Xylem Inc. (XYL)

Xylem is a leading global water technology company operating in the water industry, which faces serious challenges including less than 1% of total water available on earth being fresh water, supply threatened by draining of aquifers, increased pollution and changing climate patterns, and demand rising rapidly due to population growth, industrial expansion, and increased agricultural development, with consumption estimated to double every 20 years. It is expected that there will be a 40% gap between global water supply and demand by 2030. In the U.S., deteriorating pipe systems, theft or inaccurate meters result in approximately one out of every five gallons of treated and transported water being lost prior to reaching the end customer. It is estimated that approximately 4% of the world's electricity is used to move and transport water. The total addressable market size of the global water industry, excluding operational expenditures related to labor, energy, and chemicals, is estimated to be approximately $800 billion. The water industry value chain includes Equipment, Technology and Services companies that address the unique challenges of a diverse customer base including water and wastewater utilities, engineering, procurement and construction firms, and third-party contractors.

Xylem has differentiated market positions in core applications including transport and dewatering, process water and wastewater treatment, analytics, smart metering, digital software solutions and comprehensive services. The company possesses a unique set of global assets including market-leading brands, some of which have been in use for more than 100 years, global distribution networks consisting of direct sales forces and independent channel partners serving a diverse customer base in approximately 150 countries, a substantial global installed base of products and solutions across the water cycle that provides for steady parts, replacement and service revenue, a strong history of providing innovative products, services, solutions and business models to customers, a dedicated, experienced, qualified and technologically advanced group of employees, a strong financial position and cash generation profile, and a demonstrated commitment to corporate governance, social and environmental sustainability. The industry is highly competitive, with competition based on brand recognition, product quality, price, and innovation. Given the highly fragmented nature of the water industry, the Water Infrastructure segment competes with a large number of businesses and no one business competes across all the markets it serves. Competition in the Applied Water segment focuses on brand reputation, application expertise, product delivery, performance and energy efficiency, quality, reliability and price. The Measurement and Control Solutions segment differentiates itself by focusing on its communication network, innovation, new product development and service offerings. The Water Solutions and Services segment reaches customers across industrial vertical markets such as life sciences, microelectronics, food and beverage, chemical processing and power generation, and various municipalities.

Xylem generates revenue by designing, manufacturing and servicing engineered products and solutions across a wide variety of critical applications, primarily in the water sector. The company's broad portfolio of products, services and solutions addresses customer needs of scarcity, resilience, quality, and affordability across the water cycle, from the delivery, treatment, measurement and use of drinking water, to the collection, testing, analysis and treatment of wastewater, to the return of water to the environment. Revenue is generated from both products and services, with product revenue of $7,472 million ¹ and service revenue of $1,563 million ² in 2025. The company serves a diverse customer base including water and wastewater utilities, industrial facilities such as food and beverage and pharmaceutical manufacturers, and residential and commercial customers. Xylem sells through a combination of direct channels, indirect channels and service capabilities, with the Applied Water segment providing the majority of its sales through strong indirect channels and the Measurement and Control Solutions segment conducting the majority of its sales in North America through strong, long-standing relationships with leading distributors and dedicated channel partners. No individual customer accounted for more than 5% of consolidated revenues in 2025, 2024 or 2023.

Xylem operates through four reportable business segments. The Water Infrastructure segment, with 2025 revenue of $2,636 million ³, serves the water infrastructure sector with pump systems that transport water from aquifers, lakes, rivers and seas, with filtration, ultraviolet and ozone systems that provide treatment, and pumping solutions that move wastewater and storm water to treatment facilities. This segment's major products include water and wastewater pumps, filtration, disinfection and biological treatment equipment, with major brands including Flygt, Ionpure, Leopold, Neptune Benson, Sanitare, Wallace & Tiernan, and Wedeco. The segment is organized into two applications: Transport, which generated $1,556 million ⁴ in 2025, and Treatment, which generated $1,080 million ⁵ in 2025. The Applied Water segment, with 2025 revenue of $1,849 million ⁶, encompasses the uses of water to serve building solutions and industrial water end markets, with products including pumps, valves, heat exchangers, controls, and dispensing equipment systems, under brands such as Bell & Gossett, Flojet, Goulds Water Technology, Jabsco, Lowara, and Rule. This segment is organized into Building Solutions, which generated $1,037 million ⁷ in 2025, and Industrial Water, which generated $812 million ⁸ in 2025.

