Breaking Down Zurn Elkay Water Solutions Corporation (ZWS) Financial Health: Key Insights for Investors

You're looking at Zurn Elkay Water Solutions Corporation (ZWS) and wondering if the stock has the financial plumbing to keep flowing, especially with market headwinds still swirling. Honestly, the Q3 2025 results give us a clear picture: the company is defintely executing well internally, but you need to map that against the broader economic reality. Here's the quick math: ZWS just raised its full-year outlook, now projecting core sales growth of approximately 8% and adjusted EBITDA (Earnings Before Interest, Taxes, Depreciation, and Amortization) to land between $437 million and $440 million. That's a strong signal, plus they've generated free cash flow greater than $300 million for the year, which is why they felt comfortable increasing the dividend by 22% and refreshing the share buyback program to $500 million. Still, the residential market is soft, and tariff costs are a real drag, expected to hit around $50 million for 2025, so let's dig into how their record-low net debt leverage of 0.6 times positions them to handle those near-term risks.

Revenue Analysis

You need a clear picture of where Zurn Elkay Water Solutions Corporation (ZWS) is actually making its money, especially with all the noise around interest rates and construction cycles. The direct takeaway is that ZWS is a fundamentally domestic, product-driven water solutions business, and its 2025 revenue trajectory shows solid, if unspectacular, core growth, heavily reliant on the US market.

For the trailing twelve months (TTM) ending September 30, 2025, Zurn Elkay Water Solutions Corporation reported a total revenue of approximately $1.66 billion. This represents a TTM year-over-year growth of about 6.88%, which is a respectable pace, though slightly below the broader industry growth rate of 7.52%. The third quarter of 2025 (Q3 2025) was particularly strong, with net sales hitting $455.4 million, an 11% core sales increase year-over-year, showing that the pricing power and productivity initiatives are defintely kicking in.

Here's the quick math on where that revenue comes from geographically, which is the clearest way to break down the primary streams. This shows you the concentration risk, but also the stability of their core market.

Honestly, the business is a US story. That's the whole ballgame for ZWS right now.

The core revenue streams are products, not services, spanning a diverse portfolio that includes water safety and control systems, flow systems, and their well-known hygienic and filtered drinking water solutions. The company saw growth across all product categories in Q3 2025, which is a key sign of broad market acceptance, not just a single product carrying the load. Still, the dependence on the US construction and renovation cycle remains a significant factor.

The most significant change in the revenue structure over the last few years was the merger with Elkay, which broadened their product offering, especially in the filtered drinking water space, and is still driving synergy-related operational efficiencies. What this estimate hides, however, is the impact of strategic pruning: Zurn Elkay Water Solutions Corporation has been exiting certain lower-margin product lines, like some residential sink products, which slightly dampened the reported 2024 sales growth by 100 basis points (or 1%) as they focus on higher-value commercial and specification-driven products. This is a good trade-off for long-term margin health, but it makes the headline revenue growth look a little softer than the underlying core business growth. You should also check out Exploring Zurn Elkay Water Solutions Corporation (ZWS) Investor Profile: Who's Buying and Why? for a deeper dive into who is betting on this strategy.

• Q3 2025 core sales grew 11% year-over-year.
• US market generates nearly 90% of total revenue.
• Growth is seen across all major product categories.

Next step: You should model a sensitivity analysis on their US revenue, assuming a 2% drop in commercial construction starts, and see how that impacts the full-year 2025 adjusted EBITDA guidance of $437 million to $440 million. Owner: Strategy Team: run the sensitivity analysis by end of week.

Profitability Metrics

You need to know if Zurn Elkay Water Solutions Corporation (ZWS) is just growing revenue or if that growth is actually translating into better profit for shareholders. The direct takeaway is that ZWS is successfully expanding its margins, with a significant jump in net profitability due to strong cost management and pricing power, but its operating margin still trails the broader water supply industry average.

Looking at the latest quarterly figures, specifically Q3 2025, the company's profitability metrics show a clear upward trend. This is defintely a story of operational efficiency and successful merger integration, guided by the Zurn Elkay Business System (ZEBS). You can see the dedication to streamlining operations in their Mission Statement, Vision, & Core Values of Zurn Elkay Water Solutions Corporation (ZWS).

