Business Context and Reporting Period
Zurn Elkay Water Solutions Corp (ZWS) is a growth-oriented, pure-play water management business manufacturing specification-driven products for health, hydration, and safety. This Form 10-Q covers the quarter and six months ended June 30, 2025. The company operates as a single reportable segment and manages its operations through the Zurn Elkay Business System (ZEBS).
Key Financial Metrics
| Metric (in millions) | Q2 2025 | Q2 2024 | YTD 2025 | YTD 2024 |
|---|---|---|---|---|
| Net Sales | $444.5 | $412.0 | $833.3 | $785.8 |
| Gross Profit | $202.3 | $186.3 | $383.3 | $356.4 |
| Income from Operations | $77.6 | $71.9 | $141.0 | $125.1 |
| Net Income | $50.5 | $46.0 | $94.1 | $80.3 |
| Diluted EPS | $0.29 | $0.27 | $0.55 | $0.46 |
| Operating Cash Flow (YTD) | $153.5 (vs $139.0 YTD 2024) | |||
| Cash & Equivalents | $201.9 (as of June 30, 2025) | |||
| Total Debt | $495.9 (as of June 30, 2025) |
Margins (YTD 2025): Gross Margin was 46.0%; Operating Margin was 16.9% (up 100 basis points YoY).
Material Changes vs. Prior Period
- Revenue Growth: Net sales increased 7.9% in Q2 and 6.0% YTD compared to 2024. Core sales improved 8% in Q2 and 7% YTD, driven by growth across all product categories and price realization.
- Profitability: Operating income rose 7.9% in Q2 and 12.7% YTD. The YTD operating margin expansion was driven by sales growth and productivity savings, partially offset by LIFO inventory adjustments.
- Restructuring: Restructuring charges were $1.9 million in Q2 and $3.6 million YTD 2025, compared to $0.7 million and $7.0 million in the prior year periods, respectively.
- Interest Expense: Net interest expense decreased to $7.7 million in Q2 (from $8.5 million) and $15.0 million YTD (from $17.3 million) due to lower interest rates.
- Share Count: The company repurchased 3.24 million shares for $109.9 million YTD, reducing the weighted average shares outstanding.
Guidance, Outlook, and Risks
- Outlook: Management expects to continue executing restructuring initiatives to optimize operating margins and manufacturing footprint. Future expenses related to workforce reductions and facility rationalization are anticipated.
- Tax Legislation: The company is evaluating the impact of the "One Big Beautiful Bill Act" (OBBBA) enacted on July 4, 2025, specifically regarding bonus depreciation and R&D expensing.
- Tariffs: The business faces risks from U.S. tariffs and reciprocal trade actions announced in early 2025, which impact costs.
- Debt Covenants: The company remains in compliance with its credit agreement. The Net First Lien Leverage Ratio was 0.79 to 1.00 as of June 30, 2025, well below the 5.00 to 1.00 maximum.
- Dividends: A quarterly cash dividend of $0.09 per share was declared on July 24, 2025, payable September 5, 2025.
Investor Verification Checklist
- Core Sales vs. FX: Verify the 1% negative impact of foreign currency on YTD sales against the 7% core sales growth.
- Restructuring Run-Rate: Confirm the timeline and total expected cost of ongoing restructuring initiatives mentioned in Note 2.
- Tax Rate Volatility: Monitor the effective tax rate (26.5% YTD) and potential adjustments due to the new OBBBA legislation.
- Share Repurchase Capacity: Note that approximately $130.3 million of repurchase authority remains under the current program.
- Discontinued Operations: Review the $3.0 million income from discontinued operations (PMC spin-off) YTD to ensure it is excluded from core operating analysis.