The Measurement and Control Solutions segment, with 2025 revenue of $2,086 million ⁹, develops advanced technology solutions that enable intelligent use, optimization and conservation of critical water and energy resources, delivering communications, smart metering, measurement and control capabilities and critical infrastructure technologies. Major products include smart meters, network communication devices, data analytics, test instruments, controls, sensor devices, software and managed services, and critical infrastructure services, under brands including Ebro, Sensus, Sentec, Smith Blair, WTW, YSI, and Xylem Vue. This segment is organized into Smart Metering and Other, which generated $1,726 million ¹⁰ in 2025, and Analytics, which generated $360 million ¹¹ in 2025. The Water Solutions and Services segment, with 2025 revenue of $2,464 million ¹², provides tailored services and solutions including on-demand water, outsourced water, recycle/reuse, specialty dewatering and emergency response service alternatives, as well as equipment systems for industrial needs, full-scale outsourcing of operations and maintenance, and municipal services including odor and corrosion control services and pipeline assessment services. Major products include preventative maintenance services, rapid response mobile services, digitally enabled/outsourced solutions, process and wastewater treatment systems, environmental remediation, odor and corrosion control, filtration, reverse osmosis, continuous deionization, and mobile dewatering equipment and rental services, under brands including Godwin, Grindex, and Mar Cor. This segment is organized into Capital and Other, which generated $1,459 million ¹³ in 2025, and Services, which generated $1,005 million ¹⁴ in 2025.

During 2025, Xylem completed several acquisitions and divestitures. On January 31, 2025, the company acquired Simply Clean Air and Water, Inc., a water service company specializing in high-purity water systems for life sciences and pharmaceutical markets, for a net cash acquisition price of $7 million ¹⁵. On July 23, 2025, Xylem acquired 100% ownership interest in EMX Holdings, Inc. and its subsidiary EnviroMix, which provides mixing and process control products and services, for total fair value of consideration transferred of $106 million ¹⁶, which was paid in cash on closing date. On December 2, 2025, Xylem acquired Pac Machine Company, a leading distributor specializing in the sale, rental and service of pumps, generators, and other dewatering equipment, for total fair value of consideration transferred of $63 million ¹⁷ ($59 million ¹⁸ net of cash). On February 7, 2025, Xylem completed the divestiture of the Evoqua Magneto business for a cash selling price of $61 million ¹⁹ ($48 million ²⁰ net of cash transferred). The company also completed certain other divestitures generating aggregate cash proceeds of approximately $1 million ²¹. On September 27, 2025, the company signed an agreement to sell the international metering business, a part of the Measurement and Control Solutions segment, and recorded a loss on assets held for sale of $23 million ²². Additionally, at the beginning of the second quarter of 2025, Xylem acquired Vacom Systems, LLC, a wastewater treatment company, for total cash consideration of $42 million ²³, of which $37 million ²⁴ was paid at closing, with an earn out of 5% ²⁵ royalty on future revenue with a maximum pay out of $25 million ²⁶. Restructuring charges were $95 million ²⁷ in 2025, primarily related to simplification actions informed by 80/20 principles, with additional planned reductions of 1,605 ²⁸ employee positions and actual reductions and reversals of 1,463 ²⁹ positions. As a result of actions initiated in 2025, the company achieved savings of approximately $29 million ³⁰ in 2025 and estimates annual future net savings beginning in 2026 of approximately $80 million to $120 million ³¹. Dividends per share paid to shareholders increased 11% ³² in 2025.

Xylem reported revenue of $9,035 million ³³ for 2025, an increase of $473 million ³⁴, or 5.5% ³⁵, from $8,562 million ³⁶ reported in 2024. The increase consisted of organic growth of $419 million ³⁷ and favorable foreign currency impacts of $71 million ³⁸, partially offset by net revenue declines from acquisitions and divestitures of $17 million ³⁹. Operating income for 2025 was $1,223 million ⁴⁰, reflecting an increase of $214 million ⁴¹, or 21.2% ⁴², compared to $1,009 million ⁴³ in 2024. Operating margin was 13.5% ⁴⁴ in 2025, up 170 basis points ⁴⁵ from 11.8% ⁴⁶ in 2024. Net income attributable to Xylem was $957 million ⁴⁷, or $3.92 ⁴⁸ per diluted share, up 7.4% ⁴⁹ from $890 million ⁵⁰ in 2024. On an adjusted basis, net income attributable to Xylem was $1,240 million ⁵¹, or $5.08 ⁵² per diluted share, up 19.0% ⁵³ from 2024. Net cash provided by operating activities was $1,241 million ⁵⁴, down 2% ⁵⁵ from 2024, and free cash flow was $910 million ⁵⁶, down 3% ⁵⁷ from 2024. Orders were $8,904 million ⁵⁸, up 2.0% ⁵⁹ from $8,730 million ⁶⁰ in 2024. Total backlog was $4,615 million ⁶¹ at December 31, 2025, compared to $5,070 million ⁶² at December 31, 2024, a decrease of 9.0% ⁶³.

