Xylem (NYSE:XYL) executives highlighted a “record year” and a strong finish to 2025, pointing to continued demand strength, expanding margins, and progress on the company’s multi-year operating model transformation during the company’s fourth-quarter 2025 earnings call.
Fourth-quarter and full-year results
CEO Matthew Pine said the company delivered “outstanding” fourth-quarter performance and emphasized that recent results reflect progress in “phase I” of Xylem’s plan, which has focused on simplifying the operating model, strengthening culture, and improving processes and systems. Pine said the company is now entering “phase II,” aimed at strengthening the growth engine through sales force effectiveness, product management, and innovation.
- Backlog: $4.6 billion exiting the year
- Book-to-bill: near 1 in the quarter and for the full year
- Orders: up 7% in Q4 and up 2% for the year
- Revenue: up 4% in Q4 and up 5% for the full year
- Adjusted EBITDA margin: 23.2% in Q4 (up 220 basis points year-over-year) and 22.2% for the full year (up 160 basis points)
- Adjusted EPS: $1.42 in Q4, up 20% from the prior year
- Leverage: net debt to adjusted EBITDA of 0.2x
- Free cash flow: down 2% year-to-date, driven by outsourced water projects, system investments, and restructuring costs, partially offset by higher net income
Grogan attributed margin expansion to productivity and price more than offsetting inflation, and said operational discipline drove the fourth-quarter margin performance.
Segment performance highlights
In Measurement and Control Solutions (MCS), Grogan said backlog ended the year at roughly $1.4 billion. Orders increased 22% on smart metering demand across water and energy, though he said orders were below expectations as several projects shifted into 2026. Revenue rose 10%, driven by energy metering demand and high single-digit growth in water, which helped offset softer analytics tied to timing effects from a government shutdown. Segment EBITDA margin was 20.2%, up 310 basis points.
In Water Infrastructure, orders declined 1% in the quarter as treatment softness—primarily in China—was mostly offset by strength in demand and transport. Revenue was flat, with strong double-digit growth in the U.S. offset by an almost 30% decline in China. Segment EBITDA margin rose 510 basis points, which Grogan attributed to productivity, price, and mix, partially offset by inflation, volume, and investments.
In Applied Water, orders increased 5% and book-to-bill was roughly 1, supported by large projects and data center wins in the U.S. Revenue rose 3%, driven mainly by U.S. commercial buildings. Segment EBITDA margin improved 60 basis points, though Grogan noted some non-recurring factors and said he expects Applied Water to return to the 20% EBITDA margin range in the first quarter.
In Water Solutions and Services (WSS), Grogan said orders increased 7% on strength in services. Revenue rose 4% against a difficult comparison. Segment EBITDA margin was 23.9%, up 110 basis points, driven by price, volume, and productivity, partially offset by inflation and mix.
2026 outlook and the impact of “80/20” actions
Management said Xylem is accelerating its “80/20” simplification efforts—exiting lower-quality or lower-margin revenue streams and simplifying product and customer portfolios. Grogan said this will create an “outsized headwind” to the 2026 top line of roughly 2%, about double the impact seen in 2025, and called it a one-year elevation.
For full-year 2026, Grogan guided to:
- Revenue: $9.1 billion to $9.2 billion (1% to 3% growth reported; 2% to 4% organic growth)
- Adjusted EBITDA margin: 22.9% to 23.3% (70 to 110 basis points of expansion)
- Adjusted EPS: $5.35 to $5.60 (up 8% at the midpoint)
For the first quarter of 2026, the company guided to reported revenue growth of 1% to 2% and flat organic revenue, with EBITDA margin of approximately 20.5% to 21% and EPS of $1.06 to $1.11.
At the segment level, the company expects:
- MCS: mid-single-digit growth, with a low-single-digit decline expected in Q1 due to project timing; Xylem expects energy meters to drive most 2026 growth
- Water Infrastructure: low-single-digit growth, with continued weakness in China’s utility market weighing on the first half
- Applied Water: low-single-digit growth, supported by developed markets and data centers, offset by 80/20 actions and a weak China market in the first half
- WSS: mid-single-digit growth, supported by a $1.4 billion backlog, though management emphasized quarter-to-quarter variability due to project timing
Project timing, China headwinds, and portfolio actions
During Q&A, executives addressed project timing variability in smart metering, particularly in MCS. Pine said underlying demand remains healthy, but near-term results reflect project timing, backlog normalization after COVID, and walk-away revenue. Management said the company has been exiting mechanical meters and becoming more selective on meter installation work that can carry low-margin “pass-through” revenue.
Grogan said a handful of larger MCS projects pushed out for varying reasons, including customer scheduling and scope adjustments tied to inflation and tariffs. He said the company has “reasonable visibility” on these projects and expects sequential improvement through the year.
Management also discussed continued weakness in China. Grogan said fourth-quarter orders in China were down almost 70% and sales fell almost 30%, driven by economic headwinds in utility, commercial building, and industrial end markets, along with intense local price competition. He said Xylem reduced headcount in China by more than 40% to align with lower volumes and is focusing on higher-quality, more profitable opportunities using an 80/20 lens.
Capital allocation and M&A priorities
Asked about the company’s low leverage and potential share repurchases, Pine reiterated capital priorities: investing in the core business first, followed by M&A, dividends, and then buybacks. He said the company’s acquisition process has matured and that Xylem deployed about $250 million toward M&A in the second half of 2025, with more in process for the first half of 2026. Pine said the company will continue to target roughly $1 billion per year of M&A deployment, focused primarily on small to medium bolt-on deals, while remaining opportunistic on buybacks given the low leverage profile.
On portfolio changes, Grogan said Xylem previously evaluated up to 10% of revenue for potential divestiture but does not expect to reach that level. He said the international metering divestiture is expected to close at the end of the first quarter and represents a roughly $250 million business with less than 10% EBITDA margin, with an estimated EPS impact of $0.02 to $0.03 for the year.
Separately, Grogan said the company expects to host an investor day in 2027 to update strategy and targets, noting that the 2026 margin guide places Xylem ahead of the 2027 margin goals outlined at its May 2024 investor day.
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.
