10-K: Zurn Elkay Water Solutions Reports Strong 2025 Growth

Zurn Elkay Water Solutions reports an 8.3% increase in net sales and a 14.0% rise in income from operations for fiscal year 2025, alongside a significant pension plan termination gain.

Summary

• Net sales increased by 8.3% to $1,695.9 million in 2025, with core sales growing 8% across all product categories.
• Income from operations rose by 14.0% to $278.9 million, representing 16.4% of net sales, up from 15.6% in 2024.
• Net income from continuing operations was $192.4 million, up from $158.9 million in 2024.
• Diluted net income per share from continuing operations increased to $1.12 in 2025 from $0.91 in 2024.
• The company completed the termination and settlement of its U.S. defined benefit pension plan, resulting in a pre-tax settlement gain of $10.0 million.
• Cash provided by operating activities increased to $346.5 million in 2025 from $293.5 million in 2024.
• Repurchased $159.9 million of common stock in 2025, with $482.1 million remaining under the repurchase program.
• Maintained a strong liquidity position with $300.5 million in cash and equivalents and $189.9 million available under its revolving credit facility.
• The Net First Lien Leverage Ratio was 0.53 to 1.0 as of December 31, 2025, well below the maximum covenant of 5.0 to 1.0.
• Restructuring charges were $9.6 million in 2025, down from $13.5 million in 2024, as the company continues efficiency initiatives.
• The company's largest customer accounted for 18% of consolidated net sales in 2025.
• Reduced Total Recordable Incident Rate (TRIR) and Lost Time Incident Rate (LTIR) by 43% compared to 2022, achieving better than best-in-class benchmarks.

Sentiment

Score: 8

Explanation: StockSavvy.ai views this as a strong performance, driven by solid sales growth, improved profitability, effective cost management, and a healthy financial position, despite ongoing restructuring efforts.

Positives

• Strong net sales growth of 8.3% and core sales growth of 8% across all product categories.
• Significant improvement in income from operations, up 14.0%, and an 80 basis point increase in operating margin to 16.4%.
• Increased net income from continuing operations to $192.4 million and diluted EPS to $1.12.
• Successful termination and settlement of the U.S. defined benefit pension plan, yielding a $10.0 million pre-tax gain.
• Robust cash flow from operating activities, increasing by $53.0 million year-over-year to $346.5 million.
• Active share repurchase program, demonstrating commitment to shareholder returns, with $482.1 million remaining under the repurchase authority.
• Healthy liquidity with $300.5 million in cash and equivalents and $189.9 million available under its revolving credit facility.
• Very strong Net First Lien Leverage Ratio of 0.53 to 1.0, indicating low leverage and strong financial health, well below the maximum covenant of 5.0 to 1.0.
• Reduced restructuring charges to $9.6 million, suggesting progress in efficiency initiatives.
• Improved safety metrics (TRIR and LTIR) by 43% compared to 2022, achieving better than best-in-class benchmarks.
• Product innovation focused on sustainability, water savings, energy efficiency, and reduced installation time.
• Strong brand recognition and extensive distribution network providing a competitive advantage.

Negatives

• Amortization of intangible assets remains significant at $58.7 million.
• The company's largest customer accounts for 18% of consolidated net sales, indicating customer concentration risk.
• Accumulated other comprehensive loss increased from $(74.4) million to $(76.7) million.

Risks

• Economic and financial market weakness, particularly in institutional and commercial building construction, could adversely affect financial condition.
• Increases in raw material costs (bronze, iron, brass, stainless steel, carbon steel, zinc, engineered plastics), tariffs, or other trade protection measures could harm profitability.
• Inability to effectively integrate acquisitions or realize intended benefits from restructuring and divestiture efforts.
• Performance and potential failure of information and data security systems, including cybersecurity threats and misuse of artificial intelligence tools.
• Loss or financial instability of any significant customer (top five customers accounted for approximately 38% of consolidated net sales, with one customer at 18%).
• Increased competition leading to substantial downward pressure on product pricing and profit margins.
• Dependence on approximately 1,000 independent sales representatives and 65 third-party warehouses; termination of relationships could have a material adverse effect.
• Inability to adequately protect intellectual property or defend against infringement claims brought against the company.
• Inability to attract and retain key personnel, as well as challenges with respect to the management of human capital resources, in a highly competitive industry.
• Increased frequency of weather events could disrupt construction activity and adversely affect the demand for products, and the long-term effect of climate change could decrease demand for certain products.
• Physical impacts of climate change may materially adversely affect business and financial condition, including disruptions to the supply chain.
• Future outbreaks of infectious diseases may adversely affect business, operations, suppliers, and customers.
• Artificial intelligence presents challenges that can impact business by posing security risks to confidential or proprietary information and personal data, and potential for misuse.
• Macroeconomic conditions and credit agreement covenants could adversely affect the ability to raise additional capital, limit reaction to changes, inhibit beneficial acquisitions, and impact debt service payments.
• Changing or increasing interest rates, including rates under debt agreements, could adversely affect business or financial condition.
• Potential impairment of goodwill ($795.0 million) and intangible assets ($835.0 million).
• Required cash contributions or plan settlement expense related to pension plans may increase, and a change in the funded status of defined benefit pension plans could occur.
• Failure to comply with government regulations and requirements, third-party certification requirements, and policies and standards driven by customers or other constituencies, including those related to social responsibility.
• Regulatory and legislative developments related to climate change may materially adversely affect business and financial condition.
• Changes in legislative, regulatory, and legal developments involving taxes, including OECD Pillar 2 and the One Big Beautiful Bill Act (OBBBA), could result in substantially higher taxes.
• Significant costs for environmental compliance and/or to address liabilities under environmental laws and regulations, and reputation may be adversely affected.
• Certain subsidiaries are subject to litigation, including product liability and other claims, which could adversely affect business, reputation, financial condition, results of operations or cash flows.
• Inability to achieve sustainability strategy goals and targets could adversely impact business, financial condition, results of operations or cash flows.

