- Record Adjusted EBITDA Margin Reached 21.8%, up 100 basis points year-over-year, driven by strong organic revenue growth.
- Revenue Guidance Raise Expected revenue of $8.9 billion to $9 billion, representing 4% to 5% total growth and approximately 4% organic growth.
- Segment Performance Measurement and control solutions saw orders grow 12% organically, with strength in water and energy metering.
- Simplification Efforts Driving measurable improvements in productivity and customer responsiveness, with a 600 basis point increase in on-time delivery year-over-year.
- Growth Drivers Data centers are emerging as a demand driver, using around 5 million gallons of water a day, equivalent to a population of 50,000 people.
Segment Performance and Growth Drivers
Xylem's measurement and control solutions segment saw orders grow 12% organically, driven by strength in water and energy metering. The Applied Water segment reported a 4% increase in orders, marking the sixth consecutive quarter of growth, with strength in commercial buildings and industrial markets. According to Pine, the 80/20 tool has been instrumental in driving margin improvement in Applied Water, which is expected to be sustainable. The company's focus on simplification and transformation is expected to drive growth and improve margins, with a healthy M&A pipeline and a strong balance sheet to support future investments.
Valuation and Financial Outlook
Xylem's valuation metrics, including a P/B Ratio of 3.18 and a P/S Ratio of 5.48, indicate a premium to its peers, reflecting its strong growth prospects and improving profitability. With a Free Cash Flow Yield of 2.5% and an ROIC of 4.48%, Xylem's financial performance is expected to remain robust. The company's guidance for strong adjusted EBITDA margins in Q3 and its confidence in delivering its full-year commitments suggest a positive outlook for the remainder of the year. As analysts estimate next year's revenue growth at 4.9%, Xylem's valuation appears to be supported by its strong growth prospects and improving profitability.
Operational Efficiency and Simplification Efforts
Xylem's simplification efforts are driving measurable improvements in productivity and customer responsiveness, with benefits seen in margin expansion and the ability to serve customers more efficiently. The company has implemented targeted pricing actions and accelerated supply chain adjustments to mitigate tariff impacts, expecting to substantially offset the current impacts. With on-time delivery improving significantly and working capital improvement being good, Xylem's operational efficiency is expected to continue to drive growth and improve margins. As the company remains focused on executing its plan, its strong first half performance gives confidence in delivering a strong 2025 and long-term financial framework.