Xylem Q1 Earnings Call Highlights

Key Points

• Xylem reported Q1 revenue flat year‑over‑year while adjusted EBITDA margin rose to 20.6% and adjusted EPS was $1.12, with backlog up sequentially to $4.7 billion and book‑to‑bill above one.
• Management booked a major WSS outsourced water contract valued at $850 million over 20 years (about 75% service, 25% capital), with roughly 10% of the contract expected in 2026 and services beginning in 2028.
• Capital deployment included an ~8% dividend increase, a $1.5 billion buyback authorization (with $581 million repurchased in Q1 and repurchases continuing in April), and a $219 million acquisition of a German submersible sensor firm to boost optical sensing capabilities.

Xylem NYSE: XYL executives said first-quarter 2026 results showed resilience despite what management described as a “dynamic external environment,” highlighting steady demand for the company’s water and measurement solutions, continued progress on simplification initiatives, and a major new long-term services contract booked after quarter end.

First-quarter results: flat revenue, higher margins and EPS

Chief Financial Officer Bill Grogan said revenue was flat versus the prior year, “in line with expectations,” as the company faced near-term impacts from its 80/20 actions and headwinds in China. Orders were also flat year-over-year, which Grogan attributed to project timing in the Water Solutions and Services (WSS) segment, offset by strength in other segments.

Grogan said Xylem ended the quarter with backlog up sequentially to $4.7 billion and a quarterly book-to-bill “above one.” Adjusted EBITDA margin was 20.6%, up 20 basis points year-over-year, driven by “productivity and price” more than offsetting inflation, mix, and lower volume. Adjusted EPS was $1.12, up 9% from the prior year.

On cash and leverage, Grogan said first-quarter free cash flow was positive, helped by timing of accruals and lower payments, partially offset by restructuring costs and higher capital expenditures. Net debt to adjusted EBITDA rose to 0.6x, which he linked to “opportunistic share repurchases in the quarter.”

Segment performance: metering strength, margin improvements, and WSS timing impacts

In Measurement & Control Solutions (MCS), Grogan said orders rose 15%, driven by smart metering demand in water as projects shifted from the fourth quarter were booked. Revenue increased 1%, led by energy metering demand, partially offset by softness in water meters. EBITDA margin was 20.9%, down 10 basis points year-over-year due to mix and inflation, partially offset by productivity and pricing.

Grogan also noted the company expects its international metering divestiture to close at the end of the second quarter due to regulatory approval timing, and said the updated guidance reflects that change.

In Water Infrastructure (WI), orders rose 2%, which Grogan said was driven by strong transport demand and supported by growth in the U.S. and India. Revenue declined 1%, with softness in treatment tied to “walkaway actions,” partly offset by strength in transport. Grogan said WI EBITDA margin increased 120 basis points as productivity more than offset inflation and mix.

Applied Water posted 2% order growth, with book-to-bill “well above one,” supported by large projects and data center wins. Grogan said data center orders in the first quarter exceeded the full-year amount for all of 2025. Revenue was flat year-over-year as strength in U.S. commercial buildings offset softer industrial and residential markets. Segment EBITDA margin increased 10 basis points year-over-year but was “below expectations,” which Grogan attributed primarily to mix. He said the company remains confident in the segment’s margin expansion opportunities through the rest of the year.

In Water Solutions and Services, Grogan said orders declined due to capital project timing. Revenue fell 2%, driven by timing and weather impacts on service branch operations, partly offset by strength in dewatering. WSS EBITDA margin was 22.1%, up 40 basis points year-over-year on price, productivity, and mix, partially offset by inflation, volume, and investments.

Capital deployment: dividend increase, buybacks, and a $219 million acquisition agreement

Chief Executive Officer Matthew Pine said the company started 2026 by deploying capital “in line with our priorities.” He noted Xylem increased its dividend by about 8% in January and announced a new $1.5 billion share repurchase authorization in February, executing $581 million of buybacks during the first quarter.

On the call, Grogan said the company continued repurchasing shares in April and will reassess the pace during the second quarter, balancing leverage targets with what he described as potential “stock dislocation.”

Pine also said Xylem signed an agreement in March to acquire a German firm that designs and manufactures “highly engineered water quality instruments,” which he described as a leader in submersible sensors for environmental monitoring. In response to an analyst question, Pine said Xylem could not provide the target’s name due to confidentiality provisions, but disclosed the purchase price of $219 million. He said the deal strengthens Xylem’s position in “high margin, optical sensing and process applications” across clean water, wastewater, environmental, and industrial markets, and that the company expects “pretty significant revenue synergies” through its industrial and utility customer base.

Major new outsourced water contract: $850 million over 20 years

Management highlighted a significant WSS win booked in April. Pine said WSS secured its “largest order ever,” an outsourced water contract valued at $850 million to be delivered over 20 years.

In the Q&A, Pine said he could not name the customer, but described it as an existing customer in the specialty chemical vertical. He said Xylem will provide processed water for cooling and boiler feed water in the customer’s manufacturing process, combining “technical know-how on the front end of a capital build” with “a long-term service tail.”

Grogan provided additional detail on the contract structure and timing:

• 75% of the $850 million is service and 25% is capital.
• Xylem expects to realize about 10% of the contract value in 2026.
• The balance of the capital build is expected in the following year, with water expected to begin flowing in 2028, starting the service component.

Guidance: organic outlook unchanged; reported revenue range raised

Grogan said the company’s organic outlook for 2026 is “largely unchanged” from the start of the year, with changes to reported figures reflecting the delayed closing of the international metering divestiture in MCS.

For full-year 2026, Xylem now expects reported revenue of $9.2 billion to $9.3 billion, up from its prior guide of $9.1 billion to $9.2 billion, representing 2% to 3% growth. Organic revenue growth guidance remains 2% to 4%. EBITDA margin guidance remains 22.9% to 23.3%, which Grogan said implies 70 to 110 basis points of expansion year-over-year, driven by productivity and pricing more than offsetting inflation and investments.

Grogan said there is “no material impact” to projected results from recently announced tariff changes. Despite the benefit of share repurchases, Xylem kept its full-year EPS range unchanged at $5.35 to $5.60, which Grogan said reflected a “prudent approach to guidance in an uncertain macro environment.”

For the second quarter, the company anticipates reported revenue growth of 2% to 3% and roughly 1% organic growth. Second-quarter EBITDA margin is expected to be approximately 22% to 22.5%, with EPS of $1.31 to $1.36. Grogan added that MCS margin is expected to be down year-over-year in the second quarter due to energy impacts, but improve sequentially and return to expansion in the second half.

On demand conditions, Pine said U.S. utility demand remained “resilient,” citing discussions with utility CEOs and stating that in the first quarter, U.S. utility orders (which he described as a proxy across MCS and WI) were up double digits and revenue was up mid-teens. He also pointed to China as a drag, saying results there were down 30% year-over-year.

About Xylem NYSE: XYL

Xylem Inc NYSE: XYL is a global water technology company that designs, manufactures and services engineered systems and equipment for the transport, treatment, testing and efficient use of water. Its product portfolio spans pumps and pumping systems, valves, filtration and disinfection equipment, sensors and analytical instruments, and digital solutions for monitoring and control of water infrastructure. Xylem serves the full water cycle with offerings for water and wastewater utilities, industrial customers, commercial and residential buildings, and agricultural applications.

The company was established as an independent publicly traded company in 2011 following a corporate spin-off from ITT Corporation and is headquartered in Rye Brook, New York.

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