Zurn Elkay’s Supply Chain Overhaul and Tariff Triumph: A Play for Resilient Growth

Investors, buckle up—Zurn Elkay Water Solutions (NYSE: ZWS) just served up a masterclass in navigating today’s global trade wars. With tariffs and supply chain chaos toppling rivals, this water infrastructure giant is doubling down on resilience, sustainability, and shareholder value. Let’s break down why this could be a winning play in 2025.

The Supply Chain Revolution: Less China, More Control

Zurn Elkay isn’t just shifting production—it’s redefining its entire supply chain. By 2026, its direct material spend from China will plummet to under $30 million, a mere 2-3% of Cost of Goods Sold (COGS). Compare that to peers still shackled by 20%+ reliance on Chinese manufacturing, and you see a stark competitive edge. This isn’t just about tariffs; it’s about locking in supply chain resilience in an era where disruptions can cripple profits overnight.

The company is accelerating non-China capacity through optimized facilities and smarter sourcing—a move that positions it to outpace rivals in both cost control and agility.

Tariff Mitigation: Passing the Test with Flying Colors

While competitors whine about tariff costs, Zurn Elkay is turning lemons into lemonade. In 2025, tariffs are expected to cost them $45–$55 million. But here’s the kicker: they’re offsetting these costs entirely. How?

• Price Hikes: Two rounds of increases in April and May 2025 directly passed costs to customers.
• Smart Logistics: Adjusting order patterns to minimize tariff hits.
• Cost Control: Operational excellence boosted Q1 2025’s adjusted EBITDA margin to 25.2%, up 110 basis points from last year.

This margin expansion isn’t a fluke—it’s a blueprint for profitability. Management is targeting 25.5–26.0% for Q2, proving they can grow margins even amid headwinds.

The Sustainability Edge: 86% of Revenue is Green

Zurn Elkay isn’t just about pipes and valves—it’s a sustainability powerhouse. 86% of revenue comes from products that conserve water or reduce plastic waste. In Q1 alone, they saved 8 billion gallons of water and prevented 4.7 billion single-use plastic bottles.

These efforts aren’t just eco-friendly—they’re business gold. Awards like the IR Impact Awards for Best ESG Reporting and recognition as America’s Climate Leaders 2025 aren’t just trophies; they’re signals to customers and investors that this company is where the future is being built.

Balance Sheet: Stronger Than Ever

With net debt leverage at 0.9x (down from 1.4x in late 2022), Zurn Elkay has the financial flexibility to invest, innovate, and return cash to shareholders. In Q1, they spent $77 million buying back 2.3 million shares, proving they’re serious about rewarding owners.

The Bottom Line: Why This Stock is a Buy

Zurn Elkay isn’t just surviving—it’s dominating. Let’s tally the wins:
- Supply Chain: A 97–98% reduction in China exposure by 2026.
- Margins: EBITDA up 110 bps in Q1, with more gains on the way.
- Sustainability: 86% of revenue from eco-friendly products, attracting mission-driven investors.
- Balance Sheet: Debt at rock-bottom levels, free cash flow at $39 million in Q1.

Even with tariffs, management reaffirmed full-year guidance, projecting low to mid-single-digit sales growth. And with a strong 0.9x leverage ratio, they can weather any tariff storm.

Final Take: ZWS is a Play for the Next Decade

Investors, here’s the deal: Zurn Elkay isn’t just a water solutions company—it’s a resilience machine. From its supply chain overhaul to its sustainability-driven growth, this is a company built to thrive in chaos.

The numbers back it up: margins rising, debt falling, and a business model that’s both green and profitable. If you’re looking for a stock that’s positioned for growth no matter what tariffs or trade wars come next, ZWS is your ticket.

Don’t just survive—invest in resilience.

Data to Watch:
- ZWS stock price performance versus industry peers.
- EBITDA margin trends through 2025.
- Sustainability metrics: Water savings and plastic reduction targets.

This is a company that’s not just navigating turbulence—it’s rewriting the rules. Hold onto this one, and watch it grow.