Zurn Elkay Water Solutions Corporation

Q2 2026 sales were $491 million, up 10% year-over-year on both a core and reported basis. Adjusted EBITDA was $136 million, and adjusted EBITDA margin was 27.7%, up 120 basis points year-over-year and the highest quarterly margin since the Zurn Elkay merger. In the first half, sales increased by $91 million and EBITDA by $36 million year-over-year, with first-half EBITDA margin at 27.3%, up about 140 basis points. Free cash flow was $112 million in the quarter, and net debt leverage ended at 0.3x, the lowest the company has had as a public company. The company received $48 million in cash from IEEPA and reciprocal tariff refunds in the quarter, including $2 million of accrued interest, but said that item is excluded from adjusted earnings and free cash flow. For Q3 2026, management guided to core sales growth of 6% to 7% and adjusted EBITDA margin around 28%. For full-year 2026, it now expects adjusted EBITDA of $503 million-$513 million and free cash flow of at least $350 million, excluding any past or future tariff refunds. Management also said Intellihot should contribute approximately $18 million in net sales in the last 5 months of the year.

Todd Adams emphasized that the quarter reflected the compounding benefits of years of product focus, operational improvements, and supply chain work. He highlighted that the company is gaining share in higher-margin categories, pruning lower-value businesses through 80/20, and using the Zurn Elkay business system to keep expanding margins and cash flow. On Intellihot, he described the deal as a long-coveted adjacency, saying the company will invest for the long term and pursue a path to a much larger business rather than optimize for next year.

Dan Klun focused on the financial outperformance and balance sheet strength. He cited Q2 sales of $491 million, adjusted EBITDA of $136 million, margin of 27.7%, $112 million of quarterly free cash flow, and net leverage of 0.3x. He also noted the $48 million tariff refund cash receipt, explained it is non-recurring and excluded from adjusted results, and said $6 million of IEEPA and reciprocal tariff amounts remained uncollected and unrecognized at June 30. He reiterated the updated 2026 outlook and said the D&A guidance does not yet include the incremental Intellihot purchase accounting impact.

Analysts pressed on pricing, Intellihot, margin expansion, and the durability of growth. Management said the 5% Q2 price benefit was largely from prior tariff-related actions, not new price increases, and said 2026 should look like a normal pricing year at 3% to 4%. On Intellihot, they said the business has strong technology, regulatory tailwinds, and channel fit, and that Zurn Elkay expects to use its specification, contractor, wholesaler, and sourcing capabilities to expand share over time. When asked about incremental margin guidance, management said the current 40% level is a reasonable snapshot given the mix of higher-growth, higher-margin products and operating leverage.