• Revenue Growth: Up 3% in the quarter, driven by outperformance in Measurement & Control Solutions (MCS).
• EBITDA Margin: Increased by 120 basis points to 20.4%.
• EPS: $1.03, surpassing the midpoint of guidance by $0.08 and a 14% increase over the prior year.
• Net Debt to Adjusted EBITDA: 0.5 times.
• Free Cash Flow: Decreased by $53 million year-to-date, impacted by outsourced water projects and payables.
• Ending Backlog: $5.1 billion with a book-to-bill ratio above 1.
• Measurement & Control Solutions (MCS) Revenue: Up 6% versus the prior year.
• Water Infrastructure Revenue: Increased 5%, driven by strong treatment and transport demand.
• Applied Water Revenue: Up 1% compared to the prior year.
• Full Year Revenue Guidance: $8.7 billion to $8.8 billion, with organic revenue growth of 3% to 4%.
• Full Year EBITDA Margin Guidance: 21.3% to 21.8%.
• Full Year EPS Guidance: $4.50 to $4.70.
• Second Quarter Revenue Growth Guidance: 1% to 2% on a reported basis, 2% to 3% organically.
• Second Quarter EPS Guidance: $1.12 to $1.16.

• Warning! GuruFocus has detected 4 Warning Signs with XYL.

Release Date: April 29, 2025

For the complete transcript of the earnings call, please refer to the full earnings call transcript.

Positive Points

• Xylem Inc (NYSE:XYL) reported a strong start to 2025 with Q1 results exceeding expectations, driven by resilient demand and a book-to-bill ratio above 1.
• The company achieved revenue growth across all segments and delivered a 120 basis points expansion in EBITDA margin, resulting in double-digit EPS growth.
• Xylem Inc (NYSE:XYL) reaffirmed its full-year 2025 guidance for both revenue and earnings per share, indicating confidence in its business outlook.
• The company has implemented pricing and supply chain programs to offset the majority of impacts from current tariffs, showcasing its agility in managing external challenges.
• Xylem Inc (NYSE:XYL) has made significant progress in its simplification efforts, leading to improved productivity and margin expansion, and has successfully integrated Evoqua, delivering cost synergies faster than planned.

Negative Points

• Orders were down slightly compared to last year, particularly in the Water Solutions and Services (WSS) and Measurement & Control Solutions (MCS) segments, due to challenging comparisons.
• Free cash flow decreased by $53 million year-to-date, driven by outsourced water projects and payables, despite higher net income.
• The company faces ongoing economic challenges in China, leading to double-digit declines in orders within the Water Infrastructure segment.
• EBITDA margin in the Measurement & Control Solutions segment was 170 basis points lower than the prior year, primarily due to energy water mix challenges.
• Xylem Inc (NYSE:XYL) anticipates some demand falloff in the second half of the year due to pricing actions and evolving trade dynamics, although the extent is uncertain.

Q & A Highlights

Q: Did Xylem benefit from customers prepositioning inventory due to tariffs, and did the company reposition its inventory? A: Matthew Pine, CEO, stated that Xylem did not see any significant increase in orders to get ahead of tariffs, nor did the company reposition its inventory in anticipation of tariff impacts.

Q: How is Xylem managing pricing in response to tariffs, and what is the expected impact on demand? A: Matthew Pine, CEO, explained that Xylem anticipates some demand falloff in the second half of the year due to pricing actions taken to offset tariffs. However, the company is confident in managing any demand impact due to favorable FX tailwinds and a strong start to the year.

Q: How is Xylem handling pricing and surcharges in response to tariffs, and what is the expected timing of these impacts? A: Matthew Pine, CEO, noted that Xylem is using a mix of surcharges and price increases, with actions already in place. The impact is expected to be more significant in the second half of the year, and the company is prepared to adjust as the situation evolves.

Q: How does the current tariff situation affect Xylem's M&A strategy and capital deployment? A: Matthew Pine, CEO, stated that M&A remains a priority for Xylem, with a focus on investing in the core business and optimizing the portfolio. The company is actively pursuing opportunities and has a robust pipeline, despite the current tariff environment.

Q: What is the impact of tariffs on Xylem's competitive position, and how does it affect pricing strategies? A: Matthew Pine, CEO, mentioned that Xylem's diversified portfolio and critical nature of its products help maintain a stable business. The company is in a competitive position, with tariffs affecting about 4% of COGS, and is confident in its ability to manage pricing strategies effectively.

Q: How is Xylem's organizational realignment impacting the business, and what are the expected benefits? A: Matthew Pine, CEO, highlighted that the realignment is progressing well, with a focus on simplifying the operating model and enhancing customer focus. The changes are expected to improve decision-making speed, accountability, and overall business agility.

Q: What are the expectations for Measurement & Control Solutions (MCS) orders and margins for the year? A: William Grogan, CFO, indicated that MCS orders are expected to improve in the second half of the year, with margins expanding year-over-year. The team is addressing mix issues and productivity improvements to support margin growth.

Q: How is Xylem addressing the impact of tariffs on its 80/20 strategy and overall orders? A: Matthew Pine, CEO, stated that the 80/20 strategy continues to be a focus, with no material changes due to tariffs. The strategy aims to reduce complexity and enhance growth and innovation with key customers.

For the complete transcript of the earnings call, please refer to the full earnings call transcript.