Xylem Inc. (XYL) Q4 2025 Earnings Call Transcript
Access earnings results, analyst expectations, report, slides, earnings call, and transcript.
Overview
The earnings call summary reveals mixed signals. Financial performance shows growth, but challenges in China and delayed projects temper optimism. The Q&A section highlights progress in strategic initiatives and margin improvement, but uncertainties in China and backlog concerns persist. The company's focus on restructuring and potential growth opportunities balance the negative aspects, resulting in a neutral sentiment overall.
Key Financial Performance
Revenue Fourth quarter revenue grew 4% year-over-year despite a challenging comparison of 7% growth in the same period last year. Full year revenue growth was solid at 5%. The growth was driven by strong demand and backlog conversion.
EBITDA Margin Quarterly EBITDA margin was 23.2%, up 220 basis points year-over-year. Full year EBITDA margin expanded 160 basis points to 22.2%. The improvement was driven by productivity and price more than offsetting inflation.
Earnings Per Share (EPS) Record quarterly EPS of $1.42, a 20% increase over the prior year. This was attributed to operational discipline and higher net income.
Free Cash Flow Year-to-date free cash flow decreased by 2% from the prior year, driven by outsourced water projects, system investments, and restructuring costs, offset by higher net income.
Orders Orders were up 7% in the quarter, driven by over 20% growth in Measurement & Control Solutions (MCS). Full year orders were up 2%.
Measurement & Control Solutions (MCS) Revenue Revenue was up 10% year-over-year, driven by energy metering demand and high single-digit gains in water metering. EBITDA margin for MCS was 20.2%, up 310 basis points year-over-year, driven by productivity, price, and volume.
Water Infrastructure Revenue Revenue was flat year-over-year, with strong double-digit growth in the U.S. offset by an almost 30% decline in China. EBITDA margin for Water Infrastructure was up 510 basis points, driven by productivity, price, and mix.
Applied Water Revenue Revenue was up 3% year-over-year, primarily driven by strength in U.S. commercial buildings. Segment EBITDA margin increased 60 basis points year-over-year, driven by productivity and price.
Water Solutions and Services Revenue Revenue growth was up 4% year-over-year, driven by strength in capital and services. Segment EBITDA margin was 23.9%, up 110 basis points year-over-year, driven by price, volume, and productivity.
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Operating Highlights
Smart Metering Demand: Orders up 22%, driven by demand across water and energy.
Energy Metering Demand: Revenue up 10%, supported by high single-digit gains in water.
Advanced Treatment and Reuse: Helping cities and industries recover and reuse water, e.g., Los Angeles producing 580 million gallons of recycled water per day.
Geographic Market Trends: Strong double-digit growth in the U.S., offset by a 30% decline in China.
Utility End Markets: Resilient demand across most regions, except for weakness in China's utility market.
EBITDA Margin Expansion: Full year margin expanded 160 basis points to 22.2%, driven by productivity and price offsetting inflation.
Backlog Conversion: Backlog finished at $4.6 billion, with book-to-bill near 1.
Simplification Efforts: Accelerating 80/20 actions to simplify product and customer offerings, creating short-term top-line headwinds but improving earnings quality.
Phase 2 Growth Engine: Focus on sales force effectiveness, product management, and innovation.
Long-term Competitiveness: Investing in core franchises, breakthrough innovation, and exposure to future water markets.
Water Strategy Alignment: Positioning water strategy as foundational to economic growth and energy systems, leveraging AI and adaptive infrastructure.
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Risk or Challenges
Revenue growth: Revenue growth is expected to be impacted by the company's 80/20 actions, which involve exiting unprofitable businesses and simplifying product and customer offerings. This will create a short-term headwind to the top line, with an outsized impact in 2026.
China market weakness: The company anticipates continued weakness in China's utility market, which is expected to impact revenue growth, particularly in the first half of 2026.
Project timing variability: The timing of projects, particularly in the Measurement & Control Solutions (MCS) segment, has been more variable and less predictable, leading to delays in expected orders and revenue recognition.
Inflation and cost pressures: While productivity and pricing have offset inflation to some extent, inflationary pressures remain a challenge, impacting margins and operational costs.
Government shutdown effects: Timing effects caused by the government shutdown have led to softness in analytics revenue, particularly in the MCS segment.
