Zurn Elkay Water Solutions (ZWS) Q2 2024 earnings summary

Executive summary

• Q2 2024 net sales reached $412 million, up 2–3% year-over-year, with core sales growth offset by a planned exit from certain residential sink products.

• Adjusted EBITDA grew 20% year-over-year to $104 million, with margin expanding to a record 25.3% (up 370 bps).

• Free cash flow for Q2 was $80 million; $61 million deployed to repurchase nearly 2 million shares, with $80 million in repurchases year-to-date.

• Net income for Q2 2024 was $45–46 million, up from $33–34.6 million in Q2 2023; diluted EPS from continuing operations was $0.26.

• Raised full-year outlook for the second time in 2024, reflecting confidence in ongoing performance and growth initiatives.

Financial highlights

• Operating income for Q2 2024 was $71.9 million, up from $54.8 million in Q2 2023, with margin improvement attributed to productivity synergies and lower material costs.

• Adjusted EBITDA margin expanded to 25.3% from 21.6% year-over-year.

• Net debt leverage reached 0.9x as of June 30, 2024, reflecting continued deleveraging.

• Free cash flow conversion remained strong, with $80.2 million in Q2 and $130.4 million for the first half of 2024.

• Gross profit for Q2 2024 was $225.7 million, with gross margin improvement due to lower material costs and restructuring expense.

Outlook and guidance

• Q3 2024 pro forma core sales growth expected in the low single digits; adjusted EBITDA margin projected at ~25%.

• Full-year 2024 guidance raised: adjusted EBITDA margin expansion now expected between 200–250 bps year-over-year; free cash flow forecasted to exceed $250 million.

• No changes to sales assumptions for the year; positive core sales growth anticipated.

• Management expects to continue executing restructuring initiatives to optimize operating margin and manufacturing footprint.

• Approximately 99% of the $59.6 million backlog as of June 30, 2024, is expected to be recognized in the remainder of 2024.