Xylem lowers 2026 adjusted EPS outlook as it plans to sell two businesses

Xylem Inc. (XYL) said Tuesday it earned $1.25 per share in the third quarter of 2026, up 34% from a year earlier, and lowered its full-year adjusted earnings forecast. The water solutions company also said it intends to divest two businesses and move to three reporting segments in 2027.

Revenue was $2,201 million, down 3% on a reported basis and flat on an organic basis. Organic figures exclude currency effects, acquisitions and divestitures.

Orders rose 7% on a reported basis to $2.3 billion, and 10% organically. The company said project timing and more cautious spending decisions weighed on revenue, while strong order activity and solid earnings performance showed the resilience of the business.

Third-quarter results

Here's how the company did:

• Earnings per share: $1.25 vs. $0.93 a year earlier, up 34%
• Adjusted earnings per share: $1.44 vs. $1.37 a year earlier, up 5%
• Revenue: $2,201 million vs. $2,268 million a year earlier, down 3%
• Orders: $2,331 million vs. $2,181 million a year earlier, up 7%

Net income attributable to Xylem was $291 million, against $227 million a year earlier. Net income margin rose 320 basis points to 13.2%.

The company said the gain came mainly from strong operational performance and a smaller loss on sale of businesses, which was $5 million against $37 million a year earlier. Higher interest expense of $21 million, against $6 million, and income tax expense of $77 million, up from $71 million, partly offset those gains.

Restructuring and realignment costs fell to $14 million from $31 million.

Adjusted net income attributable to Xylem was $336 million, or $1.44 per share. The adjusted measure excludes purchase accounting intangible amortization, losses on sale of businesses, restructuring and realignment costs, and special charges.

Special charges were $10 million of acquisition, divestiture and integration costs, offset by $33 million of refunds of tariffs imposed under the International Emergency Economic Powers Act, or IEEPA.

Adjusted EBITDA margin, or earnings before interest, taxes, depreciation and amortization as a share of revenue, was 23.9%. That is up 70 basis points.

The company said productivity savings and strong price realization drove the expansion, more than offsetting inflation, lower volumes and mix.

Here's how the company's segments did during the quarter. These are the four segments in place this year:

• Applied Water: revenue $489 million vs. $456 million a year earlier, up 7%; organic revenue up 9%
• Measurement and Control Solutions: revenue $436 million vs. $522 million, down 16%; organic orders up 30%
• Water Infrastructure: revenue $645 million vs. $656 million, down 2%
• Water Solutions and Services: revenue $631 million vs. $634 million

Full-year 2026 outlook

Xylem now forecasts full-year 2026 revenue of approximately $8.95 billion, down 1% on a reported basis. Its prior guidance was up 2%.

On an organic basis, the company now expects revenue to be flat, against prior guidance of up 2% to 3%.

Full-year adjusted EBITDA margin is expected to be approximately 23.2%, an increase of 100 basis points from 2025 adjusted results. Adjusted earnings per share are now expected at $5.40 to $5.45, down from the previous range of $5.55 to $5.70.

Free cash flow margin is expected at approximately 10.2%, against a previous range of 10.2% to 11.0%. The company said it provides earnings guidance only on a non-GAAP basis because certain items, such as discrete tax items, are hard to forecast without unreasonable effort.

Planned divestitures and new segments

Xylem said it intends to divest Applied Water International and Specialty Flow Control. The company said the moves are designed to create a more focused company aligned around customer needs and long-term growth priorities.

The filing gives no price, buyer or closing timetable. The company retains sole discretion over whether and when to pursue or complete either sale.

Beginning January 1, 2027, the company will organize into three segments: Treatment and Services, Flow Solutions, and Measurement and Analytics. Treatment and Services will be led by Rodney Aulick, Flow Solutions by Joe Johnston, and Measurement and Analytics by Meredith Emmerich.

CEO Matthew Pine said in the statement: “We’re moving with urgency to shape Xylem around the markets where our capabilities can deliver the greatest customer value and strongest long-term growth.”

Xylem already sees momentum in data centers and microelectronics, the company said, and plans to increase investment and exposure in those markets.

Water Infrastructure executive departure

Hayati Yarkadas will cease to serve as Executive Vice President and President, Water Infrastructure effective January 1, 2027, the company said in a regulatory filing. The change follows the decision to eliminate the Water Infrastructure segment.

Yarkadas will stay employed through a transition period and lead the planned divestitures. His employment is expected to end involuntarily without cause on the earlier of March 31, 2028 or the closing of the last divestiture. The parties may extend that date in writing if closings are delayed.

During the transition period he will receive a base salary at an annual rate of CHF 557,469, prorated, and a special cash success incentive of $1.2 million. The incentive is payable after the final divestiture closes, and it is not payable if he resigns voluntarily or is terminated for cause before the separation date.