Xylem Inc. 2025 Annual Report (10-K) Summary
Business Context and Reporting Period
This filing is the Annual Report on Form 10-K for Xylem Inc., a leading global water technology company, for the fiscal year ended December 31, 2025. Xylem designs, manufactures, and services engineered products and solutions for the water sector, addressing scarcity, resilience, quality, and affordability. The company operates through four reportable segments: Water Infrastructure, Applied Water, Measurement and Control Solutions, and Water Solutions and Services. As of December 31, 2025, Xylem employed approximately 22,000 people worldwide.
Key Financial Metrics
| Metric | 2025 | 2024 | Change |
|---|---|---|---|
| Revenue | $9,035 million | $8,562 million | +5.5% |
| Operating Income | $1,223 million | $1,009 million | +21.2% |
| Operating Margin | 13.5% | 11.8% | +170 bps |
| Net Income (Attributable to Xylem) | $957 million | $890 million | +7.5% |
| Diluted EPS | $3.92 | $3.65 | +7.4% |
| Adjusted Operating Income | $1,612 million | $1,373 million | +17.4% |
| Adjusted Operating Margin | 17.8% | 16.0% | +180 bps |
| Free Cash Flow | $910 million | $942 million | -3.4% |
| Total Debt | $1,942 million | $2,016 million | -3.7% |
| Backlog | $4,615 million | $5,070 million | -9.0% |
Material Changes vs. Prior Period
- Revenue Growth: Driven by organic growth of $419 million (4.9%) and favorable foreign currency impacts of $71 million. Growth was broad-based across segments, with Measurement and Control Solutions leading at 11.5% revenue growth.
- Margin Expansion: Operating margin improved by 170 basis points, driven by productivity savings (330 bps) and price realization (190 bps), partially offset by inflation (240 bps) and unfavorable mix (50 bps).
- Restructuring: Restructuring and realignment costs increased to $133 million in 2025 from $91 million in 2024, primarily due to simplification actions to streamline the organization.
- Acquisitions and Divestitures: Notable 2025 activity included the acquisition of Pac Machine ($63 million) and EMX Holdings ($106 million), and the divestiture of the Evoqua Magneto business ($61 million).
- Backlog Decline: Total backlog decreased 9.0% to $4.615 billion, though management anticipates over 60% will be recognized as revenue in 2026.
Guidance, Outlook, and Risks
2026 Outlook: Management anticipates total revenue growth of 1% to 3% in 2026, with organic revenue growth expected in the range of 2% to 4%.
Management Commentary: The company continues to focus on profitable growth, operational excellence, and sustainability leadership. Strategic pricing and productivity initiatives are central to margin expansion. The company maintains a strong financial position with approximately $2.5 billion in available liquidity ($1.5 billion cash and $1 billion credit facility).
Key Risks and Contingencies:
- Geopolitical and Trade: Risks related to tariffs, trade protection measures, and geopolitical instability (e.g., conflicts in Ukraine/Middle East, China-Taiwan tensions) could disrupt supply chains and increase costs.
- Cybersecurity: Exposure to cyber threats targeting enterprise IT, operational technology, and connected products remains a significant risk.
- Supply Chain: Dependence on single-source suppliers for key components (e.g., semiconductors) and volatility in raw material costs.
- Legal/Tax: Ongoing tax litigation in Sweden regarding a 2013 reorganization; management believes it is more likely than not to prevail.
Investor Verification Checklist
- Organic Growth Sustainability: Verify the durability of the 4.9% organic revenue growth, particularly in the Measurement and Control Solutions segment which saw 9.2% organic growth.
- Backlog Conversion: Monitor the execution of the $4.6 billion backlog, noting the 9% year-over-year decline and the expectation that 60% converts in 2026.
- Restructuring Savings: Track the realization of the estimated $80 million to $120 million in annual future net savings from 2025 restructuring actions.
- Foreign Currency Impact: Assess the sensitivity of future results to foreign exchange fluctuations, given 42% of revenue is generated outside the U.S.
- Acquisition Integration: Review the integration progress and financial contribution of recent acquisitions (Pac Machine, EMX Holdings, Idrica).