Xylem Q2 Earnings Call Highlights

Key Points

• Strong quarterly performance: Xylem reported record adjusted EPS of $1.46, up 16% year over year, while adjusted EBITDA margin expanded 150 basis points to 23.3%. Backlog reached $5.3 billion, supported by a $850 million, 23-year outsourced-water project.
• Revenue outlook lowered, earnings outlook raised: The company reduced its full-year organic revenue-growth forecast to 2%–3% from 2%–4% because of delayed electric-metering deployments. However, it raised adjusted EPS guidance to $5.55–$5.70 and expects a higher full-year EBITDA margin.
• Data centers and industrial markets are key growth drivers: Applied Water orders tied to data centers rose more than 300% in the quarter, and Xylem expects data-center revenue to grow about 200% in 2026. The company is also expanding through acquisitions and partnerships in sensing, mobile water treatment and industrial water services.

Xylem NYSE: XYL reported second-quarter results marked by stronger margins, record adjusted earnings per share and a substantial increase in backlog, while lowering its full-year organic revenue-growth outlook because of delays in electric metering projects.

Chief Executive Officer Matthew Pine said utilities and industrial customers are increasingly seeking integrated water solutions that address operational resilience, regulatory requirements and efficiency. He said the company is expanding its industrial exposure while retaining municipal water infrastructure as a core part of its business.

“Both utilities and industrial customers are placing greater value on comprehensive water solutions that help improve resilience, performance, and efficiency,” Pine said.

Second-Quarter Results and Backlog

Chief Financial Officer Bill Grogan said Xylem ended the quarter with a $5.3 billion backlog and a quarterly book-to-bill ratio “well above one.” Orders increased 41% year over year in the Water Solutions and Services segment, supported by the company’s largest order to date: an approximately $850 million, 23-year outsourced-water project.

Revenue increased 1% from the prior year, in line with company expectations, as strength in key markets offset a 27% decline in China and nearly 2% of walkaway revenue associated with its portfolio simplification efforts. Adjusted EBITDA margin rose 150 basis points year over year to 23.3%, driven by productivity, pricing and mix.

Xylem reported record quarterly adjusted EPS of $1.46, up 16% from the prior year. Free cash flow was supported by higher net income, though partly offset by outsourced-water contracts, Grogan said. Net debt to adjusted EBITDA increased to 0.8 times following opportunistic share repurchases during the quarter.

• Measurement and Control Solutions: Orders rose 2%, with double-digit growth in water smart-metering demand offset by lower electric-metering orders. Revenue declined 1%, and EBITDA margin fell 200 basis points to 21.1% because of mix, inflation and volume.
• Water Infrastructure: Orders declined 4%, reflecting treatment-market softness in China and 80/20 portfolio actions, while transport demand remained strong. Revenue increased 3%, aided by double-digit U.S. municipal growth. EBITDA margin expanded 480 basis points.
• Applied Water: Orders rose 9% and book-to-bill was well above one, led by data-center wins. Data-center orders increased more than 300% in the quarter. Revenue increased 3%, supported by U.S. commercial buildings, while EBITDA margin declined 50 basis points.
• Water Solutions and Services: Revenue rose 1%, aided by capital projects, the finalized Dow contract and dewatering. EBITDA margin expanded 90 basis points to 25.3%.

Electric Metering Delays Prompt Revenue Outlook Reduction

Xylem narrowed its full-year organic revenue-growth outlook to 2% to 3%, from a prior range of 2% to 4%. Reported revenue is now expected to total roughly $9.2 billion, representing approximately 2% growth.

The change primarily reflects delays in electric-metering deployments within Measurement and Control Solutions. Pine said utilities have become more cautious about capital spending ahead of upcoming elections, as political concerns over electricity-rate increases have contributed to a near-term pullback in investment.

Despite the revised outlook, management said long-term electric-metering demand remains healthy, supported by the AMI 2.0 refresh cycle. The company said it continues to gain share based on bid and win rates. Water-metering demand has remained stronger, with water orders increasing by double digits in both the first and second quarters and the customer funnel rising about 30% from the prior year.

Xylem increased its full-year adjusted EPS outlook to $5.55 to $5.70, from $5.35 to $5.60 previously. The company now expects adjusted EBITDA margin of 23.1% to 23.5%, compared with its previous range of 22.9% to 23.3%. It said productivity, volume and pricing are expected to more than offset inflation and business investments.

For the third quarter, Xylem expects reported revenue growth to be flat and organic growth of about 3%. The company forecast EBITDA margin of approximately 23.5% to 24% and adjusted EPS of $1.42 to $1.47.

Industrial, AI-Related Water Demand Drives Strategy

Pine said the growth of AI infrastructure is making water a more strategic input across data centers, semiconductors, power generation and mining. Xylem expects revenue tied to data centers to increase approximately 200% in 2026 and said it could exit the year with about 2% of company revenue related to data centers.

Applied Water’s growth was primarily driven by data-center activity, according to Pine, although the company also cited broad strength in North American commercial building services. In Water Solutions and Services, Xylem cited opportunities in high-tech markets including defense, semiconductors, data centers and power generation, along with mining, life sciences and food and beverage.

The company recently closed its acquisition of TriOS, which adds advanced sensing and water-quality capabilities. Xylem also signed an agreement to acquire WaterFleet, a mobile water-treatment services business with recurring revenue and an existing project supporting a hyperscale data-center buildout in Texas.

Management also highlighted the expansion of its Dow relationship and a new 20-year commitment with one of the world’s largest chemical companies. Pine said the chemical-company engagement combines Xylem’s treatment technology, operations and maintenance services, and digital monitoring under an integrated model.

Portfolio Simplification and China

Grogan said Xylem’s 80/20 simplification program is expected to produce its highest level of walkaway revenue in 2026, at close to 2%. He expects the figure to be significantly lower next year as the company completes much of its portfolio review and shifts the program’s focus toward growth opportunities.

China remained a headwind during the quarter, with orders down more than 30% and sales down nearly 30%, according to Grogan. China represented about 3% of Xylem sales last year and is expected to account for about 2% this year. Management said it has right-sized operations in the market and is being more selective in pursuing business where its technology can differentiate, while noting some recent data-center wins in the country.

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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