Executive Summary

Q1 2025 delivered revenue of $2.069B, up 2% reported and 3% organic, and adjusted EPS of $1.03; both exceeded S&P Global consensus (Revenue: $2.042B*, EPS: $0.95*) — a modest top-line beat and a more material EPS beat, driven by 120 bps adjusted EBITDA margin expansion to 20.4% .
Guidance: management raised full‑year reported revenue to $8.7–$8.8B (from $8.6–$8.7B) and reaffirmed adjusted EPS of $4.50–$4.70 and adjusted EBITDA margin of 21.3–21.8%, citing pricing/productivity offsets and resilient OpEx-oriented demand .
Execution highlights: book‑to‑bill >1 and backlog ~$5.1B; margin expansion from price realization and simplification initiatives; tariff impacts being mitigated via strategic pricing and supply‑chain actions .
Stock reaction catalysts: revenue guide raise with EPS held, clear tariff mitigation plan, and segment commentary (MCS energy/water mix headwinds in 1H; sequential improvement expected in 2H), supportive of estimate stability and margin confidence .

What Went Well and What Went Wrong

What Went Well

Margin and EPS beat: adjusted EBITDA margin expanded 120 bps to 20.4%, supporting adjusted EPS $1.03; CEO: “operating discipline drove 120 basis points of margin expansion and double-digit EPS growth” .
Broad‑based organic growth: organic revenue growth across all segments; book‑to‑bill >1; CFO: backlog ~$5.1B and revenue ahead of expectations on MCS outperformance .
Operating model transformation: management emphasized progress on simplification/80‑20, segment‑oriented structure and faster decision‑making; “we are reaffirming our full-year adjusted EPS guidance” despite tariff volatility .

What Went Wrong

MCS margin pressure from mix: segment EBITDA margin down YoY due to energy/water mix; expected to trough in Q2 before improving in 2H .
China softness: double‑digit order declines in China within Water Infrastructure; ongoing macro challenges and liquidity constraints impacting projects .
Cash flow headwinds: Q1 operating cash flow fell to $33M, reflecting working capital movements and outsourced project dynamics; free cash flow margin guide remains 9–10% for FY25 but restructuring will weigh on cash conversion .

Financial Results

Key Income Statement and Margin Metrics (Quarterly progression: oldest → newest)

Metric	Q1 2024	Q4 2024	Q1 2025
Revenue ($USD Billions)	$2.033	$2.256	$2.069
GAAP Diluted EPS ($)	$0.63	$1.34	$0.69
Adjusted EPS ($)	$0.90	$1.18	$1.03
Operating Margin (%)	10.3%	11.8%	11.2%
Adjusted EBITDA Margin (%)	19.2%	21.0%	20.4%
Net Income Margin (%)	7.5%	14.5%	8.2%

Cash Flow and Investment

Metric	Q1 2024	Q1 2025
Cash from Operations ($USD Millions)	$89	$33
Capital Expenditure ($USD Millions)	$(74)	$(71)

Segment Breakdown – Q1 2025

Segment	Revenue ($USD Millions)	Reported YoY %	Organic YoY %
Water Infrastructure	581	+1%	+5%
Applied Water	435	~0%	+1%
Measurement & Control Solutions	490	+6%	+6–7%
Water Solutions & Services	563	~0%	+1%
Total Xylem	2,069	+2%	+3%

KPIs

KPI	Q3 2024	Q4 2024	Q1 2025
Backlog ($USD Billions)	~$5.3	~$5.1	~$5.1
Book-to-Bill	>1	~1 (Q4), >1 (FY)	>1
MCS Backlog ($USD Billions)	~1.9	~1.9	~1.8
Net Debt / Adjusted EBITDA (x)	0.6x	0.5x	0.5x

Guidance Changes

Metric	Period	Previous Guidance	Current Guidance	Change
Revenue ($USD Billions)	FY 2025	$8.6–$8.7	$8.7–$8.8	Raised
Adjusted EBITDA Margin (%)	FY 2025	21.3–21.8	21.3–21.8	Maintained
Adjusted EPS ($)	FY 2025	$4.50–$4.70	$4.50–$4.70	Maintained
Free Cash Flow Margin (%)	FY 2025	9–10	9–10	Maintained
Q2 EPS ($)	Q2 2025	N/A	$1.12–$1.16	New quarterly
Dividend per share ($)	Q1 2025	$0.40 declared	Paid Mar 19, 2025	Increased vs prior year
Dividend per share ($)	Q2 2025	N/A	$0.40 declared (payable Jun 26, 2025)	New declaration