Here's the quick math on the key Q3 2025 profitability ratios, based on net sales of $455.4 million:

• Gross Profit Margin: The gross profit of $200.7 million translates to a 44.07% Gross Profit Margin.
• Operating Profit Margin: Income from operations was $77.5 million, resulting in a 17.02% Operating Profit Margin.
• Net Profit Margin: The reported GAAP net income of $61.8 million gives a robust 13.57% Net Profit Margin for the quarter.

The trend in profitability is one of the most compelling parts of the ZWS story right now. The trailing twelve months (TTM) Net Profit Margin ending September 30, 2025, stood at 11.63%, which is a substantial improvement from the 8.89% reported a year prior. This margin expansion is a clear signal of improved operational leverage and a better cost structure.

The real measure of operational efficiency is the Adjusted EBITDA margin, which strips out non-cash items and non-recurring costs. In Q3 2025, ZWS hit an Adjusted EBITDA of $122.2 million, which is a margin of 26.8%. This is the highest quarterly margin the company has achieved since the Elkay merger, up 120 basis points (1.2%) year-over-year. That's a strong performance.

When you compare Zurn Elkay Water Solutions Corporation to the broader water supply industry (SIC 4941), the picture is nuanced. While ZWS's Q3 2025 Operating Margin of 17.02% is solid, it is below the 2024 industry median Operating Margin of 26.8%. What this estimate hides, however, is that ZWS is a product manufacturer, not a utility, so its margin profile is expected to be different. The key is the trend: ZWS's net profit margin has been rising, and the Q3 2025 GAAP Net Profit Margin of 13.57% is a very healthy figure.

Here is a quick comparison of the latest ZWS margins against a relevant industry benchmark (Water Supply, 2024 median) for context:

The company's cost management is clearly effective, driven by supply chain localization and successful pricing strategies that have pushed margins higher. The full-year 2025 Adjusted EBITDA is now expected to be between $437 million and $440 million, a significant raise from earlier guidance, which confirms management's confidence in sustained operational gains.

Next step: Finance: Analyze the Q3 2025 LIFO impact to isolate the true core gross margin by next Tuesday.

Debt vs. Equity Structure

You're looking at Zurn Elkay Water Solutions Corporation (ZWS) and want to know if their growth is built on a mountain of debt or solid equity. The direct takeaway is this: ZWS maintains an extremely conservative balance sheet, prioritizing equity and cash flow over high leverage, which gives them significant financial flexibility.

As of the most recent reporting periods in 2025, Zurn Elkay Water Solutions Corporation's debt profile is remarkably light. Their total debt was approximately $495.8 million as of March 31, 2025, with the vast majority being long-term. Short-term debt, or current maturities, was only about $0.8 million at that time, which is defintely a tiny fraction of their overall capital structure. That's a strong signal of low near-term liquidity risk.

The key metric here is the Debt-to-Equity (D/E) ratio, which tells you how much debt a company uses to finance its assets relative to the value of shareholders' equity. Zurn Elkay Water Solutions Corporation's D/E ratio is around 0.31. Here's the quick math on why that number matters so much:

• ZWS D/E Ratio: 0.31
• Building Products & Equipment Industry Average: 0.67
• Industrial Machinery & Equipment Industry Average: 0.95

A D/E ratio of 0.31 means the company is financing its operations with about 31 cents of debt for every dollar of equity. Compared to the industry averages of 67 to 95 cents, ZWS is one of the least leveraged players in its peer group. This conservative approach is also reflected in their net debt leverage (Net Debt/Adjusted EBITDA), which hit a record low of just 0.6x as of September 30, 2025.

In terms of recent activity, Zurn Elkay Water Solutions Corporation has been actively de-risking and returning capital to shareholders, not taking on new debt. A major balance sheet clean-up in Q3 2025 was the completion of their U.S. pension plan termination, which eliminated an approximately $200 million liability. Anyway, that move further solidified their financial position. Instead of debt issuances, they are focused on equity funding and capital return.

