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Zurn Elkay Water Solutions Corp (ZWS)·Q4 2024 Earnings Summary

Executive Summary

  • Q4 2024 delivered solid execution: net sales $370.7M (+4% YoY), adjusted EBITDA $91.1M with 24.6% margin (+100 bps YoY), GAAP diluted EPS $0.21, and adjusted EPS $0.32 .
  • Management exceeded Q4 guidance issued 90 days prior (Q4 adjusted EBITDA guided to $88–$90M; delivered $91.1M) and achieved the upper end of full-year margin expansion (270 bps) with record free cash flow of $271.7M .
  • 2025 outlook: Q1 core sales up low-single digits and adjusted EBITDA margin 24.5%–25.0%; FY 2025 adjusted EBITDA $405–$420M and FCF ≈$290M, supported by continuous improvement and tariff mitigation via supply chain flexibility .
  • Capital allocation optionality remains a theme: net debt leverage at 0.8x, $150M repurchases in 2024, dividend raised to $0.09 (maintained for March 2025) .
  • Near-term stock reaction catalysts: continued margin discipline, resilient institutional/waterworks exposure, tariff management readiness, and potential M&A activity (“working really hard on a handful of things”) .

What Went Well and What Went Wrong

What Went Well

  • Exceeded guidance and expanded margins: “sales, margins and cash flow exceeded the guidance we provided 90 days ago… adjusted EBITDA margins expanded 100 basis points over last year and free cash flow was $55 million in the quarter” .
  • Strong full-year performance: “record sales, EBITDA and cash flow… achieved 4% pro forma core sales growth, improved… adjusted EBITDA margins by 270 basis points” .
  • Strategic and cultural execution: CEO emphasized the Zurn Elkay Business System and continuous improvement (#CI) with 3,749 submissions and ~$5.9M estimated savings, reinforcing margin durability and growth initiatives .

What Went Wrong

  • End-market softness: Nonresidential pockets of softness and residential weakness offset mid-single-digit growth in other areas; Q4 commentary noted mixed commercial exposure dynamics .
  • Tariff uncertainty: 2025 guidance excludes incremental tariff impacts given rapid changes; exposure to China is <25% today and targeting <10% by 2026, but tariffs could necessitate targeted pricing/actions .
  • Sequential margin compression vs Q3: Q4 adjusted EBITDA margin 24.6% vs Q3 at 25.6% (seasonality and fewer shipping days in Q1 2025 also flagged) .

Financial Results

Quarterly Performance vs Prior Periods and Year-over-Year

MetricQ2 2024Q3 2024Q4 2024
Net Sales ($USD Millions)$412.0 $410.0 $370.7
Revenue YoY Growth (%)+2% +3% +4%
GAAP Diluted EPS (Cont. Ops) ($)$0.26 $0.25 $0.21
Adjusted EPS ($)$0.33 $0.34 $0.32
Adjusted EBITDA ($USD Millions)$104.3 $105.0 $91.1
Adjusted EBITDA Margin (%)25.3% 25.6% 24.6%

KPIs and Capital Allocation

KPIQ2 2024Q3 2024Q4 2024
Free Cash Flow ($USD Millions)$80.2 $86.8 $55.0
Net Debt Leverage (x)0.9x 0.8x 0.8x
Share Repurchases ($USD Millions / Shares)$61M / 1.9M $50M / 1.6M $20M / 0.5M
Dividend per Share ($)$0.08 prior → $0.09 raised (Oct 2024) $0.09 $0.09 declared for Mar 7, 2025

Segment Breakdown

  • No quantitative segment revenue/margin breakdown disclosed in the Q4 press release or earnings call; management cited mid-single-digit growth in nonresidential with pockets of commercial softness and residential weakness .

Guidance Changes

MetricPeriodPrevious GuidanceCurrent/ActualChange
Adjusted EBITDA ($M)Q4 2024$88–$90 (Q3 release) $91.1 (actual) Raised/Beat guidance
Adjusted EBITDA Margin Expansion (bps)FY 2024250–270 bps (raised at Q3) 270 bps achieved Met upper end
Free Cash Flow ($M)FY 2024≈$260 (Q3) $271.7 (actual) Beat
Core Sales GrowthQ1 2025N/ALow single-digit up New
Adjusted EBITDA Margin (%)Q1 2025N/A24.5%–25.0% New
Adjusted EBITDA ($M)FY 2025N/A$405–$420 New
Free Cash Flow ($M)FY 2025N/A≈$290 New
Dividend per Share ($)OngoingRaised to $0.09 (Oct 2024) Maintained at $0.09 (Jan 30, 2025 declaration) Maintained