Earnings Call Themes & Trends

Topic	Previous Mentions (Q3 2024)	Previous Mentions (Q4 2024)	Current Period (Q1 2025)	Trend
Tariffs & Pricing	Monitoring; price/cost positive tailwind ~60 bps; Europe/Asia softness noted	Prepared to take pricing; FX headwind; tariffs expected immaterial at time	Mix of surcharges vs price increases (~1/3 vs 2/3), actions in Q1/Q2; expect potential 2H demand pullback but manageable	More explicit mitigation; cautious demand elasticity
Simplification/80‑20	Building momentum; record margins; portfolio optimization underway	8‑K restructuring; ~$95–115M charges; ~$130M net benefits over 2 years; ~10% workforce affected, largely SG&A	Driving productivity, faster decisions; margin benefits offset inflation/mix	Execution progressing; benefits accruing
MCS Backlog/Mix	Backlog ~1.9B; timing pushouts; still strong AMI pipeline	Energy meters to drive growth; water low single digits; margins down in 1H, expand in 2H	Orders choppy; Q2 margin low mark; sequential improvement in 2H; book‑to‑bill positive later in year	Near‑term pressure, improving path intact
China & Regional Trends	Emerging market softness; China mid‑teens order decline	Expect weakness in China utilities; AW softness in EM	WI orders double‑digit declines in China; mitigation via 80/20 and margin focus	Persistent headwind
WSS Lumpiness & Dewatering	Strong dewatering; timing pushouts in capital sales	Projects progressed faster than anticipated; strong funnel	Book‑to‑bill well over 1; weather impacts in SE U.S.	Healthy demand with timing variability
PFAS Regulatory	N/A	Municipal rule intact; industrial draft paused; state‑level tailwinds	No guide impact; supportive EPA stance; timing pushes	Longer‑dated tailwind

Management Commentary

“Organic revenue grew across all segments on healthy demand, with our book‑to‑bill ratio exceeding one. The team’s operating discipline drove 120 basis points of margin expansion and double‑digit EPS growth.” — Matthew Pine, CEO .
“We expect to offset the cost of the additional tariffs with incremental pricing and supply chain actions… we are reaffirming our full year 2025 guidance.” — William Grogan, CFO .
“Simplification has unleashed a new energy… increase in the speed of our responsiveness to customers alongside less wasted time and effort.” — Matthew Pine .

Q&A Highlights

Tariff pricing strategy: Combination of surcharges and formal price increases, with repricing of portions of backlog; expectation of back‑half demand softness but manageable via FX tailwinds and pricing actions .
MCS dynamics: Margins pressured by energy/water mix in 1H, expected to trough in Q2 and improve sequentially in 2H; backlog rephasing, AMI projects fill in 2H; energy meters ~40% growth in 2025 .
China/EM weakness: Continued demand softness in China utilities; focus on differentiated technologies and cost management to protect margins .
Capital deployment: Active M&A pipeline; portfolio optimization continues; majority stake in Idrica to standardize platform and drive revenue synergies .

Estimates Context

How Q1 2025 compared to S&P Global Wall Street consensus:

Metric	Actual	Consensus	Surprise
Revenue ($USD Billions)	$2.069	$2.042*	+$0.027
Adjusted EPS ($)	$1.03	$0.954*	+$0.08
EBITDA ($USD Millions)	$396	$404*	−$8

Values marked with * retrieved from S&P Global.

Implications: modest top‑line beat and more notable adjusted EPS beat, with EBITDA slightly below consensus; price/productivity more than offset inflation/mix, supporting EPS resilience despite MCS mix pressure .

Key Takeaways for Investors

Revenue guide raised; EPS and margin guide reaffirmed — signaling confidence in pricing/productivity offsets and OpEx‑aligned demand durability .
Near‑term margin overhang in MCS from energy/water mix should bottom in Q2; management guides sequential improvement into 2H — monitor MCS margin trajectory as a key stock narrative driver .
Tariff mitigation plan is in action (pricing/surcharges, dual sourcing) with sensitivity to demand elasticity in 2H — a risk, but currently well‑managed .
Simplification/80‑20 and restructuring should provide margin tailwinds through FY25–26; expect continued operating discipline and portfolio optimization to support mid‑term thesis .
Backlog (~$5.1B) and book‑to‑bill >1 underpin visibility; WSS demand robust but lumpy; China remains a headwind to watch .
Dividend policy remains supportive ($0.40/share Q2 declaration), reinforcing capital return alongside selective M&A (e.g., Idrica majority stake) .

Appendix: Additional Data — Q1 2025 vs Prior Year and Prior Quarter

Q1 2025 vs Q1 2024: Revenue $2.069B vs $2.033B; GAAP EPS $0.69 vs $0.63; Adjusted EPS $1.03 vs $0.90; adjusted EBITDA margin 20.4% vs 19.2% .
Q1 2025 vs Q4 2024: Revenue $2.069B vs $2.256B; GAAP EPS $0.69 vs $1.34; Adjusted EPS $1.03 vs $1.18; adjusted EBITDA margin 20.4% vs 21.0% (seasonal and mix effects) .

Xylem Inc. (XYL)·Q1 2025 Earnings Summary