Xylem Inc.

Xylem Inc. operates as a leading global water technology company, addressing critical water challenges such as scarcity, resilience, quality, and affordability across the water cycle. 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 ¹. The company's vision is to create a world where water issues no longer constrain health, prosperity, and sustainable development, driven by a purpose to empower employees, customers, and communities to build a more water-secure world. The demand for fresh water is projected to double every 20 years, leading to an estimated 40% gap between global water supply and demand by 2030 ². Xylem's solutions aim to streamline the water industry's cost structure through technologies that fundamentally change water provision and management.

Xylem's core business model revolves around designing, manufacturing, and servicing engineered products and solutions primarily for the water sector. The company generates revenue through a broad portfolio of products, services, and solutions that address customer needs from the delivery, treatment, measurement, and use of drinking water to the collection, testing, analysis, and treatment of wastewater, and the return of water to the environment. A substantial global installed base of products and solutions across the water cycle provides for steady parts, replacement, and service revenue. The company serves a diverse customer base in approximately 150 countries ³, including water and wastewater utilities, engineering, procurement, and construction (EPC) firms, third-party contractors, farms, mines, power plants, industrial facilities, and residential and commercial customers.

The company has four reportable business segments: Water Infrastructure, Applied Water, Measurement and Control Solutions, and Water Solutions and Services. The Water Infrastructure segment, with 2025 revenue of $2,636 million ⁴, primarily supports the collection, treatment, and distribution of water, and the treatment and return of wastewater. Its applications include transport ($1,556 million ⁵) and treatment ($1,080 million ⁶), offering products like water and wastewater pumps, filtration, disinfection, and biological treatment equipment. The Applied Water segment, generating $1,849 million ⁷ in 2025 revenue, addresses water usage in building solutions ($1,037 million ⁸) and industrial water ($812 million ⁹) end markets, providing pumps, valves, heat exchangers, controls, and dispensing equipment systems.

The Measurement and Control Solutions segment, with 2025 revenue of $2,086 million ¹⁰, develops advanced technology solutions for intelligent use, optimization, and conservation of water and energy resources. This segment includes smart metering and other applications ($1,726 million ¹¹) and analytics ($360 million ¹²), offering smart meters, network communication devices, data analytics, test instruments, controls, sensor devices, software, and managed services. The Water Solutions and Services segment, which generated $2,464 million ¹³ in 2025 revenue, provides tailored services and solutions, including on-demand water, outsourced water, recycle/reuse, specialty dewatering, and emergency response services. Its offerings include capital and other applications ($1,459 million ¹⁴) and services ($1,005 million ¹⁵), encompassing process and wastewater treatment systems, environmental remediation, and mobile dewatering equipment and rental services.

For the fiscal year ended December 31, 2025, Xylem reported total revenue of $9,035 million ¹⁶, an increase of 5.5% ¹⁷ from $8,562 million ¹⁸ in 2024. Gross profit was $3,475 million ¹⁹, resulting in a gross margin of 38.5% ²⁰, up 100 basis points from 37.5% ²¹ in 2024. Operating income reached $1,223 million ²², an increase of 21.2% ²³ from $1,009 million ²⁴ in 2024, with an operating margin of 13.5% ²⁵, up 170 basis points from 11.8% ²⁶. Net income attributable to Xylem was $957 million ²⁷, or $3.92 per diluted share ²⁸. On an adjusted basis, net income attributable to Xylem was $1,240 million ²⁹, or $5.08 per diluted share ³⁰. Net cash provided by operating activities was $1,241 million ³¹, and free cash flow was $910 million ³². As of December 31, 2025, cash and cash equivalents stood at $1,479 million ³³, total debt was $1,942 million ³⁴, and long-term debt, net, was $1,408 million ³⁵.

Year-over-year, revenue increased by $473 million ³⁶, or 5.5% ³⁷, driven by organic growth of $419 million ³⁸ and favorable foreign currency impacts of $71 million ³⁹, partially offset by net revenue declines from acquisitions and divestitures of $17 million ⁴⁰. Water Infrastructure revenue grew by 3.2% ⁴¹ to $2,636 million ⁴², with organic growth of 3.4% ⁴³. Applied Water revenue increased by 3.1% ⁴⁴ to $1,849 million ⁴⁵, with organic growth of $42 million ⁴⁶. Measurement and Control Solutions revenue saw an 11.5% ⁴⁷ increase to $2,086 million ⁴⁸, including organic growth of $172 million ⁴⁹. Water Solutions and Services revenue grew by 5.2% ⁵⁰ to $2,464 million ⁵¹, with organic growth of $117 million ⁵². Gross margin expanded by 100 basis points ⁵³, primarily due to 230 basis points ⁵⁴ of productivity savings and 140 basis points ⁵⁵ of price realization, partially offset by 190 basis points ⁵⁶ of inflation and 60 basis points ⁵⁷ of unfavorable mix. Operating margin increased by 170 basis points ⁵⁸, with adjusted operating margin expanding by 180 basis points ⁵⁹ to 17.8% ⁶⁰.

