Zurn Elkay Sees Its 2027 Market Down 'A Couple Points' But Still Promises Growth
Management leans on price, share gains and new product lines, and says 2027 looks like 40% incremental margins or better.
Zurn Elkay Water Solutions, which makes drinking water stations, valves, drains and restroom fixtures, said on its third-quarter earnings call Wednesday that its end market "looks to be likely down a couple points next year," yet it still sees growth in 2027. Chief Operating Officer Dave Pauli added that 2027 "looks like 40% incrementals plus."
Growth without a market lift
Chairman and CEO Todd Adams said the broader economy and parts of its end markets "don't feel like they're going to be a tailwind for our business in 2027," so the company will lean on "grit" and its business system.
Pauli said growth would come from share-gain initiatives, drinking water, repair and retrofit work at about 50% of sales, price and adjacencies. He cited positive core growth in 59 of the last 63 quarters and a 10-year core sales growth rate of 6%. Formal 2027 guidance comes in February.
On pricing, Adams told a Stifel analyst to think of price as "regular way," a couple of points in 2027. No incremental price is assumed in the fourth quarter beyond what is already in place, and a price increase is teed up for next year.
The 40% margin ratchet
Incremental margin is the share of each added sales dollar that becomes profit. Pauli said the expectation was 25% to 30% around the Elkay merger, then 30%, then 35% at the start of this year, and 40% in the second quarter.
He said cost-savings work adds EBITDA of around $5 million or more in 2027 on top of that. Answering an Oppenheimer analyst, Adams said the 40% comes from the core business, not the new hot water push, which he called a category that will run at or above the company's average margin.
Shares traded at $47.39, down 3.58% from the prior close of $49.15, in Wednesday trading.
A quarter that beat the guide
Third-quarter sales were $495 million, up 9% reported and 7% core, at the high end of guidance, CFO Dan Klun said. Adjusted EBITDA rose 15% to $140 million, with margin up 150 basis points to 28.3%. Price added about two points of growth.
The company bought $35 million of stock, and the board raised the annual dividend 18%. Free cash flow was $110 million for the quarter. For the fourth quarter it guided to sales of $430 million to $437 million and adjusted EBITDA of $120 million to $123 million, and it raised full-year adjusted EBITDA to $512 million to $515 million.
President Jeff Schoon introduced the Wilkins Runpoint digital mixing valve, entering a market he put at more than $200 million, and said mixing valves could become a $50 million category for the company over the long run.
Management will give formal 2027 guidance in early February, when it reports fourth-quarter results.
Sources
- Document — sec.gov
- Zurn Water (ZWS) Q3 Earnings and Revenues Surpass Estimates — Yahoo Finance
- Zurn Elkay Water Solutions Non-GAAP EPS of $0.52 beats by $0.02, revenue of $495.1M beats by $1.73M (NYSE:ZWS) — seekingalpha.com
- Zurn Elkay Water Solutions Reports Third Quarter 2026 Financial Results – Company Announcement - FT.com — Financial Times
- Here are the major earnings after the close Tuesday | Seeking Alpha — seekingalpha.com
