Solid Q1 Profitability and EPS Growth
Q1 adjusted EBITDA margin of 20.6%, up 20 basis points year-over-year; GAAP/adjusted EPS of $1.12, a 9% increase versus prior year.
April 28th, 2026
Summary
- Earnings Call Date:
- 2026-04-28
- Change Since:
- -4.61%
- Next Earnings Date:
- 2026-08-04
Earnings Call Sentiment
PositiveThe earnings call conveyed a cautiously optimistic tone: the company delivered stable top-line results and improved profitability in Q1, reported notable commercial achievements (strong backlog, book-to-bill >1, a record $850M WSS contract), executed meaningful shareholder returns (>$580M buybacks, dividend increase), and advanced strategic M&A to enhance analytics capabilities. Offsetting these positives were material near-term headwinds: flat revenue and orders overall, a sharp ~30% decline in China (a concentrated near-term drag), MCS timing and margin pressure, and impacts from 80/20 simplification actions. Management maintained full-year organic growth guidance (2%–4%) and raised reported revenue guidance modestly while projecting margin expansion, signaling confidence in a stronger back half. Given the weight of the operational and financial positives, balanced against distinct near-term regional and timing challenges, the call leans positive.
Company Guidance
Xylem reaffirmed a constructive 2026 outlook, guiding full‑year reported revenue of $9.2–$9.3 billion (up from $9.1–$9.2B) implying 2–3% reported growth and unchanged organic growth of 2–4%, with adjusted EBITDA margin of 22.9–23.3% (70–110 bps expansion vs. prior year) and EPS unchanged at $5.35–$5.60. For Q2 management expects reported revenue growth of 2–3% (roughly 1% organic), EBITDA margin of ~22–22.5% (up 20–70 bps) and EPS of $1.31–$1.36; they noted MCS EBITDA will be down year‑over‑year in Q2 but improve sequentially and return to margin expansion in H2 (exiting the year post‑divestiture well in excess of 25% EBITDA). Quarterly and balance‑sheet context: Q1 revenue was flat, Q1 EBITDA margin was 20.6% and Q1 EPS was $1.12 (+9%), backlog ended at $4.7 billion with book‑to‑bill >1, net debt/adjusted EBITDA was 0.6x after $581M of buybacks under a $1.5B repurchase authorization, free cash flow was positive with a long‑term target of low‑double‑digit FCF margin, and the metering divestiture is now expected to close at the end of Q2.
Backlog and Book-to-Bill Strength
Ending backlog increased sequentially to $4.7 billion and company book-to-bill for the quarter was above 1, indicating healthy demand and order intake relative to shipments.
Targeted Segment Order Growth
Measurement & Control Solutions (MCS) orders up 15% year-over-year; Water Infrastructure orders up 2%; Applied Water orders up 2%, with Applied Water book-to-bill well above 1.
Capital Deployment and Shareholder Returns
Announced $1.5 billion repurchase authorization and executed $581 million of repurchases in Q1; dividend increased by ~8% in January; net debt to adjusted EBITDA ~0.6x after repurchases.
Strategic M&A and Technology Expansion
Signed acquisition of a German water-quality instruments firm for $219 million to expand high-margin optical sensing and analytics capabilities; M&A pipeline targeted to support ~$1 billion annual deployment ambition.
Record WSS Order and Long-Term Services Win
WSS booked its largest order ever in April — an $850 million outsourced water contract (approximately 75% service, 25% capital); ~10% of contract value recognized this year, service tail starts in 2028.
Confirmed Full-Year Targets and Margin Expansion
Updated full-year reported revenue guidance raised to $9.2–9.3B (was $9.1–9.2B); organic revenue growth maintained at 2%–4%; EBITDA margin guidance 22.9%–23.3% (70–110 bps expansion year-over-year).
Positive Cash Generation and Working Capital Focus
Free cash flow was positive in Q1 (despite restructuring and higher CapEx); management reiterated commitment to low double-digit free cash flow margin in long-term framework and ongoing working capital efficiency improvement.
Operator
Welcome to Xylem Inc.'s first quarter 2026 results conference call. All participants will be in listen-only mode. You may press star, then 1 on your telephone keypad. Note this event is being recorded. I would now like to turn the conference over to Mr. Michael Travers, Senior Director of Investor Relations. Please go ahead.
Michael Travers
Thank you, operator. Good morning, everyone, and welcome to Xylem Inc.'s first quarter 2026 earnings call. With me today are Chief Executive Officer, Matthew Pine, and Chief Financial Officer, Bill Grogan. They will provide their perspectives on Xylem Inc.'s first quarter results and discuss the second quarter and full year 2026 outlook. Following our prepared remarks, we will address questions related to the information covered on the call. I will ask that you please keep to one question and a follow-up, and then return to the queue. As a reminder, this call and our webcast are accompanied by a slide presentation available in the Investors section of the website. A replay of today's call will be available until midnight, May 12, and will be available for playback via the Investors section of our website under the heading Investor Events.
Please turn to slide two. We will make some forward-looking statements on today's call, including references to future events or developments that we anticipate will or may occur. These statements are subject to risks and uncertainties such as those factors described in Xylem Inc.'s most recent annual report on Form 10-K and in subsequent reports filed with the SEC. Please note that the company undertakes no obligation...
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