They are balancing their capital needs by using internal cash generation to fund growth and reward shareholders. For example, year-to-date in 2025, the company deployed approximately $135 million for share repurchases and increased the annual dividend by 22% to $0.44 per share. This signals a management team confident enough in future cash flows to return capital, rather than hoarding cash or issuing new debt. This is a capital allocation strategy that favors equity over debt, which is great for stability but could limit the speed of large-scale, debt-fueled acquisitions. You can read more about this in Breaking Down Zurn Elkay Water Solutions Corporation (ZWS) Financial Health: Key Insights for Investors.

Liquidity and Solvency

You need to know if Zurn Elkay Water Solutions Corporation (ZWS) has the cash to cover its near-term bills and fund its growth without stress. The direct takeaway is that ZWS's liquidity position is exceptionally strong, backed by high cash generation and minimal debt, which gives them a lot of financial flexibility in a tight credit market.

Looking at the latest data, Zurn Elkay Water Solutions Corporation maintains a fortress balance sheet. The company's current ratio-a measure of its ability to cover short-term liabilities with short-term assets-is a robust 2.78. This means Zurn Elkay Water Solutions Corporation has nearly three dollars in current assets for every dollar of current liability. That's defintely a comfortable margin.

The quick ratio (or acid-test ratio), which strips out inventory to show how quickly they can pay obligations with only the most liquid assets (cash, receivables), is also impressive at 1.73. A quick ratio over 1.0 is generally considered healthy, so 1.73 is a clear sign of superior short-term financial health. They can pay their bills right now, no problem.

This strong position translates directly into a positive working capital trend. The high current and quick ratios show that the company is very efficient at managing its current assets and liabilities, avoiding cash tied up in slow-moving inventory or receivables. This operational discipline is a major strength, especially when you consider the broader economic uncertainty. For a deeper dive into who is betting on this strength, you should read Exploring Zurn Elkay Water Solutions Corporation (ZWS) Investor Profile: Who's Buying and Why?.

The cash flow statement confirms this liquidity strength. Over the trailing twelve months (TTM) ending September 30, 2025, Zurn Elkay Water Solutions Corporation generated significant cash from its core business operations (Operating Cash Flow) of $318.4 million. This is the lifeblood of any business, and it's flowing freely.

Here's the quick math on their cash generation and deployment:

• Operating Cash Flow (OCF): $318.4 million
• Capital Expenditures (CapEx): -$29.8 million
• Free Cash Flow (FCF): $288.6 million

The resulting Free Cash Flow of $288.6 million is the cash left over after funding the business's necessary capital investments. This FCF is what management uses for strategic actions like debt reduction, dividends, and share buybacks. In the third quarter of 2025 alone, they deployed $25 million to repurchase shares.

The financing cash flow trends show a management team confident in its cash position and focused on shareholder returns and balance sheet optimization. The company's net debt leverage ratio was a remarkably low 0.6x as of September 30, 2025. This low leverage, combined with the high FCF, means liquidity concerns are practically nonexistent in the near-term. They have the financial muscle to pursue acquisitions or weather a downturn without breaking a sweat.

What this estimate hides is the potential impact of a major acquisition, which would temporarily spike debt, but the current cash generation suggests they could de-lever quickly. For now, the liquidity and solvency picture for Zurn Elkay Water Solutions Corporation is excellent, providing a strong foundation for future growth.

Valuation Analysis

You're looking at Zurn Elkay Water Solutions Corporation (ZWS) to see if its growth story justifies the price tag. The direct takeaway is that ZWS is trading at a premium, suggesting the market has already priced in its near-term growth and margin expansion plans. Based on fiscal year 2025 estimates, the stock looks pricey on a forward earnings basis, but its low payout ratio offers a cushion for future dividend growth.

When we break down the core valuation multiples, Zurn Elkay Water Solutions Corporation's metrics suggest it is defintely trading above historical averages and many peers in the industrial sector. The market is paying a high multiple for the company's focus on water quality and its strong brand portfolio, which you can learn more about in the Mission Statement, Vision, & Core Values of Zurn Elkay Water Solutions Corporation (ZWS).

