This article first appeared on GuruFocus .
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Revenue:Up 1% in the quarter versus prior year.
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EBITDA Margin:23.3%, up 150 basis points versus the prior year.
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EPS:Record quarterly EPS of $1.46, a 16% increase over the prior year.
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Net Debt to Adjusted EBITDA:Increased to 0.8 times.
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Free Cash Flow:Strong in the quarter, driven by higher net income.
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Water Infrastructure Revenue:Up 3%, driven by transport offsetting softness in treatment.
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Water Infrastructure EBITDA Margin:Expanded by 480 basis points.
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Applied Water Orders:Up 9%, with data center orders up over 300%.
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Water Solutions and Services Revenue:Increased 1% year over year.
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Water Solutions and Services EBITDA Margin:25.3%, up 90 basis points versus the prior year.
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Full-Year Revenue Guidance:Expected to be roughly $9.2 billion, with growth of approximately 2%.
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Full-Year EPS Guidance:Raised to $5.55 to $5.70.
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Third-Quarter Revenue Growth:Expected to be flat on a reported basis and up roughly 3% organically.
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Third-Quarter EPS Guidance:$1.42 to $1.47.
Release Date: July 28, 2026
For the complete transcript of the earnings call, please refer to the full earnings call transcript .
Positive Points
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Xylem Inc ( NYSE:XYL ) reported a strong quarterly EBITDA margin of 23.3%, up 150 basis points from the previous year, driven by productivity, price, and mix.
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The company achieved record quarterly EPS of $1.46, a 16% increase over the prior year.
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Xylem Inc ( NYSE:XYL ) has a strong backlog of $5.3 billion, with a book-to-bill ratio well above one, indicating healthy demand.
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The Applied Water segment saw significant growth, with data center orders up over 300% and revenue expected to increase by approximately 200% this year.
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The acquisition of WaterFleet and TriOS strengthens Xylem Inc ( NYSE:XYL )'s capabilities in mobile water treatment and advanced sensing, aligning with high-growth markets.
Negative Points
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Revenue in the Measurement and Control Solutions segment was down 1%, driven by a slowdown in electric meter deployments due to affordability concerns and cautious capital spending.
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Xylem Inc ( NYSE:XYL ) experienced a 27% decline in revenue from China, impacting overall growth.
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The company's Water Infrastructure segment faced challenges with a 40% decline in China and softness in treatment due to strategic walkaway actions.
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The EBITDA margin for the Measurement and Control Solutions segment decreased by 200 basis points due to unfavorable mix, inflation, and volume.
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The company lowered its full-year revenue growth outlook for the Measurement and Control Solutions segment to low-single-digit growth due to project delays in electric metering.
Q & A Highlights
Q: Can you elaborate on the 9% organic revenue growth in Applied Water and the key industrial drivers? A: The growth was primarily driven by data centers, with significant contributions from North America's commercial building services across multiple verticals. Data centers are a major growth area, with revenue expected to increase by 200% this year. Additionally, the acquisition of WaterFleet will further enhance our capabilities in this sector.
Q: Could you discuss the opportunities in outsourced contracts, particularly following the Evoqua acquisition? A: Outsourced contracts, including build-on-operate models, are a significant focus. The Evoqua acquisition has expanded our capabilities, especially in high-growth verticals like high-tech power and life sciences. Recent wins include a project with the world's largest lithium battery cell manufacturer and a data center in Pennsylvania, highlighting our comprehensive water treatment solutions.
Q: What are the current challenges and outlook for the Measurement and Control Solutions (MCS) segment? A: The MCS segment faces challenges due to delays in electric meter deployments, driven by affordability concerns and cautious capital spending. However, we continue to gain market share and expect long-term growth driven by the AMI 2.0 refresh cycle. On the water side, order activity remains strong, with a 30% increase in the funnel compared to last year.
Q: How is the 80/20 strategy evolving, and what impact does it have on growth and margins? A: The 80/20 strategy has been a significant lever for margin improvement, with this year seeing the peak of walkaway revenue at close to 2%. Moving forward, the focus will shift to leveraging the strategy for growth, particularly in underrepresented areas like US transport and data centers, enabling incremental growth as we approach 2027.
Q: Are there any supply chain concerns, particularly regarding electronic components? A: We regularly review supply chain conditions and have taken proactive measures, such as maintaining a years supply of rare earth materials and six months of chips and wafers. Currently, there are no pressing supply chain issues, and we continue to monitor the situation closely.
For the complete transcript of the earnings call, please refer to the full earnings call transcript .
