Zurn Elkay's (NYSE:ZWS) Q1 Sales Top Estimates

Water management solutions company Zurn Elkay (NYSE:ZWS) reported Q1 CY2025 results exceeding the market’s revenue expectations, with sales up 4% year on year to $388.8 million. On the other hand, next quarter’s revenue guidance of $422.3 million was less impressive, coming in 0.5% below analysts’ estimates. Its non-GAAP profit of $0.31 per share was 7.1% above analysts’ consensus estimates.

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Todd A. Adams, Chairman and Chief Executive Officer, commented, “We had a solid start to 2025, delivering first quarter core sales growth of 5% along with 25.2% adjusted EBITDA margins, an increase of 110 basis points year over year. We also returned significant capital to shareholders in the form of $77 million in share repurchases and $15 million in dividends while maintaining leverage at 0.9x.”

Company Overview

Claiming to have saved more than 30 billion gallons of water, Zurn Elkay (NYSE:ZWS) provides water management solutions to various industries.

HVAC and Water Systems

Many HVAC and water systems companies sell essential, non-discretionary infrastructure for buildings. Since the useful lives of these water heaters and vents are fairly standard, these companies have a portion of predictable replacement revenue. In the last decade, trends in energy efficiency and clean water are driving innovation that is leading to incremental demand. On the other hand, new installations for these companies are at the whim of residential and commercial construction volumes, which tend to be cyclical and can be impacted heavily by economic factors such as interest rates.

Sales Growth

Examining a company’s long-term performance can provide clues about its quality. Any business can put up a good quarter or two, but many enduring ones grow for years. Over the last five years, Zurn Elkay’s demand was weak and its revenue declined by 5.2% per year. This wasn’t a great result and suggests it’s a lower quality business.

Long-term growth is the most important, but within industrials, a half-decade historical view may miss new industry trends or demand cycles. Zurn Elkay’s annualized revenue growth of 5.7% over the last two years is above its five-year trend, but we were still disappointed by the results.

We can dig further into the company’s sales dynamics by analyzing its organic revenue, which strips out one-time events like acquisitions and currency fluctuations that don’t accurately reflect its fundamentals. Over the last two years, Zurn Elkay’s organic revenue averaged 1.8% year-on-year growth. Because this number is lower than its normal revenue growth, we can see that some mixture of acquisitions and foreign exchange rates boosted its headline results.

This quarter, Zurn Elkay reported modest year-on-year revenue growth of 4% but beat Wall Street’s estimates by 1.4%. Company management is currently guiding for a 2.5% year-on-year increase in sales next quarter.

Looking further ahead, sell-side analysts expect revenue to grow 3.3% over the next 12 months, a slight deceleration versus the last two years. This projection is underwhelming and implies its products and services will face some demand challenges.

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Operating Margin

Zurn Elkay has been an efficient company over the last five years. It was one of the more profitable businesses in the industrials sector, boasting an average operating margin of 12.8%. This result isn’t surprising as its high gross margin gives it a favorable starting point.

Looking at the trend in its profitability, Zurn Elkay’s operating margin rose by 2.7 percentage points over the last five years, showing its efficiency has improved.

In Q1, Zurn Elkay generated an operating profit margin of 16.3%, up 2.1 percentage points year on year. The increase was encouraging, and because its operating margin rose more than its gross margin, we can infer it was more efficient with expenses such as marketing, R&D, and administrative overhead.

Earnings Per Share

We track the long-term change in earnings per share (EPS) for the same reason as long-term revenue growth. Compared to revenue, however, EPS highlights whether a company’s growth is profitable.

Sadly for Zurn Elkay, its EPS declined by 8.3% annually over the last five years, more than its revenue. However, its operating margin actually expanded during this time, telling us that non-fundamental factors such as interest expenses and taxes affected its ultimate earnings.

Diving into the nuances of Zurn Elkay’s earnings can give us a better understanding of its performance. A five-year view shows Zurn Elkay has diluted its shareholders, growing its share count by 38.5%. This dilution overshadowed its increased operating efficiency and has led to lower per share earnings. Taxes and interest expenses can also affect EPS but don’t tell us as much about a company’s fundamentals.

Like with revenue, we analyze EPS over a shorter period to see if we are missing a change in the business.

For Zurn Elkay, its two-year annual EPS growth of 20% was higher than its five-year trend. This acceleration made it one of the faster-growing industrials companies in recent history.

In Q1, Zurn Elkay reported EPS at $0.31, up from $0.29 in the same quarter last year. This print beat analysts’ estimates by 7.1%. Over the next 12 months, Wall Street expects Zurn Elkay’s full-year EPS of $1.31 to grow 3.8%.

Key Takeaways from Zurn Elkay’s Q1 Results

It was good to see Zurn Elkay narrowly top analysts’ revenue expectations this quarter. We were also happy its EPS and EBITDA outperformed Wall Street’s estimates. On the other hand, its revenue guidance for next quarter fell slightly short of estimates. Overall, this quarter could have been better. The stock remained flat at $31.13 immediately after reporting.

So should you invest in Zurn Elkay right now? The latest quarter does matter, but not nearly as much as longer-term fundamentals and valuation, when deciding if the stock is a buy. We cover that in our actionable full research report which you can read here, it’s free.