Future Outlook

The company expects to continue executing initiatives to optimize operating margin and manufacturing footprint, anticipating further expenses related to workforce reductions, potential asset impairment, lease termination, and facility rationalization costs. It also continues to monitor the potential impact of OECD Pillar 2 proposals and the U.S. One Big Beautiful Bill Act (OBBBA) on its financial statements.

Management Comments

• "We are a growth-oriented, pure-play water management business that designs, procures, manufactures, and markets what we believe to be the broadest sustainable product portfolio of specification-driven water management solutions to improve health, hydration, human safety and the environment."
• "Our heritage of innovation and specification has allowed us to provide highly-engineered, mission-critical solutions to customers for decades and affords us the privilege of having long-term, valued relationships with market leaders."
• "We operate in a disciplined way and the Zurn Elkay Business System (ZEBS) is our operating philosophy. Grounded in the spirit of continuous improvement, ZEBS creates a scalable, process-based framework that focuses on driving superior customer satisfaction and financial results by targeting world-class operating performance throughout all aspects of our business."
• "We believe applying ZEBS can yield superior growth, quality, delivery and operating costs relative to our competition, resulting in enhanced profitability and ultimately the creation of stockholder value."
• "As we continue to apply ZEBS, we have experienced improvements in growth, productivity, cost reduction and asset efficiency and believe there are ongoing opportunities to improve our performance."
• Management expects to continue executing similar initiatives to optimize its operating margin and manufacturing footprint.

Industry Context

StockSavvy.ai notes that Zurn Elkay operates in the multi-billion dollar construction market, primarily institutional and commercial buildings, which historically has been more stable and less vulnerable to down-cycles than residential construction. The company's focus on specification-driven, highly-engineered products for water safety, conservation, and hygiene aligns with growing demand for sustainable solutions and clean drinking water, potentially allowing it to outpace overall industrial production growth. The industry is fragmented, but Zurn Elkay aims to be a leader by focusing its efforts and resources towards end markets that have above-average growth characteristics and leveraging its innovation and distribution network.

Comparison to Industry Standards

• The company's Total Recordable Incident Rate (TRIR) of 0.69 and Lost Time Incident Rate (LTIR) of 0.21 per 100 associates are stated to be "better than best-in-class benchmarks," indicating strong safety performance.
• The Net First Lien Leverage Ratio of 0.53 to 1.0 is significantly below the credit agreement's maximum covenant of 5.0 to 1.0, suggesting a much stronger financial position than required by lenders.
• The company believes its application of the Zurn Elkay Business System (ZEBS) can yield "superior growth, quality, delivery and operating costs relative to our competition."

Management Changes

Corporate Governance

Legal Proceedings

• The company's subsidiaries are involved in various unresolved legal actions, administrative proceedings, and claims in the ordinary course of business.
• These include product liability, commercial, employment, workers' compensation, intellectual property claims, and environmental matters.
• Management believes the eventual outcome of these actions, individually or in aggregate, will not have a material adverse effect on the financial position, results of operations, or cash flows.

Stakeholder Impact

• Shareholders: Positive impact from increased net income, EPS, and ongoing share repurchase program, as well as increased dividends.
• Employees: Benefits from competitive compensation and benefits, training and talent development programs, and improved health and safety metrics (TRIR, LTIR). Potential impact from workforce reductions due to restructuring.
• Customers: Benefit from innovative, sustainable products, reduced installation time, and improved water hygiene. Strong distribution network aims for superior customer satisfaction.
• Suppliers: Global sourcing strategy aims to maintain alternate sources and reduce supplier numbers, potentially impacting some suppliers.
• Creditors: Strong Net First Lien Leverage Ratio indicates low credit risk and compliance with debt covenants.

Next Steps

• Continue executing initiatives to optimize operating margin and manufacturing footprint.
• Monitor the potential impact of OECD Pillar 2 proposals and the U.S. One Big Beautiful Bill Act (OBBBA) on financial statements.
• Hold the annual meeting of stockholders on or about April 30, 2026.
• Pay a quarterly cash dividend of $0.11 per share on March 6, 2026, to stockholders of record as of February 20, 2026.
• Continue to pursue strategic acquisitions to broaden product lines, move into adjacent markets, and expand geographic presence.

Key Dates

Recommendation

The company demonstrates strong financial performance with significant growth in net sales and income from operations, coupled with an improved operating margin. Its healthy cash flow from operations, substantial share repurchase program, and increased dividends signal a commitment to shareholder returns. The very low Net First Lien Leverage Ratio indicates robust financial health and ample liquidity. Strategic initiatives like the Zurn Elkay Business System (ZEBS) and focus on sustainable, specification-driven products position it well for long-term growth in a stable market. While risks exist, particularly around customer concentration and macroeconomic conditions, the overall financial strength and strategic direction suggest a positive outlook for investors.

Keywords

Water Management, SEC Filing, 10-K, Zurn Elkay, ZWS, Financial Results, Water Solutions, Plumbing Products, Construction Market, Institutional Buildings, Commercial Buildings, Water Safety, Drinking Water, Flow Systems, Hygienic Products, Sustainability, Corporate Governance, Risk Factors, Cybersecurity, Pension Plan, Share Repurchase, Dividends, Financial Performance, Supply Chain, Artificial Intelligence, Climate Change