Xylem Inc. (XYL) Earnings & Analysis

Latest quarter

Xylem reported third-quarter revenue of $2.2 billion, below the $2.3 billion consensus and down from $2.3 billion a year earlier. Adjusted earnings of $1.44 per share also missed the $1.47 consensus.

The company’s filing attributed the revenue decline in part to lost sales from divestitures. It also cited lower U.S. metering sales and reduced service and rental volume, partly offset by growth in Applied Water. Applied Water revenue rose 7.2% from a year earlier, with the filing citing data-center projects and commercial-building orders. Measurement and Control Solutions revenue fell 16.5%, primarily because of the net effect of divestitures and acquisitions.

Gross margin rose to 41.2% from 38.9%, while operating margin increased to 17.5% from 14.7%. The filing cited productivity savings and price realization among the factors supporting margins, partly offset by inflation and other operating pressures. Xylem reported free cash flow of $243.0 million, down from $291.0 million a year earlier.

Adjusted EPS is the figure the consensus estimates, not the GAAP EPS above.

What management said on the call

CEO Matthew Pine said revenue came in below Xylem’s expectations as some projects moved more slowly and utility customers took longer to make spending decisions. CFO Andrea Vanderberg said lower Measurement and Control Solutions book-and-ship volume and the timing of Water Solutions and Services capital projects were the main reasons for the shortfall.

Vanderberg said quarterly orders rose 10% from a year earlier, led by water and gas metering and Applied Water data-center orders. She said backlog grew 13% to $5.5 billion. In metering, she said affordability pressures had spread from electric to water purchases, causing some utilities to slow discretionary replacements. Large water and gas metering awards are largely scheduled for deployment in the second half of 2027 and into 2028, she said.

Vanderberg said productivity improvements and price more than offset inflation, lower volumes and mix during the quarter. She said some industrial capital projects were ramping more slowly than anticipated, shifting backlog shipments into later periods. When asked about those projects, she said the timing of conversion also reduced the fourth-quarter outlook for Water Solutions and Services.

Pine announced plans to divest Applied Water International and Specialty Flow Control, the beverage and marine business, and move from four segments to three beginning in 2027. Asked about the reorganization, he said it would bring together shared technologies and markets, including pumping and treatment, and create opportunities to bring some outsourced casting work in-house.

On data centers, Pine said Xylem was adding capacity in response to demand rather than building extensively ahead of it. He said the investment would affect margins in the short term and that the company would be able to size the opportunity better in February.

Guidance

Xylem lowered its FY2026 reported revenue forecast to $8.95 billion from its prior $9.2 billion outlook. Vanderberg said the company now expects organic revenue to be roughly flat, versus prior guidance of 2% to 3% growth, because of slower conversion in metering and Water Solutions and Services.

Xylem reduced its full-year adjusted EPS range to $5.40 to $5.45 from $5.55 to $5.70. Vanderberg also said Xylem now expects low-single-digit fourth-quarter Water Solutions and Services revenue growth, rather than the previously guided high-single-digit growth, because of large-project timing.