Summary of Xylem's Q2 2026 Earnings Call

1Key Financial Results and Metrics

Revenue: Up 1% year-over-year, totaling approximately $2.3 billion for Q2.

EBITDA Margin: Improved to 23.3%, a 150 basis point increase from the prior year, driven by productivity and pricing strategies.

Earnings Per Share (EPS): Reached a record $1.46, reflecting a 16% increase year-over-year.

Backlog: Ended the quarter at $5.3 billion, with a book-to-bill ratio exceeding 1.

Net Debt to Adjusted EBITDA: Increased to 0.8x due to share repurchases.

Free Cash Flow: Strong performance, contributing to a low-double-digit free cash flow margin target for the year.

2Strategic Updates and Business Highlights

Xylem is focusing on comprehensive water solutions, capitalizing on increased demand from utilities and industrial sectors.

Significant contracts include a long-term partnership with Dow, marking the largest contract in company history, and a 20-year commitment from a major chemical company.

The acquisition of WaterFleet enhances mobile water treatment capabilities, particularly in AI-related infrastructure markets.

The company is actively reshaping its portfolio, having divested over $400 million in assets while acquiring high-growth opportunities.

Notable growth in applied water, particularly driven by data center orders, which surged over 300%.

3Forward Guidance and Outlook

Full-Year Revenue Guidance: Narrowed to approximately $9.2 billion, reflecting 2% growth; organic revenue growth expected to be between 2% and 3%.

EBITDA Margin Guidance: Projected to be between 23.1% and 23.5%, indicating continued margin expansion.

Q3 Expectations: Revenue growth anticipated to be flat on a reported basis and up about 3% organically, with an EBITDA margin of approximately 23.5% to 24%.

EPS Guidance for Q3: Expected to range from $1.42 to $1.47.

4Bad News, Challenges, or Points of Concern

China Market Decline: Revenue from China declined by 27%, attributed to economic headwinds and strategic walkaway actions, which are expected to continue impacting performance.

MCS Segment Challenges: The Measurement and Control Solutions (MCS) segment faced project delays in electric metering, leading to a lowered full-year revenue outlook for this segment to low-single-digit growth.

Market Volatility: Broader market conditions, including geopolitical tensions and inflationary pressures, are being monitored as potential risks to future performance.

5Notable Q&A Insights

Applied Water Growth: The 9% revenue growth in applied water was primarily driven by data center projects, with expectations for continued growth in this area.

MCS Segment Outlook: The decline in electric metering investments has led to a cautious near-term outlook, although long-term growth is expected due to ongoing AMI 2.0 refresh cycles.

Supply Chain Management: Xylem is actively managing supply chain risks, particularly concerning electronic components, with a focus on maintaining safety stock.

80/20 Strategy: The company is nearing the end of its walkaway revenue phase, with expectations for a shift towards more traditional growth strategies by 2027.

M&A Activity: Xylem is actively pursuing M&A opportunities, with a goal of deploying $1 billion in capital, although current valuations are mixed. This summary encapsulates Xylem's financial performance, strategic direction, and market challenges as discussed in the Q2 2026 earnings call.