Water technology company Xylem (NYSE: XYL) met Wall Street’s revenue expectations in Q2 CY2026, with sales up 1.5% year on year to $2.34 billion. On the other hand, the company’s full-year revenue guidance of $9.2 billion at the midpoint came in 0.6% below analysts’ estimates. Its non-GAAP profit of $1.46 per share was 9.2% above analysts’ consensus estimates.
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Xylem (XYL) Q2 CY2026 Highlights:
- Revenue: $2.34 billion vs analyst estimates of $2.34 billion (1.5% year-on-year growth, in line)
- Adjusted EPS: $1.46 vs analyst estimates of $1.34 (9.2% beat)
- Adjusted EBITDA: $437 million vs analyst estimates of $517.4 million (18.7% margin, 15.5% miss)
- The company dropped its revenue guidance for the full year to $9.2 billion at the midpoint from $9.25 billion, a 0.5% decrease
- Management raised its full-year Adjusted EPS guidance to $5.63 at the midpoint, a 2.7% increase
- Operating Margin: 16.7%, up from 13.3% in the same quarter last year
- Free Cash Flow Margin: 8.6%, similar to the same quarter last year
- Market Capitalization: $28.56 billion
Company Overview
Formed through a spinoff, Xylem (NYSE: XYL) manufactures and services engineered products across a wide variety of applications primarily in the water sector.
Revenue Growth
Reviewing a company’s long-term sales performance reveals insights into its quality. Any business can have short-term success, but a top-tier one grows for years. Luckily, Xylem’s sales grew at an impressive 11.9% compounded annual growth rate over the last five years. Its growth beat the average industrials company and shows its offerings resonate with customers, a helpful starting point for our analysis.
We at StockStory place the most emphasis on long-term growth, but within industrials, a half-decade historical view may miss cycles, industry trends, or a company capitalizing on catalysts such as a new contract win or a successful product line. Xylem’s recent performance shows its demand has slowed significantly as its annualized revenue growth of 4.3% over the last two years was well below its five-year trend. 
This quarter, Xylem grew its revenue by 1.5% year on year, and its $2.34 billion of revenue was in line with Wall Street’s estimates.
Looking ahead, sell-side analysts expect revenue to grow 2.6% over the next 12 months, a slight deceleration versus the last two years. This projection is underwhelming and implies its products and services will see some demand headwinds. At least the company is tracking well in other measures of financial health.
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Operating Margin
Xylem has been an efficient company over the last five years. It was one of the more profitable businesses in the industrials sector, boasting an average operating margin of 11.8%. This result isn’t surprising as its high gross margin gives it a favorable starting point.
Looking at the trend in its profitability, Xylem’s operating margin rose by 4 percentage points over the last five years, as its sales growth gave it operating leverage.
In Q2, Xylem generated an operating margin profit margin of 16.7%, up 3.4 percentage points year on year. The increase was encouraging, and because its operating margin rose more than its gross margin, we can infer it was more efficient with expenses such as marketing, R&D, and administrative overhead.
Earnings Per Share
Revenue trends explain a company’s historical growth, but the long-term change in earnings per share (EPS) points to the profitability of that growth — for example, a company could inflate its sales through excessive spending on advertising and promotions.
Xylem’s EPS grew at 15.2% compounded annual growth rate over the last five years, higher than its 11.9% annualized revenue growth. This tells us the company became more profitable on a per-share basis as it expanded.
We can take a deeper look into Xylem’s earnings quality to better understand the drivers of its performance. As we mentioned earlier, Xylem’s operating margin expanded by 4 percentage points over the last five years. This was the most relevant factor (aside from the revenue impact) behind its higher earnings; interest expenses and taxes can also affect EPS but don’t tell us as much about a company’s fundamentals.
Like with revenue, we analyze EPS over a shorter period to see if we are missing a change in the business.
For Xylem, its two-year annual EPS growth of 16.3% was higher than its five-year trend. We love it when earnings growth accelerates, especially when it accelerates off an already high base.
In Q2, Xylem reported adjusted EPS of $1.46, up from $1.26 in the same quarter last year. This print beat analysts’ estimates by 9.2%. Over the next 12 months, Wall Street expects Xylem’s full-year EPS to grow 6.7% from $5.37 to $5.73.
Key Takeaways from Xylem’s Q2 Results
It was good to see Xylem provide full-year EPS guidance that slightly beat analysts’ expectations. We were also glad its EPS outperformed Wall Street’s estimates. On the other hand, its EBITDA missed and its full-year revenue guidance fell slightly short of Wall Street’s estimates. Overall, this was a weaker quarter. The stock traded up 2% to $122.58 immediately after reporting.
So should you invest in Xylem right now? The latest quarter does matter, but not nearly as much as longer-term fundamentals and valuation, when deciding if the stock is a buy. We cover that in our actionable full research report which you can read here (it’s free).
