Xylem 2025-26: EBITDA 22-23%, FY26 EPS $5.35-$5.60, 80/20 Live
FY25 revenue $9.04B (+6%); op income $1.22B (+21%); NI $957M (+8%); EPS $3.92. Q4 record EBITDA margin north of 23% / +200bp YoY / EPS +23%. MCS orders +22%; AMI driving. WI margin +510bp Q4. WSS margin 23.9%. Divested int'l metering ($125M). Acquired Vacom + Envirex. FY26 guide: revenue $9.1-$9.2B / 2-4% organic; EBITDA margin 22.9-23.3% (+70-110bp); EPS $5.35-$5.60.
Key takeaways
- Q4 record EBITDA margin >23% / +200bp YoY / +23% EPS growth. Operating model transformation Phase 1 delivered. Phase 2 entering — strengthening growth engine via Salesforce + product management + innovation.
- MCS smart metering orders +22% Q4. AMI demand robust. Backlog ~$1.4B finishing year. EBITDA margin +310bp Q4 to 20.2% — significant inflection.
- Water Infrastructure +510bp EBITDA margin Q4. Best-in-class margin acceleration. Revenue flat but US +strong double-digit offsets ~30% China decline. The international metering divestiture ($125M proceeds) clean-up complete.
- 80/20 simplification accelerating. Customer + product simplification driving short-term top-line headwind but higher quality earnings. The "phase 2" growth engine pivot is the structural story.
- FY26 guide: revenue +2-4% organic, EBITDA margin 22.9-23.3% (+70-110bp), EPS $5.35-$5.60 (+10-14%). Continued margin expansion + 80/20 trade-off + Vacom/Envirex contribution.
Business
Xylem Inc. is the global #1 water + wastewater equipment + services provider. Four reportable segments:
- Measurement & Control Solutions (MCS) (~25% of revenue). Smart metering + water analytics + energy meters. Orders +22% Q4 FY25. EBITDA margin 20.2% Q4 (+310bp). Backlog $1.4B. International metering divested for $125M.
- Water Infrastructure (~28%). Water + wastewater pumps + treatment + transport. Orders -1% Q4 (vs tough comp); revenue flat; EBITDA margin +510bp. China utility market softness offset by strong US.
- Applied Water (~22%). Commercial buildings + agriculture + irrigation. Orders +5% Q4; revenue +3%; EBITDA margin +60bp.
- Water Solutions & Services (WSS) (~25%). Outsourced operations + treatment + analytics. Orders +7% Q4; revenue +4%; EBITDA margin 23.9% (+110bp). Evoqua integration complete.
Strategic moves FY25:
- 80/20 Phase 2 growth engine launch
- Vacom + Envirex acquired (advanced treatment)
- International metering business divested ($125M; closes early 2026)
- 1B liters water saved via Amazon Mexico City partnership (Vue analytics)
- Operating model transformation Phase 1 complete
- Sustainability: 2025 goals exceeded; 2030 goals raised
FY25 financial performance
| Metric (FY) | 2022 | 2023 | 2024 | 2025 |
|---|---|---|---|---|
| Revenue ($B) | 5.52 | 7.36 | 8.56 | 9.04 |
| Revenue YoY | n/a | +33% | +16% | +6% |
| Op income ($B) | 0.62 | 0.65 | 1.01 | 1.22 |
| Op margin | 11.3% | 8.9% | 11.8% | 13.5% |
| Net income ($M) | 355 | 609 | 890 | 957 |
| Diluted EPS ($) | 1.96 | 2.79 | 3.65 | 3.92 |
| FCF ($M) | 388 | 566 | 942 | 910 |
| Capex ($M) | -208 | -271 | -321 | -331 |
| Total debt ($B) | 1.95 | 2.39 | 2.13 | 1.94 |
| Dividends ($M) | -217 | -299 | -350 | -391 |
| Buyback ($M) | -52 | -25 | -20 | -15 |
The earnings progression: revenue 4-yr CAGR ~13% (Evoqua acquisition lapped); op margin 11% → 13.5% (+250bp); EPS $1.96 → $3.92 (+100% over 3 years). Revenue +6% FY25 reflects 80/20 simplification trade-off (top-line headwind / margin expansion).
Capital allocation
- Capex: $-331M FY25 (3.7% of revenue, +3% YoY).
- Dividends: $-391M FY25 (+12% YoY). $1.51/share annual; consistent raise.
- Buybacks: $-15M FY25 (modest; capital deployed for M&A).
- M&A: Vacom (zero liquid discharge); Envirex (advanced treatment); int'l metering divested ($125M).
- Debt: $1.94B (-9% YoY). Healthy balance sheet.
- FCF: $910M (-3%).
FY26 outlook (per Q4 2025 call, 2026-02-10)
| FY26 framework | Detail |
|---|---|
| Revenue | $9.1B to $9.2B |
| Organic growth | +2% to +4% |
| EBITDA margin | 22.9% to 23.3% (+70-110bp) |
| Adj EPS | $5.35 to $5.60 (+10-14%) |
| Q1 FY26 reported revenue | +1-2% (flat organic) |
| Q1 FY26 EBITDA margin | ~20.5-21% |
| Q1 FY26 EPS | $1.06 to $1.11 |
The +10-14% EPS guide on +2-4% revenue reflects strong operating leverage driven by 80/20 + Phase 2 growth engine + Evoqua/Vacom/Envirex acquisitions.
Key risks
- 80/20 short-term top-line headwind. Customer/product simplification creates revenue headwind. FY26 +2-4% organic vs +4-5% FY25 reflects this trade-off.
- China softness. Q4 ~30% decline in China water infra. Macro + competitive dynamics.
- Tariff uncertainty. Q2 raised guide based on current tariff levels; regime change risks.
- Project timing volatility (MCS). Smart metering order lumpiness; backlog conversion timing matters.
- Macro / FX. Multi-currency global business; ~50% non-US revenue.
- Phase 2 execution. Operating model transformation depends on Salesforce + innovation execution.
Bottom line
XYL FY25 is the operating model transformation payoff: Q4 record EBITDA margin >23%, +23% EPS growth, MCS orders +22%, WI margin +510bp, WSS 23.9% margin. 80/20 + Evoqua integration + Vacom/Envirex acquisitions = structural margin compounding. FY26 guide of $5.35-$5.60 EPS (+10-14%) on +2-4% revenue confirms operating leverage thesis. Risks are 80/20 trade-off + China + tariffs + project timing. Quality water infrastructure compounder mid-transformation.
Citations
- Xylem Inc. FY25 Form 10-K (filed February 2026, SEC EDGAR).
- XYL Q4 2025 earnings call, 2026-02-10 — record Q4 EBITDA margin >23% / +200bp YoY / +23% EPS; MCS orders +22% (AMI); WI +510bp margin; WSS 23.9% margin; FY26 guide ($5.35-$5.60 EPS, $9.1-$9.2B revenue, 22.9-23.3% margin).
- XYL Q3 2025 earnings call, 2025-10-28 — record EBITDA margin 23%; FY guide raised; int'l metering divestiture announced ($125M); Amazon Mexico City partnership.
- XYL Q2 2025 earnings call, 2025-07-31 — Q2 EBITDA margin 21.8% (+100bp); MCS +12% organic; FY EPS guide raised $4.70-$4.85; Vacom + Envirex.
- XYL Q1 2025 earnings call, 2025-04-29 — 80/20 launched; Evoqua synergies ahead; Baycom acquired (zero liquid discharge); FY guide $4.50-$4.70.
- Internal financial_statements view (consolidated annual + cash flow + capital structure).