Xylem’s third quarter delivered above-expectation results, buoyed by broad-based revenue growth and ongoing operational improvements. Management credited the quarter’s outperformance to robust demand in Measurement and Control Solutions and Water Solutions and Services, as well as successful implementation of its 80/20 resource allocation strategy. CEO Matthew Pine highlighted substantial progress in restructuring and simplifying the business, noting, “We’ve again set new Xylem benchmarks for on-time performance,” which has bolstered customer trust and margin expansion. The quarter’s gains were also aided by strong execution in North America and ongoing productivity initiatives across divisions.
Is now the time to buy XYL? Find out in our full research report (it’s free for active Edge members).
Xylem (XYL) Q3 CY2025 Highlights:
- Revenue: $2.27 billion vs analyst estimates of $2.23 billion (7.8% year-on-year growth, 1.9% beat)
- EPS (GAAP): $0.93 vs analyst expectations of $0.97 (4.6% miss)
- Adjusted EBITDA: $571 million vs analyst estimates of $491.2 million (25.2% margin, 16.2% beat)
- The company slightly lifted its revenue guidance for the full year to $9 billion at the midpoint from $8.95 billion
- Operating Margin: 14.7%, up from 13.3% in the same quarter last year
- Organic Revenue rose 6.9% year on year vs analyst estimates of 5% growth (190.7 basis point beat)
- Market Capitalization: $36.3 billion
While we enjoy listening to the management's commentary, our favorite part of earnings calls are the analyst questions. Those are unscripted and can often highlight topics that management teams would rather avoid or topics where the answer is complicated. Here is what has caught our attention.
Our Top 5 Analyst Questions From Xylem’s Q3 Earnings Call
- Andy Kaplowitz (Citigroup) asked if margin gains from the 80/20 initiative could be sustained. CEO Matthew Pine responded that while progress has been strong, the company is focused on delivering current commitments and will reassess long-term margin potential next year.
- Deane Dray (RBC Capital Markets) inquired about the pace and breadth of 80/20 implementation. Pine explained that roughly 80% of the business is engaged in the process, with recent expansion into dewatering and analytics, leading to improved customer performance metrics.
- Scott Davis (Melius Research) questioned the impact of organizational restructuring. Pine clarified that moving from a matrix to a division-led structure has improved decision speed and accountability, reducing sign-off layers from over 20 to about 5.
- Nathan Jones (Stifel) sought clarity on how backlog normalization in MCS would affect future growth. CFO Bill Grogan confirmed current backlog is still above historical averages, supporting high single-digit growth targets for 2026 as new projects come online.
- Michael Halloran (Baird) asked about managing China’s ongoing softness. Pine stated that the company is rightsizing its workforce and adjusting to demand, but remains committed to the market’s long-term potential.
Catalysts in Upcoming Quarters
In the coming quarters, our analysts will be watching (1) the impact of the international metering divestiture on segment margins and overall profitability, (2) the pace of backlog conversion and new project wins in Measurement and Control Solutions and Water Infrastructure, and (3) the effectiveness of restructuring actions in China amid ongoing market weakness. We will also track tariff-driven cost pressures and the company’s ability to offset them through pricing and supply chain adjustments.
Xylem currently trades at $149.05, in line with $149.40 just before the earnings. In the wake of this quarter, is it a buy or sell? See for yourself in our full research report (it’s free for active Edge members).
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