Xylem (XYL) Q3 2026 Earnings Report

The call was mixed. Xylem reported strong orders, backlog growth, margin expansion, strategic portfolio improvements, and attractive long-term opportunities in data centers, semiconductors, and water infrastructure. However, these positives were offset by revenue conversion delays, lower full-year revenue and EPS guidance, softness in short-cycle metering and utility spending, segment revenue declines, lower free cash flow, and higher leverage. The positive and negative factors were broadly balanced, supporting a Neutral overall assessment.

Full year reported revenue is now expected to be down roughly 1% year-over-year at $8.95 billion, with organic revenue roughly flat to last year versus prior guidance of 2%-3% growth; EBITDA margin is expected to be roughly 23.2% or 100 basis point expansion versus the prior year; EPS is expected to be $5.40-$5.45 compared to the $5.55-$5.70 previously; free cash flow margin is expected to be about 10.2% at the low end of the prior range. Fourth quarter revenue is expected to be down roughly 5% on a reported basis and down 1%-2% organically, with EBITDA margin roughly 24.5%, up 130 basis points, and EPS of $1.39-$1.44; MCS is expected to decline modestly on a sequential basis in the fourth quarter and stabilize at that level for the near term, while WSS is expected to return to low single-digit growth in the fourth quarter. For 2027, MCS revenue is expected to be sequentially around Q3 and Q4 levels going into the first half of next year, WSS is expected to be at mid-single digit growth rate, Water Infrastructure is expected to reach mid-single digit growth, treatment potentially mid to high single digits as Xylem exits the year, and 80/20 is expected to be 50 basis points to no more than 100 basis points of headwind.