Zurn Elkay Water Solutions Corp Reports Robust Earnings Growth and Record Free Cash Flow in Q4 2023
Net Sales: Increased by 5% to $357 million in Q4 2023 compared to the same period last year.
Net Income: Grew to $14 million in Q4 2023, reflecting a rise from $10 million in the year-ago quarter.
Adjusted EBITDA: Rose to $84 million in Q4 2023, marking a substantial increase from $65 million in Q4 2022.
Free Cash Flow: Reached a record $233 million for the calendar year 2023.
Debt Leverage: Net debt leverage improved to 1.1x as of December 31, 2023.
Share Repurchases: The company repurchased $25 million worth of shares in Q4 2023.
Dividends: Paid $50 million in common stock dividends during the calendar year 2023.
Zurn Elkay Water Solutions Corp (NYSE:ZWS) released its 8-K filing on February 6, 2024, detailing its financial results for the fourth quarter of 2023. The company, a leader in clean water solutions, reported a 5% increase in net sales to $357 million for the quarter, compared to $340 million in the previous year's December quarter. This growth reflects a positive trajectory in core sales, which also rose by 5%.
Zurn Elkay Water Solutions Corp designs, procures, manufactures, and markets a comprehensive range of clean water solutions. Its product portfolio includes professional-grade water control and safety, water distribution and drainage, drinking water, finish plumbing, hygienic, environmental, and site works products for public and private spaces.
Financial Performance and Challenges
The company's net income from continuing operations increased to $14 million, or $0.08 diluted EPS from continuing operations, up from $10 million, or $0.06 diluted EPS in the year-ago quarter. Adjusted diluted EPS was $0.26, compared with $0.16 in the year-ago quarter, indicating a strong performance in profitability. Adjusted EBITDA also saw a significant rise to $84 million, or 23.6% of net sales, compared to $65 million, or 19.0% of net sales, in the last year's fourth quarter. This improvement in profitability metrics is crucial for Zurn Elkay as it demonstrates the company's ability to enhance its operating efficiency and manage costs effectively in the competitive industrial products industry.
Despite these achievements, the company faced challenges, including a 400 basis point impact from planned product line exits. However, the company's strategic focus on growth initiatives, particularly in the clean drinking water platform, has paid off with double-digit growth in sales and orders in that segment.
Financial Achievements and Industry Significance
Zurn Elkay's financial achievements are particularly important given the company's focus on sustainability and clean water solutionsan area of growing concern and interest globally. The record free cash flow of $233 million underscores the company's strong operational performance and efficient capital management. Moreover, the company's proactive capital allocation strategy, including share repurchases and dividend payments, reflects a commitment to delivering shareholder value.
Key Financial Metrics
Key financial metrics from the income statement, balance sheet, and cash flow statement highlight the company's robust financial health. Net sales for the calendar year 2023 were $1,531 million, a 19% increase from the previous year. The company also reported a net income from continuing operations of $104 million, or $0.59 diluted EPS from continuing operations, for the calendar year 2023, compared to $57 million, or $0.37 diluted EPS in the previous year. These metrics are essential for investors as they provide insight into the company's sales growth, profitability, and earnings potential.
"2023 was a year focused on completing the integration of Elkay and capturing the related synergies while executing against our growth initiatives, with a priority on growing our clean drinking water platform," said Todd A. Adams, Chairman and Chief Executive Officer of Zurn Elkay. "We generated a record $233 million of free cash flow and executed a balanced capital allocation strategy while ending the year with leverage at an all-time low."
Adams also highlighted the strong finish to the year with sales, Adjusted EBITDA, and margins exceeding expectations. The company's adjusted EBITDA margin expanded by 460 basis points over the prior year's fourth quarter, benefiting from improved commodity and transportation cost environments and cost synergies from the Elkay merger.
Analysis of Company's Performance
Zurn Elkay's performance in the fourth quarter of 2023 reflects a company that is successfully navigating market challenges and capitalizing on growth opportunities. The expansion of adjusted EBITDA margin and the generation of record free cash flow demonstrate operational excellence and strategic foresight. The company's focus on sustainability and clean water solutions positions it well for continued growth, particularly as global demand for environmentally friendly products increases.
Looking ahead to 2024, Zurn Elkay is optimistic about its prospects, expecting to drive superior results across various end market scenarios. The company's strong balance sheet and capital allocation flexibility, combined with its growth initiatives and cost synergies, suggest a positive outlook for the coming year.
For a more detailed analysis of Zurn Elkay Water Solutions Corp's financial results, investors and interested parties can access the full earnings report and join the investor call scheduled for February 7, 2024.
Explore the complete 8-K earnings release (here) from Zurn Elkay Water Solutions Corp for further details.
This article first appeared on GuruFocus.
