On October 31, 2023, Zurn Elkay Water Solutions Corp (ZWS, Financial) released its Q3 2023 earnings report. Despite a 5% decrease in net sales, the company reported a significant turnaround in net income from a loss of $19 million in Q3 2022 to a profit of $35 million in Q3 2023.
Financial Performance Overview
Net sales for the quarter were $398.4 million, a decrease of 5% year over year. This decrease was attributed to lower demand for products sold into residential end markets and the planned exit of certain residential sink products. Despite the decrease in sales, net income from continuing operations was $35 million, a significant improvement from a net loss of $19 million in the same quarter last year.
Income Statement Highlights
Income from operations was $60.1 million, compared to a loss of $10.1 million in Q3 2022. This improvement was due to productivity synergies and restructuring actions related to the Elkay merger, lower material and transportation costs, and lower restructuring charges. Adjusted EBITDA was $96 million, or 24.1% of net sales, compared to $83.7 million, or 20.0% of net sales, in Q3 2022.
Balance Sheet and Cash Flow Statement Highlights
ZWS reported a net debt leverage of 1.2x as of September 30, 2023. The company deployed $13 million to repurchase 0.4 million shares of common stock in the quarter and increased its quarterly dividend per share by 14% to $0.08 per share. In October, the company prepaid $60 million of its outstanding Term Loan.
CEO Commentary
Todd A. Adams, Chairman and Chief Executive Officer, commented, “The third quarter represents the one-year anniversary of the Elkay transaction and we’re delighted with the progress we’ve made on the integration not only operationally, but also with the strategic growth opportunities we’ve invested in and see benefiting our growth moving forward. We delivered an exceptionally strong third quarter, as our adjusted EBITDA margin of 24.1% improved by 410 basis points over the prior year, demonstrating the execution and sustainability of the integration work we’ve accomplished over the past year."
Outlook
Based on demand trends, ZWS expects Q4 sales to be around $351 million, implying approximately 6% proforma core organic growth over the prior year fourth quarter. The company also expects an adjusted EBITDA margin between 23.0% and 23.5%. For the full year, ZWS is increasing its outlook for free cash flow to $230 million.
Explore the complete 8-K earnings release (here) from Zurn Elkay Water Solutions Corp for further details.
