Business Context and Reporting Period
Zurn Elkay Water Solutions Corp (ZWS) is a growth-oriented, pure-play water management business designing, manufacturing, and marketing specification-driven solutions for institutional, commercial, and waterworks markets. The company operates as a single reporting segment with 21 principal manufacturing and warehouse facilities, primarily in North America. This Form 10-K covers the fiscal year ended December 31, 2025.
Key Financial Metrics
| Metric | 2025 | 2024 |
|---|---|---|
| Net Sales | $1,695.9 million | $1,566.5 million |
| Income from Operations | $278.9 million | $244.6 million |
| Operating Margin | 16.4% | 15.6% |
| Net Income | $198.0 million | $160.2 million |
| Diluted EPS (Net Income) | $1.15 | $0.92 |
| Adjusted EBITDA | $442.2 million | N/A |
| Operating Cash Flow | $346.5 million | $293.5 million |
| Total Debt Outstanding | $496.5 million | $495.6 million |
| Cash and Cash Equivalents | $300.5 million | $198.0 million |
| Net First Lien Leverage Ratio | 0.53x | N/A |
Material Changes vs. Prior Period
- Revenue Growth: Net sales increased 8.3% year-over-year, driven by 8% core sales growth across all product categories.
- Profitability Expansion: Operating income rose 14.0% to $278.9 million, with operating margins expanding 80 basis points to 16.4%, aided by price realization and productivity savings.
- One-Time Gains: Net income benefited significantly from a $10.0 million pre-tax settlement gain resulting from the termination of the U.S. defined benefit pension plan in the third quarter of 2025.
- Interest Expense: Net interest expense decreased to $28.6 million from $33.1 million in 2024, primarily due to lower interest rates.
- Restructuring: Restructuring charges decreased to $9.6 million in 2025 from $13.5 million in 2024, reflecting ongoing efficiency initiatives.
Guidance, Outlook, and Risks
Management Commentary & Outlook: Management continues to execute the Zurn Elkay Business System (ZEBS) to drive efficiency and margin optimization. The company expects to continue restructuring initiatives to optimize its manufacturing footprint. The company maintains a strong liquidity position with $300.5 million in cash and $189.9 million in available borrowing capacity under its revolving credit facility.
Capital Allocation: The company repurchased $159.9 million of common stock in 2025 and paid $63.9 million in dividends. The Board increased the quarterly dividend to $0.11 per share in late 2025. As of December 31, 2025, $482.1 million of repurchase authority remained.
Risks and Contingencies:
- Raw Materials & Tariffs: Exposure to price fluctuations in bronze, iron, brass, and steel, potentially exacerbated by tariffs and trade protection measures.
- Cybersecurity: Risks related to data security, IT infrastructure failures, and the misuse of artificial intelligence tools.
- Customer Concentration: The largest customer accounted for 18% of consolidated net sales in 2025; the top five customers accounted for approximately 38%.
- Climate & Weather: Seasonal demand fluctuations and potential disruptions from extreme weather events impacting construction activity.
Investor Verification Checklist
- Pension Settlement Gain: Verify the sustainability of earnings by excluding the $10.0 million one-time pension settlement gain from future projections.
- Customer Concentration: Assess the risk associated with the top customer representing 18% of sales and the top five representing 38%.
- Debt Covenants: Confirm continued compliance with the Net First Lien Leverage Ratio covenant (currently 0.53x vs. 5.0x limit).
- Raw Material Costs: Monitor the impact of potential tariffs and commodity price increases on gross margins, given materials represent ~30% of net sales.
- Restructuring Execution: Track the realization of cost savings from ongoing restructuring and footprint repositioning initiatives.