8-K: Zurn Elkay Water Solutions Reports Strong Q3 2026 Results

Zurn Elkay Water Solutions announced robust third quarter 2026 financial results, showcasing significant year-over-year growth in net sales, net income, and adjusted EBITDA, alongside strategic acquisitions and shareholder returns.

Summary

• Zurn Elkay Water Solutions reported third quarter 2026 net sales of $495.1 million, a 9% increase year-over-year, driven by 7% core sales growth and 2% from acquisitions.
• Net income from continuing operations rose to $76.1 million ($0.45 diluted EPS) from $59.6 million ($0.35 diluted EPS) in the prior year's quarter.
• Adjusted EBITDA reached $140.1 million (28.3% of net sales), up from $122.2 million (26.8% of net sales) in Q3 2025.
• Adjusted EPS was $0.52, an increase from $0.43 in the same quarter last year.
• Free cash flow for the quarter was $109.6 million, excluding tariff refunds.
• The company completed the acquisition of Intellihot, Inc. and deployed $35 million for share repurchases.
• The annual dividend was increased by 18% to $0.52 per share.

Sentiment

Score: 8

Explanation: StockSavvy.ai views this as a positive report, with strong revenue growth, improved profitability, and strategic acquisitions bolstering the company's financial health and future prospects.

Positives

• Net sales increased by 9% to $495.1 million in Q3 2026 compared to $455.4 million in Q3 2025.
• Core sales grew by 7%, indicating strong organic performance across product categories.
• Net income from continuing operations increased by 27.7% to $76.1 million.
• Diluted EPS from continuing operations grew to $0.45 from $0.35 year-over-year.
• Adjusted EBITDA margin improved to 28.3% from 26.8% in the prior year's quarter.
• Adjusted EPS increased to $0.52 from $0.43.
• Free cash flow was strong at $109.6 million for the quarter.
• Net debt leverage was a healthy 0.4x as of September 30, 2026.
• The acquisition of Intellihot, Inc. was successfully completed.
• The company repurchased $35 million of common stock.
• The annual dividend was raised by 18% to $0.52 per share.

Negatives

• The company noted general uncertainty within its served markets and the broader economy.
• The outlook for the fourth quarter suggests a potential slowdown in net sales compared to the third quarter.

Risks

• General uncertainty within served markets and the broader economy.
• The company must remain nimble to offset pockets of growth against general uncertainty.

Future Outlook

For the fourth quarter of 2026, the company expects net sales between $430 million to $437 million and adjusted EBITDA between $120 million to $123 million. Full year free cash flow is projected to be greater than $350 million, excluding the net impact of tariff-related refunds.

Management Comments

• "We delivered 7% core sales growth, 28.3% adjusted EBITDA margins and free cash flow of $110 million in the third quarter."
• "We were able to leverage our exceptional free cash flow to invest $35 million in share repurchases in the quarter as well as fund the Intellihot acquisition, which closed during the third quarter."
• "Finally, we are increasing our annual dividend by 18% to $0.52 per share, reflecting the confidence we have in the long-term fundamentals of our business and business model driven by the Zurn Elkay Business System."
• "Earlier this month, we continued to build out our presence in the hot water loop with the entrance into the digital master mixing valve market with internally developed new products that we believe will allow us to take meaningful, profitable share in the category over the next several years."
• "In 2026 alone, we believe we've expanded our served markets by roughly $400 million."
• "While we're encouraged with our progress, we are also aware that we must continue to be nimble in finding pockets of growth to offset the general uncertainty that exists within our served markets and the broader economy."
• "As we start the fourth quarter, it feels like a time to be conservative in our assumptions while remaining aggressive with our actions with everything that's happening in the world right now."

Industry Context

StockSavvy.ai notes that Zurn Elkay's strategic focus on expanding its 'hot water loop' offerings, including the Intellihot acquisition and new digital master mixing valves, aligns with industry trends towards integrated water management solutions and smart building technologies. The company's ability to grow core sales and margins in a potentially uncertain economic environment highlights its competitive positioning.

Stakeholder Impact

• Shareholders: Benefit from an 18% dividend increase and $35 million in share repurchases, indicating confidence in future performance and commitment to returning value.
• Employees: Potential for continued investment in business systems and strategic growth initiatives, which could lead to job security and opportunities.
• Customers: Benefit from expanded product offerings and integrated solutions, particularly in the hot water loop and digital mixing valve markets.
• Suppliers: Continued demand for products driven by sales growth and acquisitions.

Next Steps

• Continue to build presence in the hot water loop market.
• Gain meaningful, profitable share in the digital master mixing valve category.
• Expand served markets.
• Remain nimble in finding pockets of growth.
• Execute fourth quarter strategy with conservative assumptions and aggressive actions.

Key Dates

Recommendation

The company delivered strong Q3 results with significant growth in sales, profitability, and cash flow, alongside strategic acquisitions and shareholder returns. However, management's cautious tone regarding the broader economic uncertainty and the outlook for Q4 suggests a period of potential headwinds. While the operational performance is commendable, the forward-looking statements warrant a 'hold' rating until greater clarity emerges on the economic environment and the integration of recent acquisitions.

Keywords

Water Solutions, Water Management, Financial Results, Earnings, Acquisition, Dividend, EBITDA, Sales Growth