Xylem (NYSE: XYL) cuts 2026 guidance, plans to sell two businesses

What happened

Xylem Inc. (NYSE: XYL) cut its 2026 revenue and earnings guidance and said it plans to sell Applied Water International and Specialty Flow Control.

The third-quarter release on Oct. 27 blames weaker revenue on project timing and more cautious spending decisions. Orders and margins improved. Xylem will move from four segments to three on Jan. 1, 2027.

Xylem now expects 2026 revenue of about $8.95 billion, down 1% as reported. Prior guidance was up 2%, so the cut is 3 percentage points. Organic revenue is now expected to be flat, versus prior guidance of up 2% to 3%.

Adjusted earnings per share guidance falls to $5.40 to $5.45 from $5.55 to $5.70. That is a cut of $0.15 at the low end and $0.25 at the high end. Free cash flow margin is now expected at about 10.2%, versus 10.2% to 11.0% before.

Key numbers

Metric	Latest	Change	Source
Q3 2026 revenue	$2.2 billion	from $2.27 billion, -3% reported, flat organically	SEC 8-K Exhibit 99.1
Q3 2026 orders	$2.3 billion	from $2.18 billion, +7% reported, +10% organically	SEC 8-K Exhibit 99.1
Q3 2026 adjusted EPS	$1.44	from $1.37, +5%	SEC 8-K Exhibit 99.1
Q3 2026 adjusted EBITDA margin	23.9%	from 23.2%, +70 basis points	SEC 8-K Exhibit 99.1
Full-year 2026 revenue guidance	$8.95 billion	-1% reported	SEC 8-K Exhibit 99.1
Full-year 2026 adjusted EPS guidance	$5.40 to $5.45		SEC 8-K Exhibit 99.1

Read more: Xylem (XYL) company research

Orders, margins and one-time items in the quarter

Demand outpaced sales. Orders were $2.3 billion, up 7% as reported and 10% organically. Revenue was $2.2 billion, down 3% as reported and flat organically. The filing puts book-to-bill at 106%.

Margins held up. Adjusted EBITDA margin was 23.9%, up 70 basis points from a year earlier. The release credits productivity savings and strong pricing, which outweighed inflation, lower volumes and mix.

Reported earnings per share of $1.25 rose 34%. Adjusted earnings per share of $1.44 rose only 5%. Loss on sale of businesses fell to $5 million from $37 million in the third quarter of 2025. Reported results also include $33 million of IEEPA tariff refunds, offset by $10 million of acquisition and divestiture integration costs. Adjusted results exclude both.

Pretax adjustments were $48 million, against $132 million a year earlier. That smaller adjustment is why reported earnings grew faster than adjusted earnings.

Net income attributable to Xylem was $291 million, a 13.2% margin that is up 320 basis points. The release credits operational performance and the lower sale loss. Higher interest and income tax expense offset part of the gain. Interest expense was $21 million against $6 million a year earlier.

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Three segments and the Yarkadas transition

From Jan. 1, 2027, Xylem will run Treatment and Services, led by Rodney Aulick, Flow Solutions, led by Joe Johnston, and Measurement and Analytics, led by Meredith Emmerich. The company says the structure groups businesses around moving water, treating water, and measuring and optimizing water systems. It also cites momentum in data centers and microelectronics.

Matthew Pine, president and CEO, said "the resilience we've built, evident this quarter, allows us to make those choices deliberately and from a position of strength."

The restructuring ends one executive role. Hayati Yarkadas, executive vice president and president of Water Infrastructure, stops being an executive officer on Jan. 1, 2027 because that segment is eliminated. Under terms agreed Oct. 22, he stays on to lead the two divestitures. He earns a $1.2 million cash success incentive when the final sale closes.

Why it matters

OptimistFi has argued that Xylem compounds value if its water-technology position turns unavoidable water-infrastructure spending into higher-margin revenue and cash, not just cyclical pump sales. This filing supports the margin half of that view and tests the revenue and cash half.

On margin, full-year adjusted EBITDA margin is expected at about 23.2%, up 100 basis points from 2025 adjusted results. On revenue and cash, the outlook moves the other way. Organic revenue is now flat, and the free cash flow margin guide no longer reaches 11.0%.

The balance sheet adds context. Xylem spent $1.58 billion buying back stock in the first nine months of 2026, against $14 million a year earlier. Operating cash flow was $729 million. Cash fell to $708 million at Sept. 30 from $1.48 billion at Dec. 31, 2025. Long-term debt rose to $2.37 billion from $1.41 billion.

The adjusted figure is the cleaner read of the operating trend, because reported earnings drew on a smaller sale loss and tariff refunds. Revenue was flat organically even with orders up, so order growth has not yet reached sales. OptimistFi sees the filing as mixed for the case.

What's next

The three-segment structure starts Jan. 1, 2027. According to the 8-K, Xylem keeps sole discretion over whether and when to pursue or complete either sale, the buyer, the price and other terms. Yarkadas's transition runs until the earlier of March 31, 2028 or the closing of the last divestiture.

Xylem's next quarterly report will show whether order growth turns into organic revenue growth and whether free cash flow margin holds near the new guide. Revenue that keeps lagging orders would weaken the case. Conversion would strengthen it.

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