Business Context and Reporting Period
Zurn Elkay Water Solutions Corp (ZWS) filed its Form 10-Q for the quarter ended March 31, 2026. The company operates as a growth-oriented, pure-play water management business, designing and manufacturing specification-driven water management solutions. It manages its operations as a single reportable segment.
Key Financial Metrics
| Metric | Q1 2026 | Q1 2025 |
|---|---|---|
| Net Sales | $433.0 million | $388.8 million |
| Gross Profit | $205.8 million | $181.0 million |
| Income from Operations | $82.1 million | $63.4 million |
| Net Income | $58.9 million | $43.6 million |
| Diluted EPS | $0.35 | $0.26 |
| Operating Cash Flow | $46.1 million | $42.9 million |
| Cash and Equivalents | $273.5 million | $144.7 million |
| Total Debt | $499.0 million | $496.5 million |
| Adjusted EBITDA | $116.0 million | $98.0 million |
Margins: Operating margin improved to 19.0% in Q1 2026 from 16.3% in Q1 2025. The effective income tax rate was 23.4% compared to 26.9% in the prior year.
Material Changes vs. Prior Period
- Revenue Growth: Net sales increased 11.4% year-over-year, driven by an 11% increase in core sales across nearly all product categories.
- Profitability: Income from operations rose 29.5% to $82.1 million, aided by sales growth, price realization, and productivity initiatives under the Zurn Elkay Business System (ZEBS).
- Restructuring: Restructuring charges decreased to $0.9 million from $1.7 million in the prior year, reflecting ongoing efficiency initiatives.
- Interest Expense: Net interest expense declined to $6.2 million from $7.3 million due to lower interest rates and higher cash balances.
- Discontinued Operations: There was no income from discontinued operations in Q1 2026, compared to $2.6 million in Q1 2025, following the 2021 spin-off of the Process & Motion Control business.
Guidance, Outlook, and Risks
Capital Allocation: The company repurchased 1,047,291 shares for $50.0 million in Q1 2026. Approximately $432.1 million of repurchase authority remains. Dividends increased to $0.11 per share ($18.4 million total) from $0.09 per share in the prior year.
Debt Facility Update: On February 19, 2026, the company amended its credit agreement to increase the revolving credit facility commitment from $200.0 million to $550.0 million and extended the maturity to February 19, 2031. The Total Net Leverage Ratio was 0.57 to 1.00, well below the 4.00 to 1.00 covenant limit.
Risks and Contingencies:
- Tariffs: The company faces uncertainty regarding potential refunds of tariffs imposed under the International Emergency Economic Powers Act (IEEPA) following a February 2026 U.S. Supreme Court ruling. No benefit has been recorded pending clarity on recovery timing and amounts.
- Restructuring: Management expects further expenses related to workforce reductions and facility rationalization as it continues to optimize its footprint.
- Legal: The company is involved in various ordinary course legal actions, though management does not anticipate a material adverse effect.
Investor Verification Checklist
- Verify the impact of the February 2026 Supreme Court ruling on IEEPA tariffs and the potential for cash recovery.
- Monitor the execution of ongoing restructuring initiatives and associated future costs.
- Review the sustainability of the 11% core sales growth and price realization trends.
- Confirm the utilization of the expanded $550 million revolving credit facility and future capital expenditure plans.
- Assess the trajectory of the effective tax rate given the mix of foreign and state income taxes.