Zurn Elkay Water Solutions Corporation (ZWS) | The Buildout — AI Infrastructure
The Verdict
Zurn Elkay designs, procures, manufactures, and markets specification-driven water management products across drinking water, water safety and control, flow systems, and hygienic/environmental categories. In AI infrastructure, management says the company supplies the water-side building products in data centers—plumbing, drainage, and fire protection—but not the heating or cooling equipment, making it an indirect participant.
| Market Cap | — |
| Revenue (TTM) | $1.7B |
| Revenue Growth | +7.7% |
| EBITDA Margin (TTM) | 22.4% |
| Net Debt | $186M |
| Earnings Beats | 7 of 7 |
| P/E (TTM) | — |
| EV/EBITDA (TTM) | — |
What We Like
- Retrofit/replacement mix reached 50/50, with management naming 55% as the next waypoint.
- Adjusted EBITDA margin improved 630 bps TTM from Q1 2023 to Q1 2026, reaching 26.8%.
- Pro Filtration uses a proprietary filter head; installed bottle fillers grow double digit and filtration grows above double digit.
- U.S. is the largest sourcing country; China direct-material purchases targeted to only a few points of COGS by end 2026.
- Net leverage is 0.5x and the revolver was upsized from $200M to $550M for M&A optionality.
What We’re Watching
- Residential demand remains soft; the 2026 framework assumes residential down low single digits.
- Largest customer was 18% of FY2025 net sales and remains unnamed.
- Weather-related break-fix added roughly 1 point of first-half growth and will not repeat.
- Q2 8-K filed July 28, 2026, but the call transcript is not in the source package; formal full-year raise unverified.
The operating thesis is strengthening on margin expansion, retrofit mix, and balance-sheet capacity, but the AI-infrastructure linkage stays unchanged: real, indirect, early-stage, and undisclosed. The main open question is whether the data center vertical becomes measurable or remains a small commercial niche within a flat commercial framework.
Earnings Beat
For the quarter ended June 30, 2026, revenue was $442.2 million, gross margin was 49.8%, EBITDA was $98.4 million, and net income was $113.3 million.
| Metric | Q2 FY2026 | Q1 FY2026 | Q2 FY2025 | YoY |
|---|---|---|---|---|
| Revenue | $442M | $433M | $444M | −0.5% |
| Gross margin | 49.8% | 47.5% | 45.5% | +430bps |
| EBITDA | $98M | $103M | $100M | −1.3% |
| EPS | $0.67 | $0.35 | $0.30 | +125.5% |
| Free cash flow | $156.0M | $42.7M | $101.6M | up $54.4M |
Management tone: No Q2 2026 earnings call transcript is in the source package, so no tone shift can be assessed for the latest period.
Management Guidance
No Q2 2026 guidance discussion is available in the source package; the Q2 2026 8-K was filed July 28, 2026, but the call transcript and detailed guidance update were not included.
Trajectory
Quarterly revenue reached $442.2 million in Q2 FY2026 from $407.2 million in Q4 FY2025 and $433.0 million in Q1 FY2026, while gross margin expanded from 40.8% to 47.5% to 49.8%. Reported EBITDA margin has stayed near 22–24%, but revenue growth is decelerating sequentially. The Q1 beat was driven by roughly 5 points of price, company initiatives, and about 1 point of weather; the full-year framework remains plus mid-single digits.
The Model
The model projects FY+1 revenue of $1,822 million and EBITDA of $492 million (27.0% margin), and FY+2 revenue of $1,949 million and EBITDA of $536 million (27.5% margin). Near-term estimates rest on the plus-mid-single-digit core sales framework and approximately 35% incremental adjusted EBITDA margin; FY+2 carries continued margin expansion toward the Q2 guided 27%–27.5% adjusted EBITDA range.
| Metric | FY2025 | Next FY (E) | Following FY (E) |
|---|---|---|---|
| Revenue | $1.7B | $1.8B | $1.9B |
| YoY Growth | — | +7.4% | +7.0% |
| EBITDA | $374M | $492M | $536M |
| EBITDA Margin | 22.0% | 27.0% | 27.5% |
Projections are the median of 5 independent model runs. The model’s revenue sits 1.3% above analyst consensus.
