Xylem Inc. Q2 2026 10-Q Summary
Business Context and Reporting Period
This report covers the quarterly period ended June 30, 2026. Xylem Inc. is a leading global water technology company operating in four segments: Water Infrastructure, Applied Water, Measurement and Control Solutions, and Water Solutions and Services. The company reported strong order growth and margin expansion despite macroeconomic headwinds.
Key Financial Metrics
| Metric (in millions) | Q2 2026 | Q2 2025 | YTD 2026 | YTD 2025 |
|---|---|---|---|---|
| Revenue | $2,336 | $2,301 | $4,461 | $4,370 |
| Gross Profit | $963 | $892 | $1,766 | $1,660 |
| Operating Income | $390 | $305 | $634 | $536 |
| Net Income (Attributable to Xylem) | $263 | $226 | $456 | $395 |
| Diluted EPS | $1.11 | $0.93 | $1.90 | $1.62 |
| Operating Cash Flow (YTD) | $398 | $338 | $398 | $338 |
| Free Cash Flow (YTD) | $219 | $169 | $219 | $169 |
| Total Debt | $2,926 | $1,942 | $2,926 | $1,942 |
| Cash & Equivalents | $1,276 | $1,170 | $1,276 | $1,170 |
Margins (Q2 2026 vs Q2 2025): Gross margin improved to 41.2% (up 240 bps). Operating margin expanded to 16.7% (up 340 bps). Adjusted EBITDA margin reached 23.3% (up 150 bps).
Material Changes vs. Prior Period
- Revenue Growth: Q2 revenue increased 1.5% year-over-year, driven by 1.3% organic growth and favorable foreign currency impacts ($29M). This was partially offset by $31M in revenue loss from divestitures.
- Orders: Orders surged 42.0% to $3.086 billion, with organic order growth of 40.9%, driven significantly by the Water Solutions and Services segment.
- Profitability: Operating income rose 27.9% to $390 million. Margin expansion was driven by productivity savings (350 bps), price realization (240 bps), and lower special charges, partially offset by inflation (270 bps).
- Divestitures: The company completed the sale of its international metering business in May 2026, recognizing a cumulative loss of $37 million ($14 million in 2026).
- Acquisitions: Acquired TriOS Mess- und Datentechnik GmbH (€190M) in July 2026 and entered an agreement to acquire WaterFleet Intermediate Holdings, Inc. (~$200M).
- Debt Issuance: Issued $1 billion in new senior notes (5.200% due 2033 and 5.450% due 2036) in May 2026, increasing total debt significantly.
- Share Repurchases: Repurchased 10.5 million shares for $1.243 billion in the first six months of 2026, compared to minimal repurchases in the prior year.
Guidance, Outlook, and Risks
- 2026 Outlook: Management updated total revenue growth guidance to approximately 2% and organic revenue growth to 2% to 3%.
- Restructuring: The company expects to incur between $50 million and $65 million in restructuring costs for the full year 2026.
- Tariff Developments: Following a Supreme Court ruling, the company recognized a $12 million receivable and received $4 million in refunds related to IEEPA tariffs, reducing cost of revenue.
- Risks: Key risks include geopolitical instability, trade protectionism, inflation, supply chain disruptions, and foreign currency volatility. The company faces ongoing tax litigation in Sweden regarding an intercompany transfer of intellectual property.
Investor Verification Checklist
- Debt Structure: Verify the impact of the new $1 billion debt issuance on future interest expenses and leverage ratios.
- Divestiture Impact: Confirm the long-term revenue impact of the international metering business divestiture on the Measurement and Control Solutions segment.
- Acquisition Integration: Monitor the closing and integration progress of the WaterFleet and TriOS acquisitions.
- Tariff Refunds: Track the realization of remaining IEEPA tariff refunds and potential interest income.
- Swedish Tax Litigation: Review updates on the Swedish Tax Agency assessment and the status of the appeal.
- Share Buyback Capacity: Note that the 2015 buyback program is exhausted, with $453 million remaining under the 2026 program.