55%
    coming years

    Reasonable next waypoint for the mix shift.

    Elkay merger synergies
    over $50 million
    achieved

    Amount of synergies delivered, with positive structural changes continuing beyond this.

    Sourcing origin
    —
    current

    Out of all countries sourced from, the U.S. is the largest by a decent margin, helping to insulate from tariff impacts.

    Continuous improvement ideas (#CI)
    thousands
    each year

    Associate-led and submitted ideas that save time, eliminate waste, and improve processes; material in aggregate.

    Industry KPIs

    6
    MetricValueDetails
    Price cost3 points%
    Order backlog—
    Data center hvac exposure—
    Organic operating leverage—
    Service aftermarket attach—
    Orders bookings growth by verticaldouble digit%

    Product announcements

    1
    ProductTypeDetails
    Pro Filtrationupdate

    Risks & headwinds

    3
    Tariff changes and uncertainty2026

    potential net adverse changes stemming from 122 and 301 tariffs

    Mitigation: Highly confident in managing through tariff dynamics; discrete impact of tariffs within 2026 expected to remain price/cost positive without future price increases or refunds, due to product substitution, materials work, and supply chain footprint initiatives. U.S. is the largest sourcing country.

    Softness in residential end marketsQ1 FY26

    partially offset growth in nonresidential

    Mitigation: Focus on growth initiatives and nonresidential markets; strategic shift towards retrofit/replace and higher-margin products.

    Global market uncertaintyremaining 8 months of 2026

    a lot going on in the world

    Mitigation: Deliberate and conservative approach to full-year outlook, waiting until Q2 results to provide a comprehensive update, rather than making day-by-day changes.

    What to watch in Q2 FY26

    5

    Full-year outlook update

    After Q2 FY26 results (late July)
    Currentrunning ahead of what was likely assumed for the first half of 2026
    TargetUpdated full-year guidance for revenue, EBITDA, FCF

    Why it matters

    Management indicated first-half outperformance flows through to the year, implying a potential raise to the full-year outlook, which will be formally updated.

    So rather than try to change a bunch of digital assumptions day by day that frankly will become more clear as the year goes on, we're simply going to update the second half after Q2.

    Q&A highlights

    6

    Seeking color on drinking water segment performance, especially Pro Filtration, and its contribution to overall growth and attachment rates.

    Drinking Water performed very well in Q1, with double-digit growth in the installed base of filtered bottle fillers and filtration. Pro Filtration has seen strong adoption due to customer feedback-driven development, resulting in high attachment rates. The team is actively updating specs from legacy products to Pro Filtration.

    “So Drinking Water in the quarter performed very well, in line with where we thought it would be going into the quarter. The installed base continues -- the installed base of filtered bottle fillers continues to grow at double digit. The filtration piece of the business continues to grow above double digit.”

    asked by Bryan Blair · answered by David Pauli

    2 min read6 chapters

    Detailed Narrative

    01

    Strong Q1 Performance and Outlook

    Zurn Elkay reported 11% organic sales growth and 18% adjusted EBITDA growth to $116 million, with margins expanding 160 basis points to 26.8%. The company's Q1 results and Q2 guidance (8-9% core sales growth, 27-27.5% adjusted EBITDA margin) are ahead of initial expectations for the first half of 2026. Management indicated this outperformance will flow through to the full year, with a formal update planned after Q2 results.

    02

    Tariff Environment Management

    The company is actively managing a complex tariff landscape, including Supreme Court rulings, 122/232 tariff changes, and new 301 tariff studies. Management expressed high confidence that the discrete impact of tariffs in 2026 will remain price/cost positive, even without future price increases or tariff refunds. This confidence stems from supply chain footprint initiatives, product substitution, and the fact that the U.S. is now their largest sourcing country.

    03

    Strategic Mix Shift and Resilience

    Zurn Elkay has intentionally shifted its product mix, with retrofit/replace now evenly split at 50% (up from 45% five years ago) due to growth in drinking water, filtration, and water/safety control products. This shift is expected to enhance business resilience and contribute positively to margin mix over time⏳. The company targets a further increase to 55% retrofit/replace in the coming years.

    04

    EBITDA Margin Expansion Drivers

    Over the last 13 quarters, adjusted EBITDA margins have improved 730 basis points, reaching 26.8% in Q1 FY26 from 19.5% in Q1 2023. This expansion is attributed to the Zurn Elkay Business System, continuous improvement initiatives (#CI), unit volume growth in profitable areas (Water Safety and Control, Flow Systems, Drinking Water), structural changes post-Elkay merger, and a competitive supply chain.

    05

    Capital Allocation and M&A Strategy

    The company ended the quarter with a net debt leverage of 0.5x, inclusive of $50 million in share repurchases. The revolver was upsized to $550 million, enhancing liquidity. Management maintains a disciplined M&A funnel, cultivating targets rather than participating in auctions, and focusing on strategic fit and return hurdles. Capital allocation priorities remain share buybacks (when intrinsic value is understated) and dividends.

    06

    New Product Development and Growth Adjacencies

    Zurn Elkay is making great progress on new product introductions and entering growth adjacencies, which are expected to open additional available market. These initiatives are anticipated to be additive to long-term growth rates and provide resilience against potential market slowdown🌐s. More details on these developments are expected to be shared by Q3 and into Q4 and early next year.

    AI-generated summary of the company’s earnings call. Not investment advice.