No Q2 2026 guidance discussion is available in the source package; the Q2 2026 8-K was filed July 28, 2026, but the call transcript and detailed guidance update were not included.
What Could Go Right — and Wrong
- Retrofit/replacement mix drifts toward the 55% waypoint and improves margin mix and resilience.
- Q3 2026 adjacency disclosure grounds management's $1 billion to $2 billion market-expansion framework in concrete products.
- Pro Filtration attachment stays high, and installed bottle fillers grow double digit with filtration growing above double digit.
- Data center water-side demand becomes a disclosed, measurable commercial wedge rather than an unquantified niche.
- The late/mid/early-stage M&A funnel converts into a deal using the upsized $550 million revolver and 0.5x leverage.
- Residential softens beyond the low-single-digit decline embedded in the 2026 framework.
- Tariff and trade policy turns adverse and reverses the expected 2026 price/cost-positive impact.
- The unnamed largest customer, 18% of FY2025 net sales, remains a concentration risk.
- Data center schedules slip on power/electrical infrastructure delays, deferring water-side demand.
- Adjacency details or M&A do not materialize as signaled.
Looking Ahead
The next 12 months center on Q3 2026 adjacency disclosure, Q4 2026 into early 2027 adjacency product launches, and M&A movement in the coming quarters. Management also plans to reduce China direct-material purchases to only a few points of COGS by the end of 2026.
- Q3 2026Growth adjacency disclosure — Tests specific adjacent categories and the product launch roadmap.
- Q4 2026–early 2027Adjacency product launches — Tests first revenue and margin profile of new products.
- End of 2026China COGS exit — Tests direct China purchases down to only a few points of COGS.
- Through 2026Tariff price/cost positive — Tests no adverse full-year revision from tariffs.
- Coming quartersM&A funnel conversion — Tests whether late/mid/early-stage cultivations close into a deal.
Financials
Annual Summary
| Metric | FY2024 | FY2025 | TTM | YoY |
|---|---|---|---|---|
| Revenue | $1.6B | $1.7B | $1.7B | +8.3% |
| Gross Margin | 44.1% | 43.4% | 44.8% | 68bps |
| EBITDA | $337M | $374M | $3.1B | +11.0% |
| EBITDA Margin | 21.5% | 22.0% | 22.4% | +54bps |
| Net Income | $160M | $198M | $276M | +23.6% |
| Free Cash Flow | $272M | $317M | $2.3B | — |
| Net Cash | — | — | — | — |
Key Ratios (Trailing)
- P/E TTM—
- EV/EBITDA TTM—
- EV/Revenue TTM—
- Price/FCF TTM—
- Gross Margin (TTM)44.8%
- EBITDA Margin (TTM)22.4%
- Net Margin (TTM)15.9%
- ROIC13.0%
- FCF Conversion96.4%
- SBC / Revenue1.9%
The Company
Zurn Elkay Water Solutions is a pure-play, specification-driven water management business. The 10-K describes it as designing, procuring, manufacturing, and marketing a broad sustainable portfolio of drinking water, water safety and control, flow systems, and hygienic/environmental products for commercial and institutional buildings.
Operations are managed as one reportable operating segment. The United States is about 92% of net sales, Canada about 5%, and the rest of the world about 3%. The company has facilities in California, Illinois, and North Carolina, and is shifting sourcing toward the U.S. while reducing China direct-material purchases to only a few points of COGS by the end of 2026.
Business Segments
Competitive Landscape
The intel file names Mueller Water Products and Watts Water Technologies as inferred competitors, not company-confirmed filings. Management describes a dominant share of specs in drinking water and the broadest portfolio in its water-safety, flow, and drinking categories; the specification-driven model and 50/50 retrofit/replace mix make it harder to displace at the specification level.
- Mueller Water ProductsNamed in the intel file as an inferred competitor; no further discussion in the source material.
- Watts Water TechnologiesNamed in the intel file as an inferred competitor; no further discussion in the source material.
Supply Chain
ZWS is a finished building-product manufacturer whose products are specified by architects and engineers, sold through distributor/representative channels, and installed by contractors. No counterparty explicitly named ZWS on its latest call.