Management anticipates total revenue growth of 1% to 3% ⁶⁴ in 2026, with organic revenue growth anticipated to be in the range of 2% to 4% ⁶⁵.

A significant growth vector is the Measurement and Control Solutions segment, which develops advanced technology solutions that enable intelligent use, optimization and conservation of critical water and energy resources. This segment delivers communications, smart metering, measurement and control capabilities and critical infrastructure technologies that allow customers to more effectively use their distribution networks for the delivery, monitoring and control of critical resources such as water, electricity and natural gas. The segment's smart metering business is well positioned in the North America smart metering sector, which is described as the fastest growing sector of the global meter industry. Macro growth drivers for this segment include increasing regulation, aging infrastructure, optimizing operational costs and worldwide movement towards smart grid implementation and advanced metering infrastructure. Water scarcity and conservation, as well as the need to prevent revenue loss via inaccurate meter readings, leaks or theft, are among the drivers of smart meter and leak detection technologies. The segment's digital software solutions, including the Xylem Vue platform, complement these offerings with intelligent applications that help utility decision-makers manage and maintain their networks more effectively in real time.

Another major growth vector is the Water Solutions and Services segment, which provides tailored services and solutions including on-demand water, outsourced water, recycle/reuse, specialty dewatering and emergency response service alternatives. Macro growth drivers for this segment include water scarcity, emerging contaminants, increasing regulation surrounding climate and energy efficiency, pressure to optimize energy efficiency and other operational costs, and demand arising from emergency response needs. The segment reaches customers across industrial vertical markets such as life sciences, microelectronics, food and beverage, chemical processing and power generation, and various municipalities, leveraging application expertise in process water and wastewater treatment, internal and external partners, and extensive service branch networks across the globe including a rental fleet of transfer and treatment assets. The Water Infrastructure segment also has growth drivers including the need for efficient transport and treatment solutions due to the increase in water scarcity and electricity costs, the increase in both the type and amount of contaminants found in the water supply, the need to increase system resilience and efficiencies due to aged infrastructure and affordability, increasing environmental regulations, and the need to reduce carbon emissions generated from transporting and treating water.

Operating margin expansion in 2025 included unfavorable impacts of 10 basis points ⁶⁶ from a net increase in restructuring and realignment costs, acquired intangible asset amortization, and special charges as compared to the prior year. Additionally, operating margin included 540 basis points ⁶⁷ of expansion from favorable operating impacts, driven by a 330 basis point ⁶⁸ increase from productivity savings and 190 basis points ⁶⁹ from price realization. Margin expansion was offset by 360 basis points ⁷⁰ of unfavorable impacts driven by 240 basis points ⁷¹ of inflation and 50 basis points ⁷² of unfavorable mix. Excluding restructuring and realignment costs, acquired intangible asset amortization, and special charges, adjusted operating income was $1,612 million ⁷³ (adjusted operating margin of 17.8% ⁷⁴) for 2025 as compared to adjusted operating income of $1,373 million ⁷⁵ (adjusted operating margin of 16.0% ⁷⁶) during the prior year. Adjusted EBITDA was $2,009 million ⁷⁷ (adjusted EBITDA margin of 22.2% ⁷⁸) for 2025, an increase of $246 million ⁷⁹, or 14.0% ⁸⁰, when compared to adjusted EBITDA of $1,763 million ⁸¹ (adjusted EBITDA margin of 20.6% ⁸²) for the prior year. The company is engaged in an ongoing, multi-year effort to transform its operating model, including its businesses and supporting functions, and has initiated related restructuring and realignment actions. Starting in 2024, the company launched initiatives focused on improving margins and customer centricity through a range of business simplification, strategic pricing and productivity measures across its offerings, operations and customer base.