Here's the quick math on the key ratios for the 2025 fiscal year. The Forward Price-to-Earnings (P/E) ratio is sitting around 29.09, which is a significant premium to the broader market and suggests high growth expectations. Also, the Price-to-Book (P/B) ratio is high at about 4.91, meaning investors are valuing the company's assets well above their accounting value. This is a classic sign of a growth stock.

The Enterprise Value-to-EBITDA (EV/EBITDA) ratio, which helps us compare ZWS's total value (equity plus debt, minus cash) to its operating cash flow, stands at roughly 22.19. This multiple is elevated, showing the market is willing to pay a lot for ZWS's earnings before interest, taxes, depreciation, and amortization, which speaks to its strong operational performance.

Looking at the stock price trend over the last 12 months, Zurn Elkay Water Solutions Corporation has shown impressive momentum. The stock has traded in a wide range, from a 52-week low of $27.74 to a high of $50.03. With the stock price near $46.62 as of late November 2025, it's closer to its peak, indicating strong recent performance but also less margin for error if earnings disappoint.

As for shareholder returns, ZWS pays a modest dividend. The annual dividend is projected at $0.44 per share, which translates to a forward dividend yield of approximately 0.94%. The good news is the payout ratio is conservative, sitting around 39.29% based on trailing earnings. That low ratio means the dividend is very safe and there is plenty of room for future increases, which is a key factor for long-term investors.

The analyst consensus is mixed but leans cautious, which is interesting given the high valuation. The average 12-month price target is approximately $42.83, which is actually a slight downside from the current price. The consensus rating is generally a 'Hold,' with the seven major brokerages covering the stock split between 4 'Hold' ratings and 3 'Buy' ratings. It's a classic case of a great company with a rich valuation, so analysts are waiting for a pullback or a significant earnings beat before upgrading.

• Current price is near the 52-week high of $50.03.
• The low dividend payout ratio of 39.29% is sustainable.
• Analyst consensus is 'Hold' with a target below the current price.

Next step: You should model a discounted cash flow (DCF) analysis using a more conservative growth rate than the market implies to see if the intrinsic value is closer to the analyst target of $42.83. Owner: Strategy Team: Re-run DCF model by end of next week.

Risk Factors

You're looking at Zurn Elkay Water Solutions Corporation (ZWS) because it's a pure-play in the resilient water management sector, but even the best-run companies face headwinds. The direct takeaway is that while ZWS has effectively managed its supply chain and tariffs, its premium valuation and exposure to a softening residential market are the main near-term risks you need to watch. They've done a great job mitigating, but the margin for error is small.

The biggest external risk is the ongoing global tariff environment, which creates cost volatility. Management highlighted an expected tariff cost impact for the 2025 fiscal year between $35 million and $45 million, even after reducing the initial estimate. Still, the company's core business segments are holding up well. The institutional, commercial, and waterworks segments remain stable, but the residential market is defintely experiencing some softness. This market condition could slow core sales growth, which is projected to be at least 5% for the full year 2025, a pace that trails the broader US market's expected growth rate.

From an operational and financial perspective, two things stand out from the recent reports. First, the company's valuation is rich. The stock is trading at a premium, with a P/E ratio around 45.1x, which is significantly higher than the US Building industry average of 23.0x. This means any miss on their raised full-year 2025 Adjusted EBITDA guidance of $420 million to $430 million could lead to a sharp correction. Second, while the balance sheet is strong-Net Debt Leverage was down to a very healthy 0.7x as of June 30, 2025-you also saw some insider selling by executives in mid-2025. Here's the quick math: a high valuation plus insider activity means you need to be confident in their ability to execute perfectly.

