Zurn Elkay Water Solutions (US:ZWS)2025-07-30 13:32Financial Data and Key Metrics Changes - The company reported second quarter sales of $445 million, reflecting an 8% organic growth year over year [10] - Adjusted EBITDA for the second quarter was $118 million, with an adjusted EBITDA margin of 26.5%, marking a 120 basis point year-over-year expansion [12] - The company ended the quarter with a net debt leverage of 0.7 times, the lowest since becoming public, and free cash flow exceeded $100 million for the first time, totaling $102 million [13] Business Line Data and Key Metrics Changes - The non-residential market remains positive, while the residential market is experiencing some softness [10] - Approximately $8 million to $10 million of the 8% core growth came from customers ordering ahead of price increases, with an additional point from tariff-related price increases [11] Market Data and Key Metrics Changes - The company anticipates core sales growth of at least 5% year over year for 2025, with adjusted EBITDA projected between $420 million and $430 million [25] - The residential market is noted to be softer compared to institutional and commercial markets, which remain stable [40] Company Strategy and Development Direction - The company is focused on sustainability initiatives, having delivered 1.2 billion gallons of filtered drinking water, a 21% increase from the previous year [14] - The introduction of the new LK Pro filtration system aims to enhance competitive advantage and address aging infrastructure issues [17][20] - The company is committed to reducing direct material supply chain exposure from China to less than 2% to 3% by 2026 [22] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in navigating the current global tariff environment and raised the outlook for top-line growth, EBITDA, and free cash flow for the year [7][8] - The company is taking a quarter-by-quarter approach to its outlook, reflecting a cautious but optimistic view on future performance [8] Other Important Information - The company has made significant philanthropic contributions, exceeding $1.4 million in total giving for the year, which is part of its community engagement efforts [15] - The company has improved transparency in its sustainability metrics reporting [16] Q&A Session Summary Question: Can you provide color on Q2 growth by product category? - Management noted significant unit volume growth and share gains driven by innovation in drinking water and flow systems [30][32] Question: What is the status of the M&A pipeline? - Management indicated a robust process for identifying targets and cultivating relationships, with a focus on both acquisitions and organic growth [33][35] Question: What is the outlook for end markets, particularly residential? - The residential market appears softer, but institutional and commercial markets remain stable, with no significant changes in outlook [40] Question: Can you comment on the new filtration offering and its sales target? - The target for annual sales in the filtration category is expected to be raised above $100 million as the installed base grows, with double-digit growth rates anticipated [41][42] Question: How is the company managing tariff impacts? - The company expects tariff cost impacts to be between $35 million and $45 million for 2025, a reduction from previous estimates [22] Question: What is the pricing strategy in light of current market conditions? - Management indicated that total price year over year is approximately two points, with a point coming from announced price increases [79]