Water management solutions company Zurn Elkay (NYSE: ZWS) beat Wall Street’s revenue expectations in Q1 CY2026, with sales up 11.4% year on year to $433 million. Its non-GAAP profit of $0.41 per share was 13% above analysts’ consensus estimates.

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Company Overview

Claiming to have saved more than 30 billion gallons of water, Zurn Elkay (NYSE: ZWS) provides water management solutions to various industries.

Revenue Growth

A company’s long-term performance is an indicator of its overall quality. Any business can experience short-term success, but top-performing ones enjoy sustained growth for years. Regrettably, Zurn Elkay’s sales grew at a tepid 5.4% compounded annual growth rate over the last five years. This fell short of our benchmark for the industrials sector and is a poor baseline for our analysis.

Long-term growth is the most important, but within industrials, a half-decade historical view may miss new industry trends or demand cycles. Zurn Elkay’s annualized revenue growth of 6.6% over the last two years is above its five-year trend, which is encouraging.

We can dig further into the company’s sales dynamics by analyzing its organic revenue, which strips out one-time events like acquisitions and currency fluctuations that don’t accurately reflect its fundamentals. Over the last two years, Zurn Elkay’s organic revenue averaged 5.8% year-on-year growth. Because this number aligns with its two-year revenue growth, we can see the company’s core operations (not acquisitions and divestitures) drove most of its results.

This quarter, Zurn Elkay reported year-on-year revenue growth of 11.4%, and its $433 million of revenue exceeded Wall Street’s estimates by 3.2%.

Looking ahead, sell-side analysts expect revenue to grow 4.3% over the next 12 months, a slight deceleration versus the last two years. This projection is underwhelming and indicates its products and services will face some demand challenges.

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Operating Margin

Operating margin is an important measure of profitability as it shows the portion of revenue left after accounting for all core expenses – everything from the cost of goods sold to advertising and wages. It’s also useful for comparing profitability across companies with different levels of debt and tax rates because it excludes interest and taxes.

Zurn Elkay has been an efficient company over the last five years. It was one of the more profitable businesses in the industrials sector, boasting an average operating margin of 13.7%. This result isn’t surprising as its high gross margin gives it a favorable starting point.

Analyzing the trend in its profitability, Zurn Elkay’s operating margin rose by 3.7 percentage points over the last five years, as its sales growth gave it operating leverage.

In Q1, Zurn Elkay generated an operating margin profit margin of 19%, up 2.7 percentage points year on year. The increase was encouraging, and because its operating margin rose more than its gross margin, we can infer it was more efficient with expenses such as marketing, R&D, and administrative overhead.

Earnings Per Share

Revenue trends explain a company’s historical growth, but the long-term change in earnings per share (EPS) points to the profitability of that growth – for example, a company could inflate its sales through excessive spending on advertising and promotions.

Zurn Elkay’s flat EPS over the last five years was below its 5.4% annualized revenue growth. However, its operating margin actually improved during this time, telling us that non-fundamental factors such as interest expenses and taxes affected its ultimate earnings.

Diving into the nuances of Zurn Elkay’s earnings can give us a better understanding of its performance. A five-year view shows Zurn Elkay has diluted its shareholders, growing its share count by 37.2%. This dilution overshadowed its increased operational efficiency and has led to lower per share earnings. Taxes and interest expenses can also affect EPS but don’t tell us as much about a company’s fundamentals.

Like with revenue, we analyze EPS over a shorter period to see if we are missing a change in the business.

For Zurn Elkay, its two-year annual EPS growth of 22.5% was higher than its five-year trend. This acceleration made it one of the faster-growing industrials companies in recent history.

In Q1, Zurn Elkay reported adjusted EPS of $0.41, up from $0.31 in the same quarter last year. This print easily cleared analysts’ estimates, and shareholders should be content with the results. Over the next 12 months, Wall Street expects Zurn Elkay’s full-year EPS of $1.62 to grow 5.1%.

Key Takeaways from Zurn Elkay’s Q1 Results

We enjoyed seeing Zurn Elkay beat analysts’ revenue expectations this quarter. We were also glad its EBITDA outperformed Wall Street’s estimates. On the other hand, its adjusted operating income missed. Overall, we think this was a solid quarter with some key areas of upside. The stock traded up 2.5% to $49.13 immediately after reporting.

Zurn Elkay put up rock-solid earnings, but one quarter doesn’t necessarily make the stock a buy. Let’s see if this is a good investment. When making that decision, it’s important to consider its valuation, business qualities, as well as what has happened in the latest quarter. We cover that in our actionable full research report which you can read here (it’s free).