Tariff and broader market volatility: The company is monitoring broader market conditions and volatility, including tariffs, which could pose risks to operations and financial performance.
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Guidance & Outlook
Revenue Growth: 2026 full year revenue is projected to be $9.1 billion to $9.2 billion, representing 1% to 3% growth, with organic revenue growth of 2% to 4%. First quarter revenue growth is expected to be 1% to 2% on a reported basis and flat organically.
EBITDA Margin: 2026 EBITDA margin is expected to expand to 22.9% to 23.3%, representing a 70 to 110 basis point increase over the prior year. First quarter EBITDA margin is projected to be approximately 20.5% to 21%, up 25 basis points at the midpoint.
Earnings Per Share (EPS): 2026 EPS is forecasted to range from $5.35 to $5.60, reflecting an 8% increase at the midpoint compared to the prior year. First quarter EPS is expected to be between $1.06 and $1.11.
Segment Growth Projections: Measurement & Control Solutions (MCS) is expected to grow mid-single digits, with energy meters driving most of the growth. Water Infrastructure and Applied Water are projected to grow in the low single digits, with headwinds from 80/20 actions and weak China markets. Water Solutions and Services (WSS) is anticipated to grow mid-single digits, supported by a $1.4 billion backlog.
Market Demand and Backlog: Resilient demand is expected in key markets, with a strong backlog of $4.6 billion. MCS backlog is approximately $1.4 billion, and WSS is supported by a $1.4 billion backlog and a strong project funnel.
Strategic Simplification (80/20 Actions): The company will accelerate 80/20 efforts, focusing on product and customer simplification, which will create a 2% headwind to the top line in 2026. This is expected to be a one-year elevation.
Free Cash Flow Margin: The company remains committed to achieving a low double-digit free cash flow margin as part of its long-term financial framework.
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Shareholder Return Plan
The selected topic was not discussed during the call.
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Key Q&A
Q:Can you provide a 2-year progress report on initiatives regarding margin improvement, portfolio optimization, and growth opportunities?
A:Matthew Pine highlighted significant progress over the past two years, including the integration of Evoqua and Xylem, delivering synergies 18 months early, and improving the operational model. Employee engagement ratings were high, with 74% overall and 90% of top leaders recommending Xylem as a great place to work. On-time performance improved by 500 basis points, and structural changes reduced micro teams by 40%. The company is transitioning to Phase 2, focusing on sales force effectiveness, product lifecycle management, and innovation to build a growth engine.
Q:Why is there an increase in 80/20 walkaway revenues in the second year?
A:William Grogan explained that the 80/20 approach is becoming a critical part of how the company operates, focusing on resource allocation and simplifying the organization. The increase in walkaway revenues is due to evaluating product and customer portfolios, optimizing overhead, and exiting less profitable businesses. These actions take time due to inventory management and customer coordination, with full implementation expected by 2026.
Q:When will the 80/20 approach transition from being a headwind to a tailwind?
A:Matthew Pine stated that 2026 will be an inflection point. The company is building momentum by improving sales force effectiveness and focusing on customer engagement. By 2026, the company expects to leverage simplicity and build a growth engine.
Q:What are the priorities for capital allocation, and is there a focus on share buybacks or M&A?
A:Matthew Pine emphasized that priorities are investing in the core business, followed by M&A, dividends, and share buybacks. The company targets $1 billion annually for M&A, focusing on small to medium bolt-ons rather than transformational deals. Share buybacks will be opportunistic, especially at low leverage levels.
Q:What is the outlook for backlog and project hesitancy in 2026?
A:William Grogan noted that lower backlog levels impact 2026 revenue cadence. Factors include weak orders in China, delayed projects, and walkaway revenues. Despite these challenges, the company has healthy commercial funnels and expects improved progression throughout the year.
Q:What steps are being taken to address softness in the China market?
A:William Grogan explained that China remains challenging due to economic headwinds and intense price competition. The company has restructured operations, reduced headcount by over 40%, and is focusing on higher-quality, profitable opportunities. Long-term, Xylem aims to grow in China at a higher margin profile.
Q:What is the status of smart meters and the impact of delayed projects?
A:Matthew Pine and William Grogan stated that smart meter orders remain strong, but some projects have been delayed due to various reasons, including scope changes and economic factors. The company remains confident in achieving high single-digit growth long-term, with digital business expected to grow 30% in 2026.