Earnings Call Themes & Trends

TopicPrevious Mentions (Q2 2024, Q3 2024)Current Period (Q4 2024)Trend
Margin discipline & continuous improvementQ2/Q3 outperformed guidance; adj. EBITDA margins 25.3%/25.6% with synergy capture 24.6% Q4; full-year +270 bps adj. EBITDA margin expansion; #CI initiatives (3,749 actions; ~$5.9M savings) Sustained improvement, compounding productivity
End-market mix (institutional, waterworks, commercial, residential)Q2/Q3: growth in targeted categories; residential softness noted Institutional and waterworks constructive into 2H 2025; commercial low-single-digit decline; residential flattish Mixed but resilient; institutional/waterworks offset
Tariffs & supply chain flexibilityNot a major focus in Q2/Q3 PRsGuidance excludes tariffs; China exposure <25% now, targeting <10% by 2026; ability to pivot supply base and selective pricing Preparedness and mitigation increasing
Capital allocation (FCF, repurchases, dividend)Strong FCF; repurchases $80M (Q2), $50M (Q3); dividend raised to $0.09 Q4 FCF $55M; FY FCF $271.7M; leverage 0.8x; repurchased $20M in Q4; dividend maintained Ongoing returns, optionality for M&A
M&A pipelineCultivating opportunities (Q3 PR references) “Working really hard on a handful of things” with disciplined timing Active but selective

Management Commentary

  • “Fourth quarter… ended a little bit better than what we had guided… core growth of 4% into 8% adjusted EBITDA growth… margins to 24.6%, up about 100 bps year-over-year.” — Todd Adams .
  • “We ended the year with leverage below 1 at 0.8x… deployed $150 million to share repurchases and $57 million to dividends… a lot of capital allocation optionality.” — David Pauli .
  • “We’ve created flexibility… to migrate our supply base… Less than 25 [percent] China today… target less than 10% by end of 2026.” — Todd Adams .
  • “For the full year 2025, we expect adjusted EBITDA of $405 million to $420 million and approximately $290 million of free cash flow.” — David Pauli .
  • “Sales, margins and cash flow exceeded the guidance we provided 90 days ago.” — Todd Adams .

Q&A Highlights

  • Tariffs in guidance: Management did not include incremental tariff impacts given volatility but is prepared with targeted pricing and supplier shifts; China exposure has been reduced materially (<25% now, targeting <10% by 2026) .
  • End-market phasing: Institutional (healthcare, education) likely to accelerate in 2H 2025 on Dodge starts; first half resembles 2024 quarterly run-rate .
  • M&A funnel: “Working really hard on a handful of things… disciplined around where we choose to spend our time” underscoring balance sheet capacity .
  • Interest rates: Business largely not rate-sensitive (institutional and retrofit exposures), limiting medium/long-term impact from higher-for-longer rates .

Estimates Context

  • Wall Street consensus estimates (S&P Global) for Q4 2024 and prior two quarters were unavailable at time of request due to data access limits; therefore, estimate vs. actual comparisons are not provided. Where comparisons are made, they reference company guidance rather than Street consensus .

Key Takeaways for Investors

  • ZWS continues to execute above guidance with disciplined margin management; Q4 adjusted EBITDA beat prior guide and FY margin expansion hit the top of the raised range, reinforcing operating leverage durability .
  • The business model’s resilience (institutional/waterworks exposure, retrofit mix) and continuous improvement culture are compounding to support mid-20s EBITDA margins across cycles .
  • 2025 outlook is constructive: stable end markets, incremental price realization (1 point), and strong FCF ($290M) provide capacity for repurchases, dividend continuity, and select M&A .
  • Tariff risk is mitigated by supply chain flexibility and reduced China exposure; management ready to deploy targeted pricing/actions, limiting downside risk to margins/top line .
  • Capital allocation remains an alpha driver: leverage at 0.8x and ongoing buybacks/dividends suggest continued shareholder returns while preserving strategic agility .
  • Near-term trading lens: positive setup on execution and guidance discipline; any clarity on tariffs or M&A could be incremental catalysts. Medium-term thesis: margin expansion sustainability, institutional tailwinds, and FCF conversion underpin valuation support .
  • Watch for Q1 2025 delivery vs. margin guide (24.5%–25.0%) and updates on tariff developments and M&A pipeline progress as narrative drivers .