Xylem has a global manufacturing and assembly footprint, with production facilities in Europe, North America, Latin America, Asia and the Middle East. The company relies on a large and complex network of suppliers and indirect suppliers, contract manufacturers and subcontractors globally, including in China, Taiwan, Mexico and Europe. Parts, components and raw materials commonly used in products include motors, fabricated parts, castings, magnets, bearings, seals, batteries, printed circuit boards and electronic components including semiconductors, as well as commodities including steel, brass, nickel, copper, aluminum, rare earth minerals and plastics. The company has experienced price volatility and supply constraints when materials have not been available from multiple sources. From time to time, the company acquires certain inventory in anticipation of supply constraints or enters into longer-term pricing commitments with suppliers to improve the priority, price and availability of supply. The company is engaged in an ongoing, multi-year effort to transform its operating model, including modernizing its systems by standardizing key enterprise applications. As of December 31, 2025, Xylem employed approximately 22,000 ⁸³ employees worldwide, with approximately 9,000 ⁸⁴ in the U.S., 7,000 ⁸⁵ in western Europe, and 5,000 ⁸⁶ in the emerging markets, with the remaining 1,000 ⁸⁷ in other geographies.

Research and development is a key foundation of the company's growth strategy, with R&D expense of $226 million ⁸⁸ in 2025, or 2.5% ⁸⁹ of revenue. Capital expenditures were $331 million ⁹⁰ in 2025. Dividends per share paid to shareholders increased 11% ⁹¹ in 2025. In the first quarter of 2026, the company declared a dividend of $0.43 ⁹² per share to be paid on March 24, 2026 to shareholders of record on February 24, 2026. As of December 31, 2025, there were up to $182 million ⁹³ in shares that may still be purchased under the share repurchase program authorized on August 24, 2015, which authorized the repurchase of up to $500 million ⁹⁴ in shares with no expiration date. The company has available liquidity of approximately $2.5 billion ⁹⁵, consisting of $1.5 billion ⁹⁶ of cash and $1 billion ⁹⁷ of available credit facilities.

The company faces structural headwinds from inflation, tariffs, customs duties, and other manufacturing and operating cost increases or fluctuations. Manufacturing and operating costs fluctuate with volatility in the prices of commodities, parts, raw materials, energy, utilities, freight, logistics, and labor, driven by factors such as inflation, tight labor markets, exchange rates, trade agreements, tariffs and other trade protection measures, and other macroeconomic, political or geopolitical factors. The U.S. has enacted or threatened various trade actions, including tariffs on goods imported from China, Mexico, Canada, Europe and other countries, which has or may result in retaliatory measures. On August 29, 2025, the U.S. Court of Appeals for the Federal Circuit ruled that many of the tariffs imposed by the U.S. federal government under the International Emergency Economic Powers Act exceed presidential authority and therefore are invalid. On February 20, 2026, the U.S. Supreme Court affirmed that ruling. U.S. and international trade actions could increase the cost of products, which the company may not be able to offset through pricing or productivity, and could impair competitiveness. The company also faces headwinds from foreign currency exchange rate fluctuations, with sales outside the U.S. accounting for approximately 42% ⁹⁸ of net sales in 2025, and principal currency exposures including the Euro, Swedish Krona, Canadian Dollar, Polish Zloty, British Pound and Australian Dollar.

Geopolitical, regulatory, economic, foreign exchange and other risks associated with global sales, supply chain and operations may adversely affect the business. In 2025, 58% ⁹⁹ of total revenue was from sales to U.S. customers and 42% ¹⁰⁰ was from sales to customers outside the U.S. The company's operations, supply chain and sales both within the U.S. and internationally are subject to risks including nationalism, populism, protectionism, anti-global sentiment and changes in trade protection measures, uncertainty and volatility from the evolving global geopolitical environment, any actual or potential threat, outbreak, uncertainty or escalation of terrorism, political instability, insurrection, war, or other armed conflicts including between Russia and Ukraine and in the Middle East, disruptions in global or regional supply chains, changes to applicable U.S. or host country laws, regulations or policies, and theft, compromise, misappropriation or challenges in protecting technology, intellectual property or data. Geopolitical changes in China-Taiwan relations could disrupt the operations of companies in Taiwan that are critical to the global supply chain for semiconductors and other electronic components, as well as the supply of lithium batteries, carbide seals, and rare earth elements.

Management's message emphasizes that Xylem is a leading global water technology company with 2025 revenues of $9.0 billion ¹⁰⁴ and approximately 22,000 ¹⁰⁵ employees worldwide, and that the company's overarching strategy is to help customers solve the world's greatest water challenges with innovative products, services and solutions to deliver sustainable economic, social and environmental benefits. The five strategic pillars guiding the company are Customer Centricity, Profitable Growth, Operational Excellence, Sustainability Leadership, and High-Impact Culture. Management states that the company anticipates total revenue growth of 1% to 3% ¹⁰⁶ in 2026, with organic revenue growth anticipated to be in the range of 2% to 4% ¹⁰⁷. The company's outlook reflects current visibility and expectations based on the current market environment and other factors. Management emphasizes that the company's strategy firmly embeds sustainability at the heart of its competitive advantage and unique business model and aligns each of its five strategic pillars to the overarching goal of integrating sustainability into everything the company does. The company has established three high-impact pillars of its sustainability efforts: decarbonizing the water sector, accelerating water stewardship, and advancing WASH for all, with 2030 goals designed to drive impact across the value chain and for customers and communities. The company also remains focused on its efforts to reach Net Zero greenhouse gas emissions across its value chain before 2050.

