Zurn Elkay Water Solutions (US:ZWS)2025-04-23 18:45Financial Data and Key Metrics Changes - The company reported Q1 sales of $389 million, reflecting a 5% organic growth and a 4% reported growth, impacted by currency fluctuations [12][13] - Adjusted EBITDA for Q1 was $98 million, with an adjusted EBITDA margin of 25.2%, representing a 110 basis point year-over-year improvement [13][14] - Net debt leverage was below one at 0.9 times, including $77 million used for share repurchases during the quarter [14][15] Business Line Data and Key Metrics Changes - Non-residential end markets experienced mid-single-digit core sales growth, while residential and some commercial segments showed softness [12][13] - The company achieved strong margin expansion due to productivity initiatives and synergy actions from the previous year [13][14] Market Data and Key Metrics Changes - The company noted minimal impact from tariffs in Q1, with expectations of price-cost positivity based on implemented strategies [7][8] - By the end of 2026, only 2% to 3% of the company's cost of goods sold (COGS) will be sourced from China, indicating a significant reduction in supply chain exposure [9][34] Company Strategy and Development Direction - The company is focused on minimizing exposure to China and optimizing its supply chain to maintain competitive advantages [10][21] - Sustainability efforts have been recognized, with the company delivering 600 million gallons of filtered water in Q1, a 33% increase year-over-year [17][18] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in navigating the current tariff environment and maintaining guidance for core growth and margin expansion [52][66] - The company anticipates low to mid-single-digit core sales growth for Q2 2025 and adjusted EBITDA margins between 25.5% and 26% [42][43] Other Important Information - The company has seen a 60% increase in submitted continuous improvement projects from associates, aimed at enhancing operational efficiency [40][41] - The company is evaluating M&A opportunities while maintaining a strong balance sheet and cash flow generation [15] Q&A Session Summary Question: Impact of pricing and operating adjustments on guidance - Management indicated that while there are many moving parts, they are confident in maintaining their guidance for the year despite potential demand destruction due to price increases [52][66] Question: Changes in project timing or MRO order trends - Management noted no significant changes in project timing or MRO activity, with some acceleration in orders observed ahead of price increases [57] Question: Clarification on price-cost neutrality - Management clarified that price-cost neutrality refers to dollar levels, indicating confidence in managing costs effectively [64] Question: Confidence in affirming full-year guidance amid potential tariff increases - Management expressed confidence in their ability to manage costs and maintain guidance, emphasizing their strong supply chain positioning [78][82] Question: Competitive positioning relative to peers - Management believes they are well-positioned from a cost perspective compared to competitors, with limited available capacity in the industry [111][115] Question: Share buyback strategy - The company plans to continue monitoring stock prices and make informed decisions regarding share buybacks, supported by strong cash flow [117]