Water management solutions company Zurn Elkay (NYSE: ZWS) reported Q2 CY2025 results exceeding the market’s revenue expectations, with sales up 7.9% year on year to $444.5 million. Its non-GAAP profit of $0.42 per share was 17.2% above analysts’ consensus estimates.

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Todd A. Adams, Chairman and Chief Executive Officer, commented, “We continue to navigate the global tariff dynamic extraordinarily well as the diversity and flexibility of our supply chain, selective pricing actions and the Zurn Elkay Business System drove strong results in the quarter. Second quarter core sales(1) growth was 8% year over year and includes some customer buy ahead as well as some early benefit from our pricing actions implemented in the quarter. Adjusted EBITDA margins(1) were above the high end of our guidance range at a record 26.5% and up 120 basis points over the prior year second quarter. Free cash flow(1), inclusive of the $33 million we deployed to buy back shares, exceeded $100 million in the quarter for the first time ever while our leverage declined to 0.7x.”

Company Overview

Claiming to have saved more than 30 billion gallons of water, Zurn Elkay (NYSE: ZWS) provides water management solutions to various industries.

Revenue Growth

A company’s long-term sales performance is one signal of its overall quality. Any business can put up a good quarter or two, but the best consistently grow over the long haul. Zurn Elkay’s demand was weak over the last five years as its sales fell at a 4.3% annual rate. This was below our standards and suggests it’s a low quality business.

Long-term growth is the most important, but within industrials, a half-decade historical view may miss new industry trends or demand cycles. Zurn Elkay’s annualized revenue growth of 2.6% over the last two years is above its five-year trend, but we were still disappointed by the results.

We can better understand the company’s sales dynamics by analyzing its organic revenue, which strips out one-time events like acquisitions and currency fluctuations that don’t accurately reflect its fundamentals. Over the last two years, Zurn Elkay’s organic revenue averaged 2.7% year-on-year growth. Because this number aligns with its normal revenue growth, we can see the company’s core operations (not acquisitions and divestitures) drove most of its results.

This quarter, Zurn Elkay reported year-on-year revenue growth of 7.9%, and its $444.5 million of revenue exceeded Wall Street’s estimates by 4.5%.

Looking ahead, sell-side analysts expect revenue to grow 2.5% over the next 12 months, similar to its two-year rate. This projection doesn't excite us and suggests its newer products and services will not catalyze better top-line performance yet.

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Operating Margin

Operating margin is an important measure of profitability as it shows the portion of revenue left after accounting for all core expenses – everything from the cost of goods sold to advertising and wages. It’s also useful for comparing profitability across companies with different levels of debt and tax rates because it excludes interest and taxes.

Zurn Elkay has been an efficient company over the last five years. It was one of the more profitable businesses in the industrials sector, boasting an average operating margin of 12.9%. This result isn’t surprising as its high gross margin gives it a favorable starting point.

Looking at the trend in its profitability, Zurn Elkay’s operating margin rose by 2.8 percentage points over the last five years, showing its efficiency has improved.

In Q2, Zurn Elkay generated an operating margin profit margin of 17.5%, in line with the same quarter last year. This indicates the company’s cost structure has recently been stable.

Earnings Per Share

We track the long-term change in earnings per share (EPS) for the same reason as long-term revenue growth. Compared to revenue, however, EPS highlights whether a company’s growth is profitable.

Sadly for Zurn Elkay, its EPS and revenue declined by 6.1% and 4.3% annually over the last five years. We tend to steer our readers away from companies with falling revenue and EPS, where diminishing earnings could imply changing secular trends and preferences. If the tide turns unexpectedly, Zurn Elkay’s low margin of safety could leave its stock price susceptible to large downswings.

Like with revenue, we analyze EPS over a shorter period to see if we are missing a change in the business.

Zurn Elkay’s two-year annual EPS growth of 28.6% was fantastic and topped its 2.6% two-year revenue growth.

We can take a deeper look into Zurn Elkay’s earnings quality to better understand the drivers of its performance. While we mentioned earlier that Zurn Elkay’s operating margin was flat this quarter, a two-year view shows its margin has expanded by 3.9 percentage pointswhile its share count has shrunk 3.6%. Improving profitability and share buybacks are positive signs for shareholders as they juice EPS growth relative to revenue growth.

In Q2, Zurn Elkay reported EPS at $0.42, up from $0.33 in the same quarter last year. This print easily cleared analysts’ estimates, and shareholders should be content with the results. Over the next 12 months, Wall Street expects Zurn Elkay’s full-year EPS of $1.39 to grow 1.9%.

Key Takeaways from Zurn Elkay’s Q2 Results

We were impressed by how significantly Zurn Elkay blew past analysts’ revenue expectations this quarter. We were also glad its EBITDA outperformed Wall Street’s estimates. On the other hand, its organic revenue missed. Overall, we think this was a decent quarter with some key metrics above expectations. The stock traded up 4.4% to $40 immediately after reporting.

Zurn Elkay had an encouraging quarter, but one earnings result doesn’t necessarily make the stock a buy. Let’s see if this is a good investment. If you’re making that decision, you should consider the bigger picture of valuation, business qualities, as well as the latest earnings. We cover that in our actionable full research report which you can read here, it’s free.