Q:What is the margin improvement outlook for 2026 and beyond?
A:Matthew Pine mentioned that the company is ahead of its long-term margin targets, guiding over 23% adjusted EBITDA margin in 2026. An Investor Day in 2027 will update strategy and targets, with potential upside to long-term goals.
Q:What is the cause of the 4Q operating margin step-down across segments?
A:William Grogan attributed the margin step-down to mix of business, project timing, and one-time items. These are transitional factors, and margins are expected to improve sequentially throughout 2026.
Q:What are the findings and opportunities from the report on water demand management for data centers?
A:Matthew Pine highlighted that AI ecosystems will require 30 trillion liters of water annually by 2050, with most demand driven by power and chip fabrication. Solutions like water reuse and leak mitigation can address this demand. Xylem sees growth opportunities in mining, power generation, and chip fabrication.
Q:Review of Unclear Management Responses
A:Management avoided providing specific details on the timing and scope of certain delayed projects, particularly in smart meters and MCS orders. Additionally, while they mentioned potential divestitures, no clear timeline or specifics were given. The response on China’s long-term growth potential lacked clarity on actionable steps beyond restructuring and focusing on profitable opportunities.
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Earnings Word Cloud
The most frequently occurring keywords in this quarter's earning call
CEO record
China demand
China market
China utility
Conference today
Events future
Infrastructure action
Infrastructure digit
Investor Relation
MCS digit
Officer Chief
Officer perspective
Orders MCS
Orders metering
Phase engine
Phase plan
Relation Xylem
Relations Slide
Segment margin
Slide Measurement
Slide finish
Water Infrastructure
analytics
digit demand
gain
inflation volume
metering demand
midpoint
mix inflation
offering
outlook segment
point factor
price volume
project center
result Slide
softness
system
term framework
volume mix
XYL Transcript
Xylem Inc. (XYL) Q4 2025 Earnings Call Transcript
Unknown2-10
The earnings call summary reveals mixed signals. Financial performance shows growth, but challenges in China and delayed projects temper optimism. The Q&A section highlights progress in strategic initiatives and margin improvement, but uncertainties in China and backlog concerns persist. The company's focus on restructuring and potential growth opportunities balance the negative aspects, resulting in a neutral sentiment overall.
Xylem Inc. (XYL) Q3 2025 Earnings Call Transcript
Positive10-28
The earnings call indicates positive sentiment with raised EPS guidance, strong demand across segments, and strategic acquisitions enhancing growth. The Q&A section confirms resilient demand, strong backlog, and effective mitigation of tariff impacts. Despite some uncertainties, such as funding delays and government shutdowns, the overall outlook is optimistic with improved guidance, strategic focus on core growth areas, and ongoing simplification efforts. The absence of significant negative factors and clear strategic planning suggest a positive stock price movement in the short term.
Xylem Inc. (XYL) Q2 2025 Earnings Call Transcript
Positive7-31
The earnings call reflects a positive outlook with raised revenue guidance, stable EBITDA margins, and strong M&A strategy. The Q&A section supports this sentiment, highlighting strong demand, margin improvements, and strategic focus on high-return M&A activities. Despite some weakness in China, developed markets and strategic initiatives like the 80/20 tool are driving growth. The positive aspects outweigh the concerns, suggesting a likely stock price increase in the 2% to 8% range over the next two weeks.
Xylem Inc. (NYSE:XYL) Q1 2025 Earnings Call Transcript
Unknown4-30
The earnings call presents a mixed picture. Financial performance shows positive EPS growth and strong EBITDA margins, but revenue growth is minimal. The guidance suggests modest future growth. Risks include supply chain challenges, tariff impacts, and economic issues in China. The lack of clear guidance on demand and competitive positioning raises concerns. However, operational improvements and strategic initiatives like simplification and M&A activity provide some optimism. The absence of shareholder return initiatives tempers positive sentiment. Overall, these factors suggest a neutral impact on the stock price.
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XYL Report
Frequently Asked Questions
Where does this earnings call transcript come from?
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They are generated by a specialized financial-language model trained exclusively on 15+ years of earnings transcripts. The model extracts financial figures, guidance, and tone with 97%+ accuracy and is regularly validated against human analysts. The full raw transcript always remains available for verification.