During 2025, Xylem completed several operational developments. The company acquired Vacom Systems, LLC for $42 million ⁶¹ in cash, specializing in wastewater treatment evaporator and crystallizer systems, which was accounted for as an asset acquisition. It also acquired Pac Machine Company for $63 million ⁶² ($59 million ⁶³ net of cash) to strengthen its presence in Northern California and Nevada for dewatering equipment. Additionally, Xylem acquired EMX Holdings, Inc. (EnviroMix) for $106 million ⁶⁴ in cash, expanding its treatment offerings. Simply Clean Air and Water, Inc., a high-purity water systems service company, was acquired for $7 million ⁶⁵. In divestitures, Xylem completed the sale of its Evoqua Magneto business for $61 million ⁶⁶ ($48 million ⁶⁷ net of cash transferred), resulting in an $8 million ⁶⁸ loss. The company also signed an agreement to sell its international metering business, reclassifying its assets and liabilities as held for sale and recording a $23 million ⁶⁹ loss. Restructuring charges totaled $95 million ⁷⁰ in 2025, primarily related to simplification actions to streamline the organization.

Xylem anticipates total revenue growth for 2026 to be in the range of 1% to 3% ⁷¹, with organic revenue growth expected to be between 2% and 4% ⁷². This outlook is based on current visibility and expectations within the prevailing market environment.

The company's growth strategy is underpinned by continuous investment in research and development (R&D), focusing on innovative products, services, solutions, and application expertise to meet customer needs and emerging trends. Xylem plans to continue developing and investing in its R&D capabilities to ensure a steady flow of high-quality and reliable products and integrated solutions, further strengthening its market position. This includes leveraging global technical centers, local development teams, piloting and testing facilities, and strategic customer sites. Additionally, Xylem is building innovation ecosystem partnerships with academic institutions, technology firms, start-up accelerators, and venture capital organizations to expand its technological bandwidth and access.

Operationally, Xylem is committed to improving its processes, systems, and capabilities to enhance efficiency and effectiveness, guided by the 80/20 principle to streamline business operations. This includes efforts to enhance throughput, reduce inventory, and improve product quality and customer response time. The company is implementing lean continuous improvement practices to reduce waste and is dedicated to modernizing its systems to support productivity for growth. These initiatives are designed to maintain agile and responsive operations, aligning with strategic objectives through the Xylem Management System and Goal Deployment Process.

Planned capital allocation includes continued investment in R&D, with R&D expense at $226 million ⁷³ or 2.5% ⁷⁴ of revenue in 2025. Capital expenditures for 2025 were $331 million ⁷⁵. The company declared dividends of $1.60 per share ⁷⁶ in 2025, an 11% ⁷⁷ increase from 2024. As of December 31, 2025, there was an approximate dollar value of $182 million ⁷⁸ in shares that may yet be purchased under the existing share repurchase program, which has no expiration date. Xylem anticipates making contributions to its pension and post-retirement benefit plans in the range of $19 million to $25 million ⁷⁹ during 2026, with approximately $6 million ⁸⁰ expected in the first quarter.

Xylem faces material risks stemming from various factors. Geopolitical instability, including nationalism, protectionism, and ongoing international conflicts, can disrupt global supply chains, increase operating costs, and affect demand, particularly given that 42% ⁸¹ of 2025 revenue was from sales outside the U.S. ⁸². Inflation, tariffs, and other manufacturing and operating cost increases, driven by macroeconomic conditions, tight labor markets, and trade protection measures, can adversely affect cash flows and results of operations. The company's reliance on sole- or single-source suppliers for certain key components, including semiconductors and rare earth minerals, makes it vulnerable to supply disruptions. Cybersecurity incidents, data breaches, or other IT disruptions pose significant risks to operations, connected products, and sensitive data, with potential for public health and safety impacts, financial losses, and reputational harm. The company's water and wastewater treatment operations are subject to stringent environmental laws and regulations, and failures in these systems or inadequate handling of emerging contaminants could result in significant liabilities and reputational damage. Furthermore, the availability and regulation of radio spectrum used by a significant portion of the Measurement and Control Solutions segment's offerings present risks, as changes in regulations or interference could necessitate product modifications or limit market access. Weather conditions and changing climate patterns can cause volatility in served markets and demand for products, while sustainability-related laws, regulations, and stakeholder expectations expose the company to operational, reputational, financial, and legal risks if goals are not met or disclosures are inadequate. Legal and regulatory proceedings, including those related to anti-corruption, anti-trust, trade, and data privacy, could result in substantial liabilities, fines, and reputational damage.

Management's message to shareholders emphasizes a commitment to solving global water challenges through innovative products, services, and solutions, aiming to deliver sustainable economic, social, and environmental benefits. The overarching strategy is guided by five strategic pillars: Customer Centricity, Profitable Growth, Operational Excellence, Sustainability Leadership, and High-Impact Culture. For the upcoming period, management specifically anticipates total revenue growth of 1% to 3% ⁸³, with organic revenue growth projected to be in the range of 2% to 4% ⁸⁴. The strategic priorities include enhancing customer value through the 80/20 principle and transactional excellence, driving profitable revenue growth by expanding capabilities and optimizing the product portfolio, and building high-margin recurring revenue in intelligent solutions and services. Operational excellence is a key focus, with continuous improvement in processes and systems to enhance efficiency, reduce waste, and modernize systems. Sustainability leadership is deeply embedded in the strategy, with a strong emphasis on decarbonizing the water sector, accelerating corporate water stewardship, and advancing water, sanitation, and hygiene (WASH) access, supported by ambitious 2030 goals and a Net Zero greenhouse gas emissions target before 2050. Finally, fostering a high-impact culture, characterized by employees inspired to innovate, empowered to lead, and accountable to deliver, is crucial for executing the strategy and driving innovation.