Xylem Inc’s Earnings Call Highlights Strong Growth and Optimism

Xylem Inc ((XYL)) has held its Q3 earnings call. Read on for the main highlights of the call.

Xylem Inc’s recent earnings call conveyed a strong performance with notable revenue and margin growth across most segments, particularly in Measurement and Control Solutions and Water Infrastructure. Despite challenges such as order declines and market softness in China, the overall sentiment was optimistic, reflecting confidence in future growth prospects.

Strong Revenue and Margin Growth

Xylem Inc reported impressive revenue growth across all segments, with double-digit increases in Measurement and Control Solutions (MCS) and Water Solutions and Services (WSS). The company achieved a record quarterly EBITDA margin exceeding 23%, marking a 200 basis point expansion year-over-year, while earnings per share (EPS) grew by 23%.

Measurement and Control Solutions Performance

The Measurement and Control Solutions segment saw an 11% organic growth in orders, driven by robust performance in water and energy metering. The backlog remains strong at $1.5 billion, and the EBITDA margin improved by 60 basis points year-over-year, underscoring the segment’s healthy trajectory.

Water Infrastructure Segment Success

Xylem’s Water Infrastructure segment experienced a 5% revenue increase, fueled by strong demand in transport and treatment, with the U.S. market showing double-digit growth. The segment’s EBITDA margin expanded significantly by 400 basis points to 24.4%.

Raised Full Year Guidance

Xylem raised its full-year revenue guidance to approximately $9 billion, indicating a 5% to 6% total growth. The EBITDA margin is expected to expand by 140 to 170 basis points compared to the previous year, highlighting the company’s positive outlook for the remainder of the year.

Divestiture of International Metering Business

The company announced the sale of its international metering business for $125 million, expected to close in early 2026. This strategic move is anticipated to drive a 100 basis point margin improvement in the MCS segment, aligning with Xylem’s focus on portfolio optimization.

Positive Partnership with Amazon

Xylem’s collaboration with Amazon in deploying Vue advanced analytics in Mexico City and Monterrey has been fruitful, resulting in the conservation of over 1 billion liters of water annually, showcasing the company’s commitment to innovative solutions and sustainability.

Decline in Orders

Despite overall growth, Xylem faced a 2% decline in orders during the quarter, primarily due to softness in the Chinese market. However, this was largely offset by growth in the U.S. and Western Europe, reflecting a balanced performance across regions.

Challenges in China

Significant softness in China impacted Xylem’s Water Infrastructure and Applied Water segments, leading to a double-digit decline in sales and orders. This challenge highlights the ongoing uncertainties in the Chinese market.

Impact of Tariffs

Xylem updated its annualized tariff impact to approximately $180 million, with a potential slight margin dilutive effect. This factor remains a consideration in the company’s financial planning.

Forward-Looking Guidance

For the remainder of the year, Xylem projects revenue to reach around $9 billion, reflecting 5% to 6% total growth and 4% to 5% organic growth. The EBITDA margin is expected to improve to between 22% and 22.3%, with EPS guidance raised to a range of $5.03 to $5.08. The company remains focused on portfolio optimization and disciplined capital deployment, despite macroeconomic uncertainties.

In conclusion, Xylem Inc’s earnings call highlighted a robust performance with strong revenue and margin growth, particularly in the MCS and Water Infrastructure segments. Despite challenges such as order declines and market softness in China, the company remains optimistic about its future growth prospects, supported by strategic initiatives and partnerships.