Total revenue was $9,035 million ¹⁰⁸ in 2025, compared to $8,562 million ¹⁰⁹ in 2024 and $7,364 million ¹¹⁰ in 2023. Net income attributable to Xylem was $957 million ¹¹¹ in 2025, compared to $890 million ¹¹² in 2024 and $609 million ¹¹³ in 2023. Diluted earnings per share were $3.92 ¹¹⁴ in 2025, compared to $3.65 ¹¹⁵ in 2024 and $2.79 ¹¹⁶ in 2023. Operating income was $1,223 million ¹¹⁷ in 2025, compared to $1,009 million ¹¹⁸ in 2024 and $652 million ¹¹⁹ in 2023. Gross margin was 38.5% ¹²⁰ in 2025, compared to 37.5% ¹²¹ in 2024. Net cash provided by operating activities was $1,241 million ¹²² in 2025, compared to $1,263 million ¹²³ in 2024. Free cash flow was $910 million ¹²⁴ in 2025, compared to $942 million ¹²⁵ in 2024. Cash and cash equivalents were $1,479 million ¹²⁶ at December 31, 2025, compared to $1,121 million ¹²⁷ at December 31, 2024. Total debt was $1,942 million ¹²⁸ at December 31, 2025, consisting of $534 million ¹²⁹ in short-term borrowings and current maturities of long-term debt and $1,408 million ¹³⁰ in long-term debt, net. Significant one-time items in 2025 included restructuring and realignment costs of $133 million ¹³¹, acquired intangible amortization of $220 million ¹³², special charges of $36 million ¹³³, loss from sale of businesses of $31 million ¹³⁴, and tax-related special items of $52 million ¹³⁵. In 2024, significant one-time items included a gain on remeasurement of previously held equity interest of $152 million ¹³⁶, restructuring and realignment costs of $91 million ¹³⁷, acquired intangible amortization of $216 million ¹³⁸, special charges of $57 million ¹³⁹, loss from sale of businesses of $46 million ¹⁴⁰, and tax-related special items of $19 million ¹⁴¹. For segment performance, Water Infrastructure segment operating income was $462 million ¹⁴² (operating margin of 17.5% ¹⁴³), Applied Water segment operating income was $312 million ¹⁴⁴ (operating margin of 16.9% ¹⁴⁵), Measurement and Control Solutions segment operating income was $244 million ¹⁴⁶ (operating margin of 11.7% ¹⁴⁷), and Water Solutions and Services segment operating income was $302 million ¹⁴⁸ (operating margin of 12.3% ¹⁴⁹).

The company faces material risks from cybersecurity incidents, data breaches, or other disruptions involving its enterprise or operational information technology, connected products and services, or information technology on which it or its customers rely, which could interfere with operations and services, disrupt production, supply chain, shipments, billing, collections and customer service, enable unauthorized access to proprietary information, and trigger product recalls, legal claims, or regulatory actions. The company also faces significant risk from the lack of or delays in availability of products, parts, raw materials, transportation, or energy from its supply chain, with certain key components available only from sole- or single-source suppliers or a limited group of suppliers, and significant direct and indirect suppliers in China, Taiwan, Mexico and Europe. A material risk exists from the potential for impairment charges to goodwill and other indefinite-lived intangible assets, which as of December 31, 2025 totaled approximately $9 billion ¹⁰¹ in net carrying value. The company faces risk from changes in its effective tax rates and tax expenses given its global operations, with 42% ¹⁰² of revenue generated outside the U.S. for the year ended December 31, 2025, and the company is subject to tax examinations by various tax authorities worldwide, including a tax assessment from the Swedish tax authority issued in 2019 regarding aspects of the 2013 reorganization of its European business. Additionally, the company faces risk from foreign currency exchange rate fluctuations, with sales outside the U.S. accounting for approximately 42% ¹⁰³ of net sales in 2025, and principal currency exposures including the Euro, Swedish Krona, Canadian Dollar, Polish Zloty, British Pound and Australian Dollar.