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Xylem Inc. (XYL)·Q3 2025 Earnings Summary

Executive Summary

  • Q3 2025 delivered a clean beat: revenue $2.27B (+8% reported, +7% organic), adjusted EPS $1.37 (+23% YoY) and record adjusted EBITDA margin 23.2% (+200 bps YoY). Management raised FY25 revenue, EBITDA margin, and EPS guidance .
  • Versus consensus, revenue and EPS exceeded S&P Global estimates (Revenue: $2.27B vs $2.22B; EPS: $1.37 vs $1.23; EBITDA: $497M vs $491M) amid strong price realization, productivity, and volume; significant beat on EPS and margin expansion supported the upward guidance revision . Q3 estimates referenced below are from S&P Global.*
  • Segment performance broad-based: double-digit revenue growth in Measurement & Control Solutions (MCS) and Water Solutions & Services (WSS); notable margin expansion in Water Infrastructure and Applied Water .
  • Guidance raised: FY25 revenue ≈$9.0B (+5–6% reported), adjusted EBITDA margin 22.0–22.3%, adjusted EPS $5.03–$5.08, FCF margin 9–10%; Q4 revenue ≈$2.4B, EBITDA margin ≈23%, EPS $1.37–$1.42 .
  • Stock reaction catalysts: material EPS beat and record margins; confidence signaled by guidance raise; portfolio simplification (divestiture of international metering) and 80/20 execution underpin sustained margin trajectory .

What Went Well and What Went Wrong

What Went Well

  • Record profitability: adjusted EBITDA margin reached 23.2% (+200 bps YoY), driven by productivity, pricing, and volume; adjusted EPS up 23% YoY to $1.37 . CEO: “Record adjusted EBITDA margin reflected the impact of our simplification initiatives” .
  • Broad-based growth: all segments grew revenue; double-digit gains in MCS and WSS; Water Infrastructure margins expanded strongly .
  • Guidance raised across key metrics (revenue, adjusted EBITDA margin, adjusted EPS) reflecting resilient demand and execution momentum . CEO: “Resilient market demand… gives us the confidence to raise our full-year guidance” .

What Went Wrong

  • China softness: double-digit declines in China pressured Water Infrastructure and Applied Water; management is right-sizing China (≈40% workforce reduction) given hyper-competitive conditions .
  • Orders variance and project timing: WSS orders -11% on tough comps and timing; overall orders -2% in WI and down slightly in China, though backlog remains robust (~$5B) .
  • Tariff headwinds: updated annualized impact ≈$180M including Section 232 derivatives; expected slight margin dilution despite pricing and supply chain offsets .

Financial Results

Core Financials – Actuals by Quarter

MetricQ1 2025Q2 2025Q3 2025
Revenue ($USD Billions)$2.07 $2.30 $2.27
Adjusted EPS ($USD)$1.03 $1.26 $1.37
Adjusted EBITDA Margin (%)20.4% 21.8% 23.2%

Q3 2025 Actual vs Consensus and Surprise

MetricQ3 2025 ActualQ3 2025 Consensus*Surprise
Revenue ($USD Billions)$2.27 $2.22*+$0.05B / +2.1%*
Adjusted EPS ($USD)$1.37 $1.23*+$0.14 / +11.1%*
EBITDA ($USD Millions)$497 $491*+$6 / +1.2%*

*Values retrieved from S&P Global.

Q4 2025 Outlook vs Consensus

MetricQ4 2025 GuidanceQ4 2025 Consensus*Context
Revenue ($USD Billions)≈$2.40 $2.38*In-line to slightly above*
EPS ($USD)$1.37–$1.42 $1.41*Guidance brackets consensus*
EBITDA ($USD Millions)≈$23% margin $544*Consistent with margin guide*

*Values retrieved from S&P Global.

Segment Revenue and Organic Growth – Q3 2025

SegmentRevenue ($USD Millions)YoY Reported GrowthYoY Organic Growth
Water Infrastructure656 +5% +5%
Applied Water456 +2% +1%
Measurement & Control Solutions522 +14% +11%
Water Solutions & Services634 +10% +10%
Total2,268 +8% +7%

Segment Margin Highlights – Q3 2025

SegmentEBITDA Margin (%)Commentary
Water Infrastructure24.4% Productivity, price, mix drove expansion; double-digit growth in U.S.
Applied Water21.7% Productivity, mix, price; China offset
Measurement & Control Solutions21.8% Orders +11% organically; energy/water mix moderated margin
Water Solutions & Services26.3% Price, volume, productivity; timing-driven orders down

KPIs and Operating Metrics

KPIQ3 2025Prior QuarterNotes
Backlog (Total)≈$5B >$5B Robust; MCS normalizing to historical
MCS Backlog≈$1.5B $1.7B Working down to normalize
Orders (MCS)+11% org +12% org Strength across water and energy
Orders (WSS)-11% +5% Lumpy projects; services strength
Net Debt / Adjusted EBITDA0.4x 0.4x Strong balance sheet
Free Cash Flow Margin (FY guide)9–10% 9–10% Unchanged

