Zurn Elkay Q3 2026 Earnings: Margin Expansion Outpaces Sales Growth

Zurn Elkay Water Solutions (NYSE: ZWS) reported Q3 2026 net sales of $495.1 million, up 9% from $455.4 million, while diluted EPS from continuing operations rose to $0.45 from $0.35. Adjusted EBITDA margin expanded to 28.3%, supported by product mix, productivity initiatives, and supply-chain repositioning, while free cash flow reached $110 million after excluding net tariff-related refunds.

Core Earnings Data

For the quarter ended September 30, 2026, core sales increased 7%, including growth across nearly all product categories. The Intellihot acquisition contributed another 2 percentage points to reported sales growth.

Profit grew substantially faster than revenue. Gross profit increased by approximately 22%, operating income rose about 40%, and adjusted EBITDA advanced roughly 15%, reflecting significant margin expansion.

Adjusted EPS, adjusted EBITDA, and free cash flow are non-GAAP measures. The free-cash-flow figure excludes IEEPA reciprocal tariff refunds, net of related taxes paid.

Business Performance and Growth Drivers

The underlying business accounted for most of the quarter’s growth, with core sales contributing seven of the nine percentage points of reported expansion. Management said nearly all product categories grew, although the release did not provide separate revenue figures by category or operating segment.

The completed acquisition of Intellihot contributed the remaining two percentage points. Management views Intellihot and the Wilkins backflow business as key parts of its expansion into the hot-water loop. Zurn Elkay also entered the digital master mixing valve market with internally developed products during October.

Management estimates that these initiatives expanded the company’s served markets by roughly $400 million during 2026. However, it also emphasized the need to find additional pockets of growth amid uncertainty in its existing markets and the broader economy.

Profitability, Cash Flow, and Capital Allocation

Cost of sales declined to $249.3 million from $254.7 million even as revenue increased, helping gross profit rise faster than sales. Selling, general, and administrative expenses increased to $121.0 million from $106.7 million, but the gross-profit improvement more than offset the higher spending. Product mix, Zurn Elkay Business System productivity initiatives, and supply-chain repositioning drove the 490-basis-point increase in GAAP operating margin.

Free cash flow was $110 million on the company’s adjusted definition, and net debt leverage stood at 0.4 times as of September 30. During the quarter, Zurn Elkay spent $35 million to repurchase 0.7 million common shares, completed the Intellihot acquisition, and raised its annual dividend by 18% to $0.52 per share.

Fourth-Quarter and Full-Year Guidance

Management adopted what it described as conservative assumptions for the fourth quarter because of global and market uncertainty. At the midpoints of its Q4 ranges, the outlook implies an adjusted EBITDA margin of approximately 28.0%, close to the 28.3% recorded in Q3.

The release did not provide previous guidance ranges, so a change from an earlier outlook cannot be quantified.

Recent Insider Transactions

The six-month summary showed 9,235 shares purchased across 10 transactions and 25,000 shares sold in one transaction, resulting in net sales of 15,765 shares, or 0.10% of reported insider holdings. Among the latest 10 reported transactions, eight were stock grants rather than open-market purchases, alongside one purchase and one sale.

These transactions should be assessed by type: stock awards, open-market purchases, and sales do not carry the same economic meaning, and the disclosed activity alone does not establish insiders’ views of the company’s prospects.

Risks Investors Need to Watch

• Demand uncertainty: Management cited uncertainty in the company’s served markets and the broader economy, which could limit core sales growth or require additional growth initiatives.
• Margin sustainability: The quarter’s profitability benefited from product mix, productivity programs, and supply-chain repositioning. Future margins will depend partly on whether those benefits continue.
• Execution in adjacent markets: Intellihot and the new digital master mixing valve products are central to expansion in the hot-water loop, making integration and commercial execution important to future growth.
• Tariff-related cash-flow comparability: Both reported free cash flow and full-year guidance exclude the net impact of tariff-related refunds, so investors should maintain a consistent basis when comparing periods.

Summary

Zurn Elkay’s Q3 2026 results combined 7% core sales growth with an additional acquisition contribution, while operating profit and adjusted EBITDA increased faster than revenue because of favorable mix and operating improvements. Cash generation and low net leverage supported acquisitions, repurchases, and a higher dividend. The main next-quarter considerations are demand conditions, the durability of margin gains, and execution in the company’s expanded hot-water product markets.