Core Insights - Xylem Inc. reported third-quarter 2025 adjusted earnings of $1.37 per share, exceeding the Zacks Consensus Estimate of $1.24, representing a 23% year-over-year increase [1] - Revenues reached $2.27 billion, surpassing the consensus estimate of $2.22 billion, with a year-over-year growth of 7.8% driven by strong demand across segments [1] - Orders totaled $2.18 billion, reflecting a decrease of 0.9% year over year on a reported basis and 2% on an organic basis [1] Segment Performance - Water Infrastructure segment revenues were $656 million, up 5% year over year, with organic sales also increasing by 5%, exceeding the consensus estimate of $647 million [2] - Applied Water segment generated revenues of $456 million, a 2% year-over-year increase, with organic sales up 1%, slightly below the consensus estimate of $464 million [3] - Measurement & Control Solutions segment revenues totaled $522 million, up 14% year over year, with organic sales increasing by 11%, surpassing the consensus estimate of $503 million [3] - Water Solutions and Services segment revenues reached $634 million, a 10% year-over-year increase, with organic sales also up 10%, exceeding the consensus estimate of $605 million [4] Financial Metrics - Adjusted EBITDA was $527 million, a 17.9% increase from the previous year, with the margin improving to 23.2% from 21.2% [5] - Adjusted operating income rose to $429 million, up 22.6% year over year, with the adjusted operating margin increasing to 18.9% from 16.6% [5] Balance Sheet and Cash Flow - As of the end of the third quarter, Xylem had cash and cash equivalents of $1.19 billion, up from $1.12 billion at the end of December 2024, while long-term debt decreased to $1.91 billion from $1.98 billion [6] - In the first nine months of 2025, net cash generated from operating activities was $698 million, compared to $688 million in the prior year, with capital expenditure increasing by 12.2% to $248 million [7] Shareholder Returns - Xylem paid dividends of $293 million in the first nine months, an 11.4% increase year over year, and repurchased shares worth $14 million, down from $19 million in the previous year [8] 2025 Guidance - The company updated its 2025 revenue outlook to approximately $9.0 billion, indicating a 5-6% increase from the prior year, with adjusted EBITDA margin expected to be around 22-22.3% [10] - Adjusted earnings are forecasted to be in the range of $5.03–$5.08 per share, up from the previous expectation of $4.70 – $4.85, reflecting an increase from $4.27 per share in 2024 [11]

Financial Data and Key Metrics Changes - The company reported a record adjusted EBITDA margin of 21.8%, up 100 basis points year over year [7][12] - Adjusted EPS grew by mid-teens percentage compared to the previous year [7] - Revenue growth was strong at 6% in the quarter, driven primarily by outperformance in Measurement and Control Solutions (MCS) [12][19] - Year-to-date free cash flow decreased by $61 million year over year, mainly due to outsourced water projects and timing of tax payments [13] Business Line Data and Key Metrics Changes - **Measurement and Control Solutions (MCS)**: Orders grew 12% organically, with revenue up 10% driven by energy metering demand [14] - **Water Infrastructure**: Revenue grew 4%, with demand led by treatment solutions, although orders declined by 2% due to funding delays in the UK and Canada [15] - **Applied Water**: Orders rose 4% for the sixth consecutive quarter, with revenue increasing by 5% [16] - **Water Solutions and Services**: Orders increased by 5%, with revenue growth also at 5% [17] Market Data and Key Metrics Changes - Demand for products and solutions remains resilient, particularly in smart metering, which saw double-digit growth [8] - The backlog remains strong across all segments, except MCS, which is being normalized [12] - The company noted ongoing economic challenges in China, with orders down approximately 18% year over year [54] Company Strategy and Development Direction - The company is focused on executing its transformation plan laid out at the Investor Day, which includes simplifying operations and enhancing portfolio for growth [10][22] - Recent acquisitions in advanced treatment are aimed at strengthening the growth engine and enhancing capabilities [26] - The company is committed to mitigating tariff impacts through pricing actions and supply chain adjustments [18] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in delivering strong performance for the remainder of 2025, despite macro uncertainties [20][22] - The company raised its full-year revenue guidance to $8.9 billion to $9.0 billion, reflecting 4% to 5% total growth [19] - Management acknowledged potential impacts from tariffs and FX movements but emphasized strong demand and backlog execution [20] Other Important Information - The company has made significant progress in its simplification initiatives, which have improved productivity and customer responsiveness [9][10] - The integration of Evoqua is ahead of schedule, with strong traction on cost and revenue synergies [22][23] Q&A Session Summary Question: Update on MCS order outlook and destocking - Management noted resilient demand across the board, with expectations for MCS to return to positive book-to-bill by year-end [34] Question: Progress on simplification initiatives - Management reported tracking ahead of the timeline for simplification, with improved decision-making and customer metrics [36] Question: Applied Water segment performance and eightytwenty impact - Management highlighted strong orders and revenue growth, with eightytwenty helping to focus on growth while simplifying operations [48] Question: Municipal utility funding concerns - Management expressed confidence that Congress will appropriate funds to maintain healthy state revolving fund levels, despite concerns [90] Question: MCS legacy energy business margin drag - Management indicated that legacy projects would pressure margins in the near term but expect sequential improvement in Q4 [106]