Xylem Inc. Q1 2026 Financial Summary
Business Context and Reporting Period
This summary covers Xylem Inc.'s Form 10-Q for the quarterly period ended March 31, 2026. Xylem 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 a large accelerated filer status with 237.7 million shares of common stock outstanding as of April 24, 2026.
Key Financial Metrics
| Metric | Q1 2026 | Q1 2025 |
|---|---|---|
| Revenue | $2,125 million | $2,069 million |
| Gross Profit | $803 million | $768 million |
| Gross Margin | 37.8% | 37.1% |
| Operating Income | $244 million | $231 million |
| Operating Margin | 11.5% | 11.2% |
| Net Income (Attributable to Xylem) | $193 million | $169 million |
| Diluted EPS | $0.79 | $0.69 |
| Adjusted EBITDA | $437 million | $423 million |
| Adjusted EBITDA Margin | 20.6% | 20.4% |
| Free Cash Flow | $18 million | ($38 million) |
| Cash and Equivalents | $808 million | $1,059 million |
| Total Debt | $1,938 million | $1,942 million |
Material Changes vs. Prior Period
- Revenue Growth: Revenue increased 2.7% year-over-year, driven primarily by a favorable foreign currency impact of $65 million (3.1%). Organic revenue declined slightly by 0.4% ($9 million), attributed to reduced capital project revenue in the U.S. and lower backlog execution in Western Europe.
- Profitability: Operating income rose 5.6% to $244 million. Gross margin expanded 70 basis points to 37.8%, supported by 310 basis points of productivity savings and 110 basis points of price realization, partially offset by inflation and mix headwinds.
- Restructuring: Restructuring and asset impairment charges increased to $31 million from $21 million in the prior year, primarily due to severance costs related to actions commenced in 2025.
- Cash Flow: Operating cash flow improved significantly to $108 million from $33 million. However, financing activities consumed $683 million, largely due to $595 million in share repurchases and $106 million in dividends.
- Orders: Orders totaled $2,228 million, up 3.2% from the prior year, though organic orders declined 0.3%.
Guidance, Outlook, and Risks
- 2026 Outlook: Management raised the total revenue growth outlook to 2% to 3% and maintained the organic revenue growth outlook at 2% to 4% for the full year 2026.
- Acquisitions: On March 25, 2026, Xylem agreed to acquire a company specializing in optical sensing and measurement systems for approximately $219 million (€190 million), expected to close in 2026.
- Share Repurchases: The Board authorized a new $1.5 billion share repurchase program in February 2026. The company repurchased 4.8 million shares for $595 million in Q1 2026.
- Risks and Contingencies:
- Tax Litigation: Ongoing appeal regarding a Swedish tax assessment of approximately $88 million. Management believes it is more likely than not to prevail.
- Tariffs: The U.S. Supreme Court invalidated broad-based tariffs in February 2026; Xylem has not yet recorded receivables for potential refunds due to timing uncertainty.
- Macro Factors: Risks include geopolitical instability, inflation, supply chain disruptions, and foreign currency volatility.
Investor Verification Checklist
- Organic Revenue Trends: Verify the sustainability of the 0.4% organic revenue decline and the specific drivers in the Water Solutions and Services segment.
- Backlog Execution: Confirm the impact of the 7.5% year-over-year backlog decrease ($4.7 billion total) on future revenue recognition.
- Restructuring Costs: Monitor the remaining $21 million in expected costs from 2025 restructuring actions and the full-year guidance of $40–$55 million.
- Liquidity Position: Assess the impact of aggressive capital return ($683 million in financing outflows) on the $1.8 billion available liquidity.
- Acquisition Integration: Track the closing and integration progress of the €190 million optical sensing acquisition.