Xylem (NYSE:XYL) reported third-quarter results marked by strong order growth and margin expansion but lowered its full-year revenue and earnings outlook as utility customers delayed discretionary purchases and certain large projects converted to revenue more slowly than expected.
Chief Executive Officer Matthew Pine said demand for water infrastructure and technology remained solid, though near-term operating conditions were mixed. “Revenue [came] in below our expectations as certain projects moved more slowly than anticipated and utility customer spending decisions took longer to materialize,” Pine said.
The company also announced plans to divest its Applied Water International business and Specialty Flow Control business, which serves beverage and marine markets. Xylem plans to move from four operating segments to three beginning in 2027 as it further focuses its portfolio on higher-growth and higher-margin markets.
Orders and margins offset softer revenue conversion
Third-quarter organic revenue was roughly flat from a year earlier, as lower Measurement and Control Solutions metering revenue, Water Infrastructure treatment revenue and Water Solutions and Services revenue offset continued strength in North American transport and data-center-related activity.
Orders increased 10% year over year, while ending backlog rose 13% to $5.5 billion. Backlog increased by about $200 million sequentially, and the company reported a book-to-bill ratio above one.
Adjusted EBITDA margin expanded 70 basis points from the prior year to 23.9%. Adjusted earnings per share rose 5% to $1.44, excluding any benefit from IEEPA tariff refunds. Year-to-date free cash flow was $444 million, slightly below the prior-year period, primarily reflecting working capital and investments in outsourced water contracts.
Chief Financial Officer Andrea van der Berg said productivity improvements and pricing more than offset inflation, lower sales volumes and mix pressures during the quarter.
- Measurement and Control Solutions: Orders rose 30%, supported by large water and gas metering awards. Revenue declined 5%, while EBITDA margin increased 270 basis points to 24.5%.
- Water Infrastructure: Orders declined 1% and revenue declined 1%, reflecting treatment-order delays and China-related headwinds. EBITDA margin rose 180 basis points to 26.2%.
- Applied Water: Orders increased 15%, including data-center orders that were up more than 200% year over year. Revenue grew 9%, but EBITDA margin declined 40 basis points amid inflation, mix and growth investments.
- Water Solutions and Services: Orders grew 6%, while revenue fell 2% as certain large capital projects ramped more slowly than anticipated. EBITDA margin declined 140 basis points to 24.9%.
Utility caution affects metering and project timing
Xylem said affordability pressures affecting electric metering have extended into water metering purchases. While those purchases are generally funded through utility operating budgets, van der Berg said replacement timing is more discretionary than repair-and-maintenance spending within Water Infrastructure.
The company said major metering projects secured during the third quarter are largely scheduled for deployment in the second half of 2027 and into 2028. MCS backlog was approximately $1.3 billion, and its third-quarter book-to-bill ratio was 1.16.
Pine said municipal demand remains “fundamentally healthy,” but utility executives have become more cautious amid higher construction, energy and financing costs, as well as customer resistance to rate increases in certain areas. Xylem said its U.S. utility capital-expenditure exposure is less than 10% of company revenue, with most utility exposure tied to repair-and-replace demand.
In Water Solutions and Services, management said customer demand and project funnel activity remain strong, but the timing of large capital-project conversion will determine the pace of revenue growth.
Company lowers 2026 outlook
Xylem lowered its full-year revenue outlook to approximately $8.95 billion, representing a reported decline of roughly 1% from 2025 and organic revenue that is roughly flat year over year. The prior outlook called for 2% to 3% organic growth.
The company now expects full-year adjusted EPS of $5.40 to $5.45, down from its previous forecast of $5.55 to $5.70. It maintained expectations for approximately 23.2% EBITDA margin, which would represent 100 basis points of expansion from the prior year. Free-cash-flow margin is now expected to be about 10.2%, at the low end of the previous range.
For the fourth quarter, Xylem expects reported revenue to decline about 5%, with organic revenue down 1% to 2%. The company forecast fourth-quarter EBITDA margin of about 24.5%, up 130 basis points, and EPS of $1.39 to $1.44.
Portfolio changes target growth and margin improvement
The planned divestitures represent roughly 9% of Xylem’s run-rate revenue but less than 5% of company EBITDA, according to van der Berg. The businesses are expected to reduce Xylem’s China exposure from approximately 2% of revenue to 1% and are dilutive to the company’s EBITDA margin.
The company said it expects to close its acquisitions of Cornell Pump and Roper Pump in the fourth quarter. Pine said proceeds from the announced divestitures, expected toward the end of 2027 or beginning of 2028, would provide capacity for organic investment, bolt-on acquisitions in higher-growth verticals, dividends and opportunistic share repurchases.
Xylem expects its 80/20 portfolio actions to create a revenue headwind of 50 to 100 basis points in 2027, down from an anticipated peak 2% impact in 2026. Pine said the company sees continued momentum in data-center infrastructure, semiconductor fabrication facilities and, longer term, power projects supporting artificial-intelligence infrastructure.
About Xylem (NYSE:XYL)
Xylem Inc (NYSE: XYL) is a global water technology company that develops products and services for the transportation, treatment, testing and efficient use of water and wastewater. Its offerings support municipal water and wastewater utilities, industrial customers, commercial facilities and residential applications.
The company’s products and solutions include water and wastewater pumps, treatment systems, dewatering equipment, smart meters, monitoring and control technologies, leak detection tools, and data-driven analytics.
