Xylem's Q2 2026 revenue rose just 1.5% to $2.34B, but productivity and pricing lifted operating margin 340 bp to 16.7% and EPS 19% to $1.11, while a single large services contract drove a 42% jump in orders.
Revenue
$2.3B
+1.5% YoY
Net income
$263M
+16.4% YoY
Diluted EPS
$1.11
+19.4% YoY
Operating margin
16.7%
How XYL compares with Industrials peers
Figure
XYL
Peer median
Rank
Revenue growth (YoY)
+1.5%
+8.5%
72nd of 79
Operating margin
16.7%
17.9%
43rd of 78
EPS growth (YoY)
+19.4%
+13.4%
33rd of 77
Rank 1 = fastest revenue growth, highest operating margin, fastest EPS growth. Peers are the other Industrials companies with a 2026 report on this site, each at its latest period we've analyzed; fiscal calendars differ, so periods are not always the same months.
Xylem's second quarter of 2026 had two separate stories. Sales barely moved: revenue rose 1.5% to $2,336 million, and only 1.3% organically. Organic means stripping out currency swings and businesses bought or sold. Profit, though, grew much faster. Operating income rose 27.9% to $390 million, and diluted EPS rose 19% to $1.11. The widely quoted jump in orders, up 42% to $3.1 billion, came almost entirely from one segment winning what the 10-Q calls "a significant contract". Management raised its full-year adjusted EPS guidance and trimmed its revenue guidance in the same release. That tells you where 2026 growth is expected to come from: margins and buybacks, not volume.
At a glance
Operating margin of 16.7%, up from 13.3%. Operating margin is the share of revenue left after running the business, before interest and tax. Productivity savings alone added 350 basis points (a basis point is one-hundredth of a percentage point), more than the whole net gain, while inflation and lower volume pulled the other way.
Orders of $3,086 million, up 42%, but only about +2.5% outside Water Solutions and Services. That segment's orders jumped from $577 million to $1,449 million. The other three segments together booked $1,637 million, against $1,597 million a year ago.
$1,243 million spent on buybacks in the first half, up from $13 million. The diluted share count fell 3.0% to 236.6 million, which accounts for roughly 3–4 points of this quarter's EPS growth.
The numbers
Metric
Q2 2026
Q2 2025
YoY Change
Revenue
$2,336M
$2,301M
+1.5%
Organic revenue growth
+1.3%
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Source: Xylem Q2 2026 Form 10-Q and earnings release (Exhibit 99.1). "Adjusted" figures are Xylem's own non-GAAP measures. They exclude restructuring and realignment costs, amortization of acquired intangible assets (the accounting write-down of customer relationships and technology bought in deals such as Evoqua), gains or losses on business sales, special charges, and tax-related special items.
Where the margin came from
The 10-Q breaks the 340 bp rise in operating margin into parts:
+680 bp of operational gains: 350 bp from productivity savings, 240 bp from price realization (price increases that stuck) and 80 bp from better mix.
−520 bp of operational headwinds: 270 bp from inflation and 160 bp from lower volume.
+180 bp from lower special charges, restructuring and amortization than a year earlier.
Productivity and pricing did the work. Volume, meaning selling more units, subtracted from margin. Gross margin shows the same pattern: 230 bp of productivity savings and 180 bp of price outweighed 240 bp of inflation and 80 bp of lower volume.
Segments: one big winner, one going backwards
Segment
Revenue
Organic growth
Adj. op. margin Q2 2026
Adj. op. margin Q2 2025
Orders, organic
Water Infrastructure
$683M
+3%
24.6%
19.5%
−4%
Applied Water
$501M
+3%
19.6%
19.5%
+9%
Measurement & Control Solutions
$508M
−1%
16.3%
18.1%
+2%
Water Solutions and Services
$644M
+1%
18.6%
16.9%
+147%
Water Infrastructure (pumps and treatment for moving and cleaning water) had the largest margin gain: adjusted operating margin rose 510 bp to 24.6%. The 10-Q credits 490 bp of productivity improvements and 190 bp of favorable mix. U.S. volume and western European capital projects lifted the transport business by $28 million organically. Treatment fell $11 million on weaker western Europe, "targeted exits on non-strategic capital revenue" and softness in emerging markets. Orders fell 4% organically, and the backlog declined because "revenue outpac[ed] orders."
Applied Water (pumps for buildings and industry) grew 2.7% organically, helped by U.S. backlog execution and price in commercial buildings, plus "increased data center project revenue in the U.S." Its adjusted margin barely moved (+10 bp). The 610 bp of productivity savings were almost fully offset by 480 bp of inflation, lower volume and currency. Orders rose 9% organically, the healthiest underlying order growth among the four segments.
Measurement & Control Solutions (smart water meters and analytics) was the weak spot. Reported revenue fell 5.9%: $29 million of that was the international metering business sold on May 26, 2026, and organic revenue fell 1.4%. The filing blames U.S. smart metering, which had "lower shippable backlog coming into the quarter." Adjusted margin fell 180 bp to 16.3%, driven by 270 bp of inflation, 170 bp of unfavorable mix and 100 bp of lower volume. Q1 orders had risen 15% organically, but Q2 orders rose only 2%, and the book-to-bill ratio (orders divided by revenue) was 85%. That ratio means the segment shipped more than it booked.
