Zurn Elkay Water Solutions Kicks Off 2025 with Solid Gains Amid Sector Challenges

Zurn Elkay Water Solutions (NYSE: ZWS) has delivered a resilient first-quarter performance, defying headwinds in the industrial sector. The company reported net sales of $388.8 million for Q1 2025, a 4% year-over-year increase, driven by 5% organic growth in core operations. While foreign currency headwinds shaved 1% off top-line results, the firm’s focus on operational efficiency and disciplined cost management shone through, with adjusted EBITDA margins expanding to 25.2%—a 110-basis-point improvement over Q1 2024. This sets the stage for a year of strategic execution as ZWS balances growth, sustainability, and shareholder returns.

Financial Fortitude in a Volatile Market

The quarter’s standout metric is adjusted EBITDA, which rose to $98.0 million, reflecting both top-line growth and bottom-line discipline. Management attributed this to reduced restructuring costs and supply chain optimizations, which offset inflationary pressures and tariff volatility. Net income from continuing operations jumped to $41.0 million, or $0.24 diluted EPS, up from $0.19 a year earlier. Notably, adjusted EPS held steady at $0.31, demonstrating the company’s ability to navigate macroeconomic uncertainty.

Despite these gains, free cash flow dipped to $38.6 million compared to $50.2 million in Q1 2024, largely due to higher capital expenditures. This underscores ZWS’s commitment to long-term infrastructure investments, a strategy critical for maintaining its position in the water solutions space.

Operational Momentum and Strategic Priorities

ZWS’s operational improvements are central to its success. The company reduced restructuring charges by $10.2 million year-over-year, enabling a 210-basis-point expansion in operating margins. Todd A. Adams, CEO, emphasized the role of “price-cost discipline” in maintaining profitability amid rising input costs. The firm’s focus on sustainability also gained traction, with recognition from Newsweek and TIME for its environmental and social initiatives.

The company’s sustainability report highlights progress toward its 2030 goals, including reducing greenhouse gas emissions and improving water accessibility. This alignment with global ESG trends positions ZWS as a leader in an industry increasingly valued for its role in climate resilience.

Capital Allocation and Shareholder Returns

ZWS continues to prioritize shareholder value. In Q1, it spent $77 million repurchasing 2.3 million shares and paid $15 million in dividends. With $144.7 million in cash and a net debt leverage ratio of 0.9x, the firm maintains ample flexibility to invest in growth or return capital during uncertain times. Management reaffirmed full-year guidance, projecting low-to-mid-single-digit sales growth and EBITDA margins of 25.5%–26.0% in Q2.

Risks and Opportunities

The company faces challenges, including lingering trade tensions and supply chain bottlenecks. Adams noted that tariffs continue to impact pricing, though ZWS’s diversified customer base—spanning commercial, industrial, and municipal sectors—helps mitigate sector-specific risks. The firm’s 125-year history of adapting to changing markets, as highlighted in its anniversary messaging, suggests a track record of resilience.

Conclusion: A Steady Hand in a Volatile Sector

Zurn Elkay’s Q1 results affirm its status as a financially disciplined player in the water solutions industry. With 25.2% EBITDA margins, a robust balance sheet (0.9x leverage), and a $38.6 million free cash flow cushion, the company is well-positioned to weather macroeconomic turbulence. Its focus on sustainability and operational excellence aligns with long-term demand drivers, such as infrastructure modernization and climate adaptation.

Investors should monitor execution against full-year guidance and the trajectory of capital expenditures, which could pressure near-term cash flow. However, ZWS’s track record of margin expansion and shareholder returns suggests it will remain a steady investment in an otherwise choppy industrial sector. With a forward P/E ratio of 18.5x (based on trailing EPS), the stock offers a reasonable entry point for those seeking stability in water infrastructure—a sector poised for growth as global water scarcity concerns mount.

In a year marked by uncertainty, ZWS’s first-quarter performance serves as a reminder that disciplined execution and long-term vision can turn challenges into opportunities.