Xylem Cuts 2026 Outlook as Q3 Revenue Falls, Orders Rise

Xylem Inc. (NYSE: XYL) reduced its full-year 2026 revenue and adjusted earnings outlook after third-quarter sales fell 3%, as affordability pressure in metering and project timing weighed on revenue despite stronger orders. The water technology company nevertheless maintained an expectation for about 100 basis points of full-year adjusted EBITDA margin expansion, supported by productivity and pricing.

Xylem now expects 2026 revenue of approximately $8.95 billion, representing a 1% reported decline and roughly flat organic revenue. Its previous guidance called for about $9.2 billion of revenue, 2% total growth and organic growth of 2% to 3%. Full-year adjusted EPS is now projected at $5.40 to $5.45, compared with the prior range of $5.55 to $5.70.

The company forecast an adjusted EBITDA margin of approximately 23.2%, or about 100 basis points of expansion, and a free cash flow margin of roughly 10.2%. Xylem said productivity and price are expected to more than offset inflation and investments, allowing it to preserve margin expansion despite lower volume.

For the fourth quarter, management expects revenue of about $2.3 billion, down 5% on a reported basis and 1% to 2% organically. Adjusted EBITDA margin is projected at approximately 24.5%, with adjusted EPS of $1.39 to $1.44. The company attributed the lower revenue outlook to Measurement and Control Solutions book-and-ship volume and the timing of Water Solutions and Services project ramps, while noting that backlog is scheduled to ship in later periods.

Orders outpace revenue

Third-quarter revenue declined to $2.20 billion from $2.27 billion a year earlier and was approximately flat organically. Weakness in Measurement and Control Solutions metering, Water Infrastructure treatment and Water Solutions and Services was largely offset by strength in Water Infrastructure transport and Applied Water data-center demand. North American performance was stronger, while Western Europe and China declined.

Orders increased 7% to $2.33 billion and rose 10% organically, producing a book-to-bill ratio above 1. The backlog reached $5.5 billion, up about $200 million sequentially and 16% organically. Management cited water-meter orders within Measurement and Control Solutions and data-center demand in Applied Water as major contributors.

Reported operating income rose to $385 million from $334 million, while operating margin increased to 17.5% from 14.7%. Adjusted operating income was $428 million, compared with $429 million a year earlier, and adjusted operating margin expanded to 19.4% from 18.9%.

Adjusted EBITDA increased to $527 million from $526 million, while the adjusted EBITDA margin rose 70 basis points to 23.9%. Xylem said productivity and pricing more than offset inflation and lower volume. GAAP diluted EPS was $1.25, up from $0.93, and adjusted diluted EPS was $1.44, compared with $1.37 a year earlier.

Year-to-date adjusted free cash flow was $444 million, down from $462 million, with the margin declining to 6.7% from 7.0%. The company said working-capital requirements and outsourced water contracts weighed on cash flow, partly offset by higher net income. Net debt was 1.1 times trailing adjusted EBITDA.

Segment results diverge

Measurement and Control Solutions recorded the strongest order growth, with orders rising 30% organically to $504 million on demand across water and gas metering. Revenue fell 5% organically to $436 million, largely because of declines in electric metering and analytics. Adjusted EBITDA margin expanded 270 basis points to 24.5%, reflecting productivity, pricing and a divestiture, partly offset by inflation, lower volume and mix.

Water Infrastructure orders and revenue both declined 1% organically, to $675 million and $645 million, respectively. Treatment weakness was partly offset by transport activity. Adjusted EBITDA margin increased 180 basis points to 26.2% as productivity and pricing offset inflation, lower volume and investments.

Applied Water revenue rose 9% organically to $489 million, while organic orders increased 15% to $502 million, driven by North American data centers and commercial demand. Its adjusted EBITDA margin declined 40 basis points to 21.3% because of inflation, mix and investments, partly offset by productivity, volume and pricing.

Water Solutions and Services generated organic order growth of 6% to $650 million, led by capital projects, but revenue declined 2% organically to $631 million. The company said prior-year services and capital work did not repeat. Adjusted EBITDA margin fell 140 basis points to 24.9% on inflation, lower volume and mix.

Portfolio and segment changes

Xylem is moving from four reporting segments to three on January 1, 2027. Water Solutions and Services will be combined with Water Infrastructure’s treatment division to form Treatment and Services. Water Infrastructure’s transport division and Applied Water’s Americas division will form Flow Solutions, while Measurement and Control Solutions will become Measurement and Analytics.

The company also announced planned divestitures of Applied Water International, including operations in Europe, the Middle East, Africa and Asia-Pacific, and Specialty Flow Control. Those businesses will move to “Other” under the new structure. Xylem said it is rotating its portfolio toward higher-growth markets through the Cornell and Roper Pump and WaterFleet acquisitions. Its 2026 guidance assumptions exclude any impact from the anticipated Cornell and Roper transaction in the fourth quarter.

The outlook remains subject to project timing, customer affordability and capital spending, inflation, tariffs, supply-chain constraints, foreign-exchange movements and geopolitical conditions. Xylem also identified execution risks related to acquisitions, divestitures and restructuring, as well as higher interest payments and debt associated with the pending Cornell and Roper acquisition.