Xylem Cuts Full-Year Guidance and Plans Two Divestitures After Q3 Revenue Miss

Xylem Inc. reported third-quarter 2026 revenue of $2.2 billion, down 3% on a reported basis and roughly flat organically, missing expectations as utility customers adopted a more cautious and deliberate spending posture that slowed project conversion and deferred discretionary purchases. Net income attributable to Xylem came in at $291 million, or $1.25 per share, while orders reached $2.3 billion for the quarter. Despite the revenue softness, the company expanded adjusted EBITDA margin by 70 basis points, crediting 80/20 operational principles and productivity savings.

Alongside the results, Xylem announced two planned divestitures and a structural overhaul. The company intends to sell its Applied Water International and Specialty Flow Control businesses, which together represent approximately 9% of revenue but less than 5% of EBITDA, making them dilutive to overall profitability. The exits will also reduce Xylem's China revenue exposure from roughly 2% to 1%. Beginning in 2027, Xylem will consolidate from four reporting segments to three, realigning its businesses around how customers move, treat, and measure water, a change management said is intended to accelerate R&D synergies and operational speed.

Xylem cut its full-year 2026 revenue forecast to approximately $8.95 billion, a decline of roughly 1% year over year, compared with prior guidance of up 2%. Organic revenue is now expected to be flat, versus a prior outlook of up 2% to 3%. Full-year adjusted earnings per share guidance was reduced to $5.40 to $5.45 from a prior range of $5.55 to $5.70, while adjusted EBITDA margin is still expected to reach approximately 23.2%, up 100 basis points versus 2025 adjusted results.

Shares fell sharply on the news, gapping down 7.5% at the open and touching a 52-week low of $98.58. On the brighter side, management highlighted a 200% increase in data center orders and a breakthrough contract to supply ultra-pure water technology to a major U.S. semiconductor manufacturer, with data center revenue projected to reach a 2% run rate of total company revenue by year-end.