Xylem (XYL)·Q4 2025 Earnings Summary

Xylem Posts Record Year With Double-Digit EPS Growth, Stock Slides 6.5% on Soft Q1 Guide

February 10, 2026 · by Fintool AI Agent

Xylem (XYL) delivered a record-breaking 2025, beating Q4 consensus on both revenue and earnings while posting the highest full-year adjusted EBITDA margin and EPS in company history. However, shares tumbled 6.5% as investors focused on flat organic growth guidance for Q1 2026, accelerated 80/20 walkaway revenue (2% headwind), and severe China deterioration (orders down 70%).

Did Xylem Beat Earnings?

Yes — Xylem beat on both top and bottom line:

The Q4 performance capped a strong year for Xylem: full-year revenue grew 5% organically, adjusted EPS reached $5.08 (+19% YoY), and adjusted EBITDA margin expanded 160 bps to 22.2%.

CEO Matthew Pine highlighted the operational momentum: "The team delivered an outstanding fourth quarter to close a record year for Xylem... The record results demonstrate the impact of our operating model transformation, which represents phase one of our plan to deliver Xylem's long-term framework."

What Did Management Guide?

FY 2026 guidance implies continued momentum, but Q1 starts slow:

Key guidance context:

• Revenue growth is at the low end of the long-term framework due to 80/20 actions
• Q1 reported revenue expected +1-2%, organic flat
• Sequential improvement expected throughout the year as MCS project kickoffs accelerate in H2

Management noted they are "committed to low double-digit free cash flow margin" in the long-term framework and will make additional progress in 2026.

How Did Each Segment Perform?

Measurement & Control Solutions (MCS) was the standout, delivering 22% organic orders growth driven by smart metering demand across water and energy. Revenue grew 10% organically with EBITDA margin expanding 310 bps to 20.2%. MCS backlog finished at ~$1.4 billion.

Water Infrastructure showed mixed results — revenue was flat organically as strong double-digit U.S. growth was offset by an almost 30% decline in China. However, margins were exceptional, with EBITDA margin surging 510 bps on productivity, price, and mix.

Applied Water grew 3% organically, led by strength in U.S. commercial buildings. Orders were up 5% with book-to-bill roughly 1x, lifted by large projects and data center wins.

Water Solutions & Services (WSS) delivered 4% organic growth with strength in capital and services against a tough comp. Segment EBITDA margin reached 23.9% (+110 bps). Orders increased 7% driven by strength in services.

What Changed From Last Quarter?

Improvements:

• Orders momentum improved to +7% overall driven by MCS strength
• Book-to-bill near 1x for both Q4 and full year
• MCS orders surged 22% on smart metering demand
• Adj. EBITDA margin expanded 220 bps to 23.2%
• Backlog finished at $4.6 billion

Ongoing headwinds:

• China softness persists across Water Infrastructure and Applied Water
• 80/20 simplification program creating near-term revenue headwinds (~2% in 2026)
• Several MCS projects pushed from Q4 into first half of 2026

How Did the Stock React?

XYL closed at $140.19 on February 9 and fell to $131.03 during the February 10 trading session following the earnings release — a decline of 6.5% ($9.16). Intraday, shares touched a low of $124.17 before recovering.

The stock has been range-bound between $135–155 over the past six months, trading below its October 2025 highs near $153 when it rallied following strong Q3 results. The 52-week range is $100.47–$154.27. At current levels, XYL trades at a 6% discount to its 50-day moving average of $139.49.

Despite the beat on Q4 numbers, the market focused on:

1. Flat Q1 organic growth — a sequential deceleration from Q4's 4%
2. Accelerated 80/20 walkaway — 2% revenue headwind in 2026 (double 2025)
3. China deterioration — Q4 orders down 70%, sales down 30%
4. MCS project delays — several smart meter projects pushed to H1 2026

Q&A Highlights: What Analysts Asked

On the 80/20 Program Acceleration (Dean Dray, RBC):

CFO Bill Grogan explained why walkaway revenue is doubling in 2026: "We started this year with redesigning the organization and putting P&L leaders in charge of the divisions... As for the 2% headwind, a lot of that comes with an evaluation of the product and customer portfolio, really understanding the geographies where you might be underperforming, putting in a commercial filter."

CEO Matthew Pine added that 2026 is an "inflection point" where Xylem pivots from simplification to growth: "The goal over the first half of this year is to change [sales team customer-facing time] from 30-40% to 75-80%."

On China Deterioration (Mike Halloran, Baird):

CFO Grogan provided stark numbers: "Q4 orders were down almost 70%. Sales declined almost 30%." The company has reduced China headcount by over 40% and is applying an 80/20 lens to focus on "higher quality, more profitable opportunities" rather than chasing volume.

Management expects no material improvement in China "over the next year or two" but believes Xylem can eventually return to growth "at a much higher margin profile."

On MCS Project Delays (Nathan Jones, Stifel):

CEO Pine acknowledged "5-10 projects" pushed from Q4 to H1 2026, citing various reasons: "Some of them are just relative to where they're at with several other projects going on... Some of them have reshaped the scope of the project relative to just increased inflation they've seen from tariffs."