Guidance Changes

MetricPeriodPrevious GuidanceCurrent GuidanceChange
Revenue ($USD Billions)FY 2025$8.9–$9.0; +4–5% reported ≈$9.0; +5–6% reported; +4–5% organic Raised
Adjusted EBITDA Margin (%)FY 202521.3–21.8 22.0–22.3 Raised
Adjusted EPS ($USD)FY 2025$4.70–$4.85 $5.03–$5.08 Raised
Free Cash Flow Margin (%)FY 20259–10 9–10 Maintained
Revenue ($USD Billions)Q4 2025N/A≈$2.40 New
Adjusted EBITDA Margin (%)Q4 2025N/A≈23 New
EPS ($USD)Q4 2025N/A$1.37–$1.42 New
Tariff Impact ($USD Millions, annualized)FY 2025Updated outlook ≈$180 incl. Section 232 derivatives Clarified
Corporate Expenses ($USD Millions)FY 2025+$10–$15 (update) N/AN/A

Earnings Call Themes & Trends

TopicPrevious Mentions (Q1 & Q2 2025)Current Period (Q3 2025)Trend
80/20 Simplification & Operating ModelBroad rollout; 80% of business engaged; margin lift in AW/WI; on-time performance improved; 16 divisional P&Ls Phase 2 growth engine; continued margin expansion; record margins; faster decisions and accountability Strengthening execution and impact
AMI / Smart Metering DemandMCS orders choppy; energy strong; water rephasing; expected H2 acceleration MCS orders +11% org; backlog ~$1.5B; energy-water mix normalizing; sequential sales up into Q4 Healthy demand, normalizing mix
Tariffs & MacroPricing and supply chain actions; FY guide reflected tariff contingencies Annualized impact ≈$180M; slight margin dilution expected; decision-making delays, limited volume impact Manageable headwind; limited demand impact
ChinaDouble-digit declines; watch item; portfolio focus Significant softness persists; workforce reduction (~40%); right-sizing for market Proactive restructuring
Data Centers / AI InfrastructureEarly-stage; not meaningful near term; reuse importance rising Highlighted partnerships (Amazon + cities in MX) and broader AI water footprint; Vue Advanced Analytics deployed Growing opportunity, strategic positioning
Portfolio Optimization (Divestitures/M&A)Bolt-ons in advanced treatment (Vacom, EnviroMix); pruning $400–$600M; divestitures ≈1% International metering sale (outside NA) to AURELIUS; >100 bps MCS margin accretion (run-rate) Continued simplification, margin uplift

Management Commentary

  • CEO Matthew Pine: “Revenue grew across all segments… Record adjusted EBITDA margin reflected the impact of our simplification initiatives… 23 percent adjusted EPS growth” .
  • CFO Bill Grogan: “Backlog remains robust, closing the quarter at approximately $5 billion… Net debt to adjusted EBITDA stands at 0.4x” .
  • On metering divestiture: “On a run rate about 100 basis points margin improvement in the MCS segment” ; divested international metrology business generating ~$250M revenue in 2024 .
  • On AI/data center water demand: “AI’s water footprint is much, much larger… Vue Advanced Analytics helping cities save more than a billion liters” .

Q&A Highlights

  • Margin trajectory and 80/20: Management sees “more in the tank,” moving from operating model transformation (phase one) to growth engine (phase two), implying upside vs. 2027 margin targets while focusing on 2025–2026 execution .
  • MCS order strength and margins: Orders +11% org; margins impacted by energy/water mix but expected to normalize through 2026; divestiture adds ~100 bps to MCS margin run-rate .
  • Government funding/shutdown: No meaningful impact observed; municipal resilience expected; potential near-term EPA application pauses not material to Q4 or FY26 .
  • Tariffs: Updated annualized impact ≈$180M; pricing and supply chain actions to substantially offset; slight margin dilution; limited volume impact to date .
  • China strategy: Right-sizing with ~40% workforce reduction; staying the course but sizing operations to current demand .

Estimates Context

  • Q3 beats: Revenue $2.27B vs $2.22B consensus*; EPS $1.37 vs $1.23*; EBITDA $497M vs $491M*—driven by price, productivity, and volume .
  • Q4 positioning: Guidance EPS $1.37–$1.42 brackets consensus* ($1.41*); revenue ≈$2.40B is slightly above consensus* ($2.38B*), signaling continued momentum .
  • Implications: Street likely to adjust FY25 EPS and margin assumptions upward given raised guidance and demonstrated margin expansion; segment mix normalization supports sustained profitability .

*Values retrieved from S&P Global.

Key Takeaways for Investors

  • Strong execution and self-help are driving sustained margin expansion; record 23.2% adjusted EBITDA margin and raised FY25 margin guide indicate durable profitability—supportive for multiple expansion .
  • MCS momentum (orders +11%) and divestiture-led margin uplift (~100 bps run-rate) de-risk segment margins as energy/water mix normalizes into 2026 .
  • China remains a headwind but is being proactively managed via restructuring; U.S. and Western Europe strength offsets regional softness .
  • Tariff headwinds (≈$180M annualized) are largely offset by pricing/supply chain levers; expect slight margin dilution but limited volume impact—watch FX and policy volatility .
  • Q4 guide brackets consensus; raised FY25 guidance should prompt estimate revisions higher, with backlog health (~$5B) underpinning visibility .
  • Strategic portfolio optimization (sell non-core metering, bolt-on M&A in advanced treatment) aligns capital deployment to higher-margin, differentiated franchises .
  • Near-term trading: Positive skew given EPS beat, margin record, and guide raise; medium-term thesis centers on simplification/80–20 execution, AMI adoption, and advanced treatment growth.