Water Solutions and Services (outsourced water treatment, rentals and services, largely the former Evoqua services business) booked $1,449 million of orders against $644 million of revenue, a book-to-bill of 225%. The 10-Q attributes the backlog increase to "the securing of a significant contract" in this segment. It doesn't name the contract or say how long it runs. Adjusted margin rose 170 bp to 18.6%. The filing says this was driven by 570 bp of price realization "including contract expansion benefit", which offset 430 bp of lower volume.
What the headline numbers hide
The orders surge is one contract, not broad demand. Without Water Solutions and Services, Q2 orders were roughly flat, up about 2.5% reported ($1,637M vs $1,597M). Water Infrastructure orders fell 4% organically. For the first half, total orders rose 20% organically, but Water Infrastructure was down 1%. The $5,315 million backlog is higher, and Xylem expects about 40% of it to become revenue in the rest of 2026. Some of it now sits in multi-year service work that turns into revenue slowly.
GAAP EPS growth (+19%) beat adjusted EPS growth (+16%) mainly because one-off charges shrank. GAAP is the standard accounting basis; "adjusted" strips out items management treats as non-recurring. The gap between the two was $0.35 per share, made up of:
$52M of acquired-intangible amortization
$15M of restructuring and realignment
a $16M loss on selling the international metering business
$7M of other non-operating special charges
special charges that came out slightly negative. $6M of deal and integration costs were more than offset by a $16M one-time tariff refund. That money was paid under the IEEPA tariffs (tariffs imposed under the International Emergency Economic Powers Act), which the U.S. Supreme Court ruled unlawful in February 2026. The refund reduced GAAP cost of revenue, adding roughly 0.7 points to GAAP gross and operating margin this quarter. Xylem says more refunds may follow, but they won't recur once collected.
A higher tax rate held back net income. The effective tax rate rose to 28.3% from 25.0%, "primarily due to the impact of the 2026 international metering business divestiture." Pre-tax income rose 21.7%, but net income attributable to Xylem rose only 16.4%.
Buybacks did a meaningful share of the EPS work. Adjusted net income rose 12.0% ($345M vs $308M), and adjusted EPS rose 15.9%. The difference is the 3.0% lower diluted share count. Xylem bought back 5.7 million shares for $648 million in Q2 and 10.5 million for $1,243 million in the first half. In May it issued roughly $1 billion of new long-term debt, so the buyback was partly debt-funded. Net debt (borrowings minus cash) rose from about $0.46 billion at year-end to about $1.65 billion.
Cash conversion is adequate but back-loaded. Operating cash flow was $398 million in the first half against $450 million of net income, about 88%. Free cash flow (operating cash flow minus capital spending) was $219 million, 4.9% of revenue, against full-year guidance of a 10.2–11.0% free cash flow margin. Reaching that range implies a much stronger second half. Receivables drained $142 million of cash in the first half, and long-term receivables tied to outsourced water projects drained another $104 million. The 10-Q names both.
Guidance: EPS up, revenue down. Full-year revenue is now about $9.2 billion, roughly +2% reported (previously +2–3%) and +2–3% organic (previously +2–4%). Adjusted EPS guidance rose to $5.55–$5.70 from $5.35–$5.60. The adjusted EBITDA margin target is 23.1–23.5%, 90–130 bp above 2025. Free cash flow margin guidance is unchanged.
Takeaway: Xylem is growing earnings through cost and price, not volume. Adjusted operating margin rose 160 bp on 1.3% organic growth, and share count cuts added a few more points to EPS. The 42% jump in orders is real backlog, but it comes from one large contract in one segment. The segment that sells meters is shrinking organically, and the core pump and treatment business booked fewer orders than a year ago.
Outlook
Management's updated 2026 guide implies second-half adjusted EPS of about $2.98–$3.13, compared with $2.57 in the first half. It also implies a roughly 23% adjusted EBITDA margin for the full year, against 22.0% in the first half. The first half made $981 million of adjusted EBITDA on $4,461 million of revenue, so hitting the target requires margins to stay near Q2's 23.3% for the rest of the year. Q2 showed productivity alone can deliver that. The weak points are volume, which cost 160 bp of operating margin this quarter, and inflation, which cost 270 bp. Both would get worse if organic growth stays around 1%.
Three things to watch in Q3:
Whether the Water Solutions and Services contract starts turning into revenue, and on what margin.
Whether Measurement & Control Solutions orders recover. Its book-to-bill was 85% this quarter, which points to lower revenue ahead unless bookings pick up.
Free cash flow catching up to the 10.2–11.0% target, given the 4.9% first-half margin and the continued cash drain into long-term project receivables.
Our read: the margin progress is well documented by line item and doesn't depend on the tariff refund. Growth, though, comes mostly from one contract, and EPS is increasingly supported by debt-funded buybacks. That makes Q3's organic orders outside Water Solutions and Services the number to watch.