The management team is not sitting still; they have clear mitigation strategies. They are aggressively reducing their supply chain exposure to China, aiming for less than 2% to 3% of their cost of goods sold to come from there by the end of 2026. Also, they are using strategic pricing actions to offset the tariff costs and focusing on the high-margin, project-critical commercial and institutional segments. They're also returning capital to shareholders, having deployed $33 million to repurchase shares in Q2 2025 alone. They're buying back stock when they see value. You can read more about the company's performance in Breaking Down Zurn Elkay Water Solutions Corporation (ZWS) Financial Health: Key Insights for Investors. Finance: track Q4 2025 core sales growth against the high-single digit range they projected.

Growth Opportunities

You want to know where Zurn Elkay Water Solutions Corporation (ZWS) is going next, and the short answer is: deeper into filtration and non-residential construction. The company's growth is defintely not a fluke; it's driven by targeted product innovation and operational discipline, which is why management raised its full-year 2025 guidance.

For the full fiscal year 2025, Zurn Elkay Water Solutions Corporation is projecting core sales growth of approximately 8%. Here's the quick math: that growth, combined with cost control, is expected to push Adjusted EBITDA into a range of $437 million to $440 million, a significant bump from earlier estimates. This momentum is coming from a few key areas, but the biggest lever is their focus on high-margin, innovative products.

Key Growth Drivers: Innovation and Market Focus

The company is capitalizing on a structural shift toward cleaner water and aging infrastructure. Their biggest product innovation is the launch of the new Elkay Pro Filtration line in 2025. This isn't just a minor update; it's a major refresh in the bottle filler category.

• Product Innovation: The Elkay Pro Filtration system offers advanced PFAS reduction (per- and polyfluoroalkyl substances) and a sub-30-second filter change, which is a huge maintenance win for facility managers.
• Market Stability: The vast majority of their revenue comes from resilient non-residential markets-think institutional, commercial, and waterworks-which remain stable, offsetting some softness in the residential segment.
• Sustainability Tailwinds: A massive 86% of the company's revenue is already derived from products with sustainable attributes, aligning them perfectly with global environmental, social, and governance (ESG) trends.

The filtration business, in particular, is a structural growth lever, not just a cyclical bump, and is expected to sustain double-digit growth within that segment. This focus on high-margin, consumable filtration products is key to future earnings quality.

Strategic Roadmap and Financial Strength

Zurn Elkay Water Solutions Corporation is also executing a clear strategy to improve margins and financial flexibility. Their operational backbone is the Zurn Elkay Business System (ZEBS), a lean manufacturing framework that drove the Adjusted EBITDA margin to a post-merger high of 26.8% in Q3 2025.

Strategic moves are strengthening the balance sheet and shareholder returns:

• Supply Chain De-risking: They are actively reducing supply chain exposure to China, with a goal of getting cost of goods sold from China down to less than 2% to 3% by the end of 2026.
• Capital Returns: The Board refreshed the share buyback program to $500 million and announced a 22% increase in the dividend.
• Deleveraging: They ended Q3 2025 with a net debt leverage ratio of just 0.6x, the lowest since becoming a public company, which gives them plenty of dry powder for future strategic acquisitions.

This strong cash generation-with full-year free cash flow expected to be greater than $300 million-is what allows them to self-fund growth and return capital. They also eliminated an approximately $200 million liability by terminating their U.S. pension plan, cleaning up the balance sheet.

Competitive Edge and Future Projections

Their competitive advantage is rooted in their robust, professional-grade product portfolio and their ability to drive margin expansion through operational excellence. Net profit margins have risen to 11.3%, up from 8.8% the prior year, showcasing substantial operational leverage. This is a business built on precision and reliability for non-residential customers who prioritize quality and compliance.

Analyst consensus for the next year (2026) forecasts revenues of approximately $1.77 billion, a 6.7% improvement. Earnings per share (EPS) are expected to ascend 20% to $1.34. This shows a clear expectation that the company's internal initiatives will continue to drive earnings growth faster than top-line revenue growth. For a deeper dive into the valuation, you should look at the full analysis in Breaking Down Zurn Elkay Water Solutions Corporation (ZWS) Financial Health: Key Insights for Investors.

The next concrete step is for your team to model the impact of the new Elkay Pro Filtration line's adoption rate on the 2026 revenue forecast. Owner: Strategy Analyst, deliver model by end of the month.