Zurn Elkay Water Solutions (ZWS) Q3 Earnings call transcript Oct 30, 2024
2min read Zurn Elkay Water Solutions Corporation recently held its third quarter 2024 earnings call, where executives shared insights into the company's financial performance and strategic outlook for the future. The call, led by Chairman and CEO Todd Adams, CFO David Pauli, and Director of FP&A Bryan Wendlandt, highlighted a strong third quarter with a focus on growth, profitability, and sustainability.
Growth and Profitability
Zurn Elkay Water Solutions outperformed its guidance for the third quarter, achieving core sales growth of 4% and a 9% increase in adjusted EBITDA, resulting in a margin expansion of 150 basis points year-over-year. The company's financial strength is evident with a consolidated EBITDA margin of 25%, the highest since the Elkay merger two years ago. This growth is attributed to the company's productivity initiatives, continuous improvement activities, and the successful execution of Elkay-related synergies.
The company also reported a free cash flow of $87 million and deployed $50 million to repurchase 1.6 million shares, reducing leverage to 0.8x. Zurn Elkay Water Solutions raised its outlook for the full year, expecting a year-over-year margin expansion of 250 to 270 basis points, and a free cash flow of $260 million.
Sustainability and Social Impact
Zurn Elkay Water Solutions has been making strides in sustainability, particularly in the areas of clean drinking water and filtration. The company's initiatives are aligned with state regulations, such as those in Michigan, which mandate the implementation of filter-first regulations. These efforts are expected to positively impact the company's bottom line, with Michigan's legislation potentially driving increased sales of filtered bottle fillers.
Outlook for 2025 and Beyond
Looking ahead, Zurn Elkay Water Solutions is optimistic about the future, with a focus on market growth, price, and breakthroughs. The company's market analysis, as presented in the Dodge Momentum Index and ABI sentiment survey, indicates a positive outlook for the nonresidential construction sector. This confidence is supported by the company's strong exposure to the education and health care sectors, which are expected to drive growth in the coming years.
Investor Confidence and Capital Allocation
The call also addressed investor concerns, with analysts asking about product category growth rates, margin sustainability, and potential M&A opportunities. The company's response highlighted its focus on sustainable gross margins, with a target of potentially reaching a 50% gross margin over time. Zurn Elkay Water Solutions also indicated its intention to continue investing in itself through share buybacks and potential M&A activities, leveraging its strong balance sheet and low leverage.
Challenges and Risks
Despite the positive outlook, the call also acknowledged potential challenges, including the potential impact of tariffs and the timing of project starts. The company is cautiously optimistic about these factors, noting that they could influence pricing and cash flow dynamics.
Conclusion
The Zurn Elkay Water Solutions earnings call provided a comprehensive overview of the company's financial performance, strategic direction, and future outlook. The company's strong third-quarter results, coupled with its focus on growth, profitability, and sustainability, demonstrate its resilience and adaptability in the face of market challenges. As Zurn Elkay Water Solutions moves into 2025, it is well-positioned to leverage its market position and capital allocation strategy to drive further growth and create value for its stakeholders.
