Oct 27, 2026 earnings call — Divestitures and move to three segments
Xylem cut full year revenue guidance to $8.95 billion and lowered EPS to $5.40-$5.45.
Revenue $2.2B (est $2.3B) · EPS $1.44 (est $1.45)
Key quotes
"This morning, we're announcing our intent to divest Applied Water International and Specialty Flow Control, which is our beverage and marine business, while also moving from four segments to three beginning in 2027."
"However, the new structure better aligns the company around how customers move water, treat water, and measure and optimize water systems."
"Our ending backlog grew 13% to $5.5 billion versus prior year, sequentially up roughly $200 million, and our book-to-bill for the quarter was above one."
Analyst Q&A 6
order timing vs 2027 growth
Q (Mike Halloran · Baird): He asked why orders looked strong while some short-term pockets were soft and whether growth will be weaker in early 2027 versus later. He also asked how much further large divestitures might be and where the 80/20 headwind stands going forward.
A: Management said strong Q3 orders were driven by MCS, data centers and Applied Water but many MCS projects are scheduled late 2027 into 2028, and WSS projects are lumpier so timing will determine when backlog converts to revenue. They split 2027 planning into areas with clear growth and areas where timing is the main variable, and said they will give a more precise framework with guidance in February.
"I frame revenue into two buckets, the areas where we have strong visibility to growth, and I would say the other area is where timing is the main variable." — Matthew Pine (CEO)
MCS book-and-ship timing and WSS delays
Q (Andy Kaplowitz · Citi): He asked for more color on water versus electric metering and when book-and-ship might re-accelerate, and whether election uncertainty is a factor. He also asked why WSS projects are delayed and what would unlock the larger projects.
A: Andrea said MCS orders were up 30% but backlog is down year-over-year; water metering backlog is up 13% and many projects are later dated into end of 2027 and 2028 so revenue may stay around Q3–Q4 levels into early next year. On WSS she said the pipeline and orders are strong but the business is lumpier; timing of large project conversion drives revenue and some Q3 pushouts lowered the Q4 guide from high-single-digit to low-single-digit, though long-term WSS should be mid-single-digit growth.
"When you peel that back, water metering within our backlog is up by 13%, and it sequentially increased as well." — Andrea van der Berg (CFO)
resegmentation effects and MCS margins
Q (Joe Giordano · TD Cowen): He asked whether the resegmentation complicates customer interactions and whether it actually helps customers or just simplifies Xylem internally. He also asked about the margin profile of the MCS bookings being put up now versus current segment margins.
A: Matthew said the new structure better aligns the company to how customers move and treat water, reduces matrixing, and enables enterprise selling and shared R&D and operating synergies. Andrea said MCS margin profile will benefit from the International Metrology divestiture and that mix will be the biggest driver of 2027 margin because of strong incrementals in water; water metering backlog is up sequentially and year-over-year.
"Mix will be the biggest driver or variable for our 2027 margin because of the strong incrementals in water." — Andrea van der Berg (CFO)
data center revenue contribution
Q (Nathan Jones · Stifel): He asked how much data centers might grow in 2027 and whether they could add a point or two to 2027 growth. He also asked about longer-term reuse, recycle, retrofit and build-and-operate opportunities at data centers.
A: Matthew said they are investing behind demand and adding capacity cautiously, which will have some short-term margin impact, and that Applied Water data center orders were up 200% in the quarter. He added they expect data centers to exit at 2% of Xylem revenue on a run-rate basis, see broader AI-ecosystem opportunities more in semiconductor fabs and power where most water is used, and that power-related projects are expected in later years (beyond 2027).
"We do, to your point, expect data centers to exit at 2% of Xylem revenue on a run rate basis." — Matthew Pine (CEO)
utility spending and divestiture effects
Q (William Grippin · Barclays): He asked which product segments are discretionary amid affordability concerns and what municipal funding and customer feedback look like going into next year. He also asked for customer mix and margin impact from the two businesses they plan to divest.
A: Matthew said municipal demand is fundamentally healthy but some utilities are more cautious due to higher construction, energy and financing costs, which can defer non-operational spending—this mainly shows up in metering; treatment demand remains strong and most utility exposure is repair-and-replace. Andrea said the two planned divestitures represent 9% of Xylem revenue but less than 5% of EBITDA, are dilutive to EBITDA margin this year, reduce China exposure from 2% to 1% of revenue, and Applied Water Americas' margin is accretive to overall Xylem margin.
"These two businesses represent 9% of Xylem revenue, but less than 5% of Xylem EBITDA." — Andrea van der Berg (CFO)
capital deployment and replacing EBITDA
Q (Steve Volkmann · Jefferies): He asked if there are stranded-cost opportunities from the two divestitures and how they plan to replace the lost EBITDA—whether from pipeline M&A, buybacks, or taking time to redeploy proceeds. He also asked about timing.
A: Andrea said closing Cornell Pump and Roper Pump in Q4 will add revenue and be accretive, and 80/20 will continue to deliver structural cost benefits. Matthew laid out capital priorities: first organic investment, then bolt-on M&A in high-growth verticals, grow the dividend with earnings, and use remaining capacity for opportunistic buybacks; proceeds from divestitures will increase capacity at the end of 2027 into 2028 to execute the pipeline.
"The first is going to be organic investment." — Matthew Pine (CEO)