Zurn Elkay Water Solutions Cor Q2 Earnings Call Highlights

Zurn Elkay Water Solutions Cor NYSE: ZWS reported second-quarter organic sales growth of 10% and adjusted EBITDA growth of 15%, supported by demand in its Water Safety and Control and Drinking Water product lines, higher pricing, and margin expansion.

Second-quarter sales totaled $491 million, while adjusted EBITDA reached $136 million. Adjusted EBITDA margin expanded 120 basis points from a year earlier to a record 27.7%, exceeding the company’s prior guidance range of 27% to 27.5%.

Chairman and Chief Executive Officer Todd Adams said the company generated $112 million in free cash flow during the quarter and repurchased $50 million of shares at roughly $48 per share. Year-to-date share repurchases totaled $100 million.

Demand, pricing and profitability Chief Financial Officer Dan Klun said institutional end markets continued to show positive momentum, partly offset by residential weakness and pockets of softness in commercial markets. Price contributed approximately 5% to second-quarter growth, consistent with the first quarter. Water Safety and Control and Drinking Water grew faster than the company average during the quarter, according to Klun.

During the question-and-answer session, Adams said those two platforms were growing somewhat faster than Flow Systems, while Hygienic and Environmental remained positive but grew at a slower rate. The company attributed margin improvement to operating leverage on higher volume, productivity efforts under its Zurn Elkay Business System, and favorable mix as higher-margin products led growth.

First-half sales and EBITDA increased $91 million and $36 million, respectively, from the prior year. The company’s first-half adjusted EBITDA margin was 27.3%, up about 140 basis points year over year.

Klun also noted that the company received $48 million in cash related to IEPA and reciprocal tariff refunds, including $2 million of accrued interest. The refund was recorded in cost of goods sold and affected reported GAAP earnings and earnings per share, but was excluded from adjusted earnings and free cash flow.

As of June 30, Zurn Elkay had about $60 million of IEPA and reciprocal tariffs that remained uncollected and unrecognized in its financial statements. Net debt leverage ended the quarter at 0.3 times, the lowest level in the company’s history as a public company, Klun said.

Zurn Elkay recently completed its acquisition of Intellihot, a producer of commercial tankless water heaters. Adams said the company paid $109 million for the business, or $100 million net of a tax asset. Intellihot is expected to generate about $37 million of sales in 2026, with gross margins of about 50% and EBITDA margins in the low teens.

Management said the transaction adds a $1.1 billion commercial water-heating market to its addressable market, including a tankless segment of more than $200 million. President Jeff Schoon said tankless water heating is growing faster than the broader commercial water-heating category, driven by efficiency regulations, building-owner concerns around Legionella risk, smaller mechanical-room requirements, and operating-cost savings.

Adams said Zurn Elkay sees a path for Intellihot to become a $100 million business with a 30% EBITDA margin within five to six years, and expects a double-digit return on invested capital in three years. The company plans to use its specification, contractor, wholesaler and end-user relationships to expand Intellihot’s reach, while also pursuing supply-chain and operational improvements. Management said Intellihot was not acquired for a near-term earnings contribution. For the final five months of 2026, Klun estimated the acquisition would contribute about $18 million in net sales.