Xylem Inc. (NYSE:XYL) stock fell Tuesday after the water technology company reported weaker-than-expected third-quarter results and issued fourth-quarter guidance below Wall Street estimates.
Adjusted earnings per share came in at $1.44, missing the analyst consensus estimate of $1.45.
Revenue totaled $2.201 billion, below expectations of $2.276 billion.
Orders Rise Despite Flat Organic Revenue
Organic revenue was largely unchanged from a year earlier as weakness in Measurement and Control Solutions, Water Infrastructure and Water Solutions and Services offset gains in other businesses.
Organic orders rose 10%, driven by demand for metering solutions and data center projects. Backlog increased 13% to $5.5 billion.
Adjusted earnings before interest, taxes, depreciation and amortization (EBITDA) margin expanded 70 basis points to 23.9%, supported by pricing and productivity improvements.
Free cash flow totaled $444 million, while net debt to adjusted EBITDA increased to 1.1 times following share repurchases.
Segment Performance
- Measurement and Control Solutions: Organic orders surged 30%, while organic revenue declined 5%. Adjusted EBITDA margin expanded 270 basis points to 24.5%. The segment’s $1.3 billion backlog supports deployments in late 2027 and 2028.
- Water Infrastructure: Organic orders fell 1% amid treatment project delays and weakness in China. Water Infrastructure organic revenue declined 1%, while adjusted EBITDA margin improved 180 basis points to 26.2%.
- Applied Water: Organic orders rose 15%, with data center orders increasing more than 200%. Organic revenue grew 9%, while adjusted EBITDA margin contracted 40 basis points because of inflation, product mix and growth investments.
- Water Solutions and Services: Organic orders increased 6%, but organic revenue declined 2% amid slower project ramp-ups. Adjusted EBITDA margin fell 140 basis points to 24.9%. Management attributed the weakness to project timing rather than slowing demand.
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Xylem Announces Portfolio Changes, Targets Growth Opportunities
Xylem plans to divest its Applied Water International and Specialty Flow Control businesses, including beverage and marine operations, as part of a broader portfolio restructuring.
The company will transition to a three-segment reporting structure effective Jan. 1, 2027.
The businesses slated for divestiture account for about 9% of revenue but less than 5% of EBITDA. The changes are expected to reduce China’s share of company revenue to 1% from 2%.
Beginning in 2027, Xylem plans to direct capital toward higher-growth, higher-margin markets through its three reporting segments.
The company also secured an ultrapure water treatment project for a leading semiconductor manufacturer’s fabrication facility in the United States.
Separately, Xylem is expanding its relationship with Amazon.com, Inc. (NASDAQ:AMZN) to provide water treatment solutions for data centers worldwide.
Xylem Cuts 2026 Guidance
Xylem lowered its full-year adjusted earnings guidance to $5.40 to $5.45 per share from its previous forecast of $5.55 to $5.70. The revised outlook falls below the analyst consensus estimate of $5.66 per share.
The company also reduced its 2026 revenue forecast to $8.95 billion from $9.2 billion, compared with Wall Street expectations of $9.191 billion.
Xylem now expects flat organic revenue growth, down from its previous forecast of 2% to 3% growth.
Adjusted EBITDA margin is projected to reach 23.2%, an improvement of 100 basis points. Free cash flow margin is expected to be 10.2%, at the low end of the company’s previous guidance range.
Fourth-Quarter Outlook Falls Short of Estimates
For the fourth quarter, Xylem expects adjusted earnings of $1.39 to $1.44 per share, below the analyst consensus estimate of $1.63.
The company forecasts revenue of $2.3 billion, compared with expectations of $2.446 billion.
Revenue is expected to decline 5% from a year earlier, with organic revenue falling 1% to 2%. Adjusted EBITDA margin is projected to reach 24.5%, up 130 basis points.
Measurement and Control Solutions revenue is expected to decline sequentially before stabilizing. Water Solutions and Services is projected to return to low-single-digit growth despite continued timing challenges involving large projects.
XYL Price Action: Xylem shares were down 11.79% at $95.47 at the time of publication on Tuesday. The stock is trading at a new 52-week low, according to Benzinga Pro data.
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