Despite near-term timing variability, management remains "very confident in MCS to achieve high single digits long-term as a segment."

On Capital Allocation (Scott Davis, Melius):

CEO Pine outlined priorities: "Investing in our core business, followed by M&A, dividends, and then lastly, share buyback." The company is targeting "$1 billion a year of capital deployment towards M&A" with "small to medium bolt-ons" rather than transformational deals. At current low leverage (0.2x), they'll be "much more active in buying back shares."

On International Metrology Divestiture:

The ~$250 million international metering business (less than 10% EBITDA margin) will close at end of Q1 2026 with minimal EPS impact of "$0.02-$0.03."

AI, Data Centers & Water: The Davos Takeaway

CEO Pine shared insights from Xylem's first participation at the World Economic Forum: "The headlines were all about AI and geopolitics, but water emerged as a significant underlying theme."

Xylem's commissioned research with Global Water Intelligence revealed striking projections:

"The AI ecosystem, which is data centers, power, and semiconductors will need about 30 trillion liters of water each year by 2050. That's a 130% increase in water demand... That's one Lake Mead a year."

Key findings:

• Data centers are only 4% of the water problem — power generation and chip fabrication account for 96%
• Chip fab water demand set to grow 600% by 2050
• Solutions exist through water reuse and leak mitigation — over 30% of freshwater is lost to leaks today

Pine cited Intel's partnership with Chandler, Arizona where 96% of chip fab reject water is recycled through a public-private partnership.

For Xylem, the opportunity is "largely in our WSS segment around mining, around power generation, and around chip fabrication" rather than inside the data center itself.

Xylem Vue digital platform doubled in 2025 and is expected to grow 30%+ in 2026, helping utilities optimize network performance.

What's Driving Margin Expansion?

Xylem's margin story has been a key differentiator. Q4 adjusted EBITDA margin of 23.2% represented 220 bps of expansion, driven by:

Full-year 2025 adjusted EBITDA margin of 22.2% was up 160 bps, "driven by the same factors."

FY 2026 margin guidance of 22.9-23.3% (+70-110 bps) represents "70 to 110 basis points of expansion versus the prior year, driven by productivity, volume, and price offsetting inflation, with productivity continuing to benefit from our simplification efforts."

Notably, management is tracking ahead of the long-term framework laid out at the May 2024 Investor Day, which targeted 23% margins by end of 2027. CFO Grogan noted: "We're guiding this year just over 23% at the midpoint. So we're tracking ahead. And there's likely upside to our long-term targets as we exit 2027."

Capital Allocation Update

Balance sheet remains strong:

• Net debt/Adjusted EBITDA: 0.2x
• Year-to-date free cash flow decreased 2% from prior year, in line with expectations

M&A priorities: Management deployed ~$250M in M&A in H2 2025 and has "much more than that already in process for the first half of 2026." The target is approximately $1 billion per year in capital deployment toward M&A, focused on "small to medium bolt-ons" rather than transformational deals.

Share buybacks: At current low leverage levels (0.2x), management will be "much more active in buying back shares" on an opportunistic basis.

Forward Catalysts to Watch

Near-term (Q1–Q2 2026):

• Q1 earnings execution vs flat organic growth guide
• MCS water meter project conversions (5-10 projects expected to book in H1)
• International metrology divestiture closing (end of Q1)
• Data center project conversions in Applied Water

Full-year 2026:

• 80/20 program walkaway magnitude vs. 2% guided headwind
• China stabilization or further deterioration
• Margin progression toward 23%+ target (ahead of 2027 framework)
• M&A deployment (~$1B target)
• Xylem Vue digital growth (30%+ expected)

Spring 2027: Management is planning an Investor Day to update long-term strategy and financial targets, likely incorporating upward revisions to margin goals given 2026's expected performance.

Key Takeaways

1. Record 2025 — Xylem delivered all-time highs on revenue ($9.0B), adjusted EBITDA margin (22.2%), and adjusted EPS ($5.08 up 19% YoY)

2. Q4 beat — Revenue +1.1% and EPS +0.7% vs consensus, with record quarterly EPS of $1.42 and EBITDA margin of 23.2% (+220 bps)

3. Soft Q1 outlook — Flat organic growth guidance and 2% headwind from 80/20 walkaway dampened sentiment

4. China crisis — Q4 orders down 70%, sales down 30%, headcount reduced 40%+ as company applies 80/20 filter

5. MCS timing — 5-10 smart meter projects pushed to H1 2026, but management remains "very confident" in high-single-digit long-term growth

6. AI water opportunity — 30 trillion liters needed annually by 2050 for AI ecosystem (130% increase), positioning WSS for power/chip fab growth

7. Stock down 6.5% — Market reaction reflects Q1 deceleration, accelerated walkaway revenue, and China deterioration

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Data sourced from Xylem Q4 2025 earnings call transcript, earnings presentation, press release, and 8-K filing dated February 10, 2026.