Zurn Elkay Water Solutions (US:ZWS)2025-02-05 15:19Financial Data and Key Metrics Changes - In Q4 2024, the company achieved $371 million in sales, reflecting a 4% core and reported growth year-over-year [10] - Adjusted EBITDA for Q4 was $91 million, with an adjusted EBITDA margin of 24.6%, up 100 basis points year-over-year [11] - For the full year, EBITDA grew about 15% to $390 million, with margins ending at 24.9%, an increase of 270 basis points [6][12] - Free cash flow for Q4 was $55 million, totaling $272 million for the year [7] Business Line Data and Key Metrics Changes - Core sales growth in non-residential end markets was mid-single digits, offset by softness in residential and some commercial segments [11] - The company leveraged $36 million in sales growth into $50 million of EBITDA growth year-over-year [7] Market Data and Key Metrics Changes - The outlook for 2025 anticipates core sales growth similar to 2024, with a low single-digit decline in commercial markets offset by growth in institutional and waterworks markets [32] - The company expects to capture approximately a point of price realization during the year [32] Company Strategy and Development Direction - The company is focused on being a pure-play water business, targeting specific end markets and geographies for superior performance [18] - A continuous improvement mindset is central to the company's culture, driving above-market core growth and strong incremental margins [20][21] - The company aims to reduce exposure to China to less than 10% by the end of 2026, having already decreased it significantly [33][70] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in navigating potential uncertainties in 2025, leveraging the Zurn Elkay business system [9] - The company is monitoring the tariff environment closely, having successfully managed previous tariffs [33][54] - Management indicated that interest rates are not expected to significantly impact the business, as most operations are not interest rate sensitive [59] Other Important Information - The company repurchased $20 million worth of shares in Q4, totaling $150 million for the year [7][14] - The company documented 3,749 unique continuous improvement submissions in the past year, leading to significant operational efficiencies [26] Q&A Session Summary Question: Insights on full-year outlook by end market for 2025 - Management indicated that institutional markets are expected to accelerate in the second half of 2025 based on Dodge Starts data [46] Question: Update on M&A activity and confidence in closing deals - Management is actively working on several potential M&A opportunities but emphasized the importance of timing and discipline in capital deployment [48][50] Question: Expectations regarding tariffs and their impact on guidance - Management has not included incremental tariff impacts in the guidance, expressing confidence in navigating any future tariffs [54][56] Question: Impact of elevated interest rates on growth - Management noted that the majority of the business is not sensitive to interest rates, focusing instead on driving above-market growth [59] Question: Clarification on institutional growth assumptions - Management confirmed that growth assumptions remain intact and are based on updated internal data [67] Question: Current exposure to China and supply chain flexibility - Management stated that current exposure to China is around 25%, with significant flexibility in the supply chain to adapt to changing conditions [71][72]