A Member of Pat McKeough’s Inner Circle recently asked for his advice on a leading global water solutions and technology company that designs, manufactures, and services mission-critical equipment and digital systems for water transport, treatment, testing, and conservation across utility, industrial, commercial, and residential sectors.
Pat likes the firm’s entrenched leadership position in a non-cyclical, secular-growth industry driven by aging global infrastructure, water scarcity, and stringent environmental regulations. Its business model features a high proportion of recurring service revenue, high switching costs, and strong pricing power deliver steady operating margins across economic cycles. However, Pat notes the company is vulnerable potential delays in municipal capital project approvals, macroeconomic softness in industrial and commercial construction, and weakness in key international markets such as China.
Xylem Inc. (Symbol XYL on New York; www.xylem.com) is a manufacturer of water technology and equipment for construction firms, utilities, farmers, food and beverage companies, and many others.
The company’s products include water and wastewater pumps, hydro turbines, utility meters, software and analytics, etc. It serves customers in more than 150 countries and has 23,000 employees.
Xylem has four operating segments: Water Infrastructure (29% of revenues), Applied Water (20%), Measurement and Control Solutions (23%), and Water Solutions and Services (28%).
In March 2026, the company agreed to acquire a German firm that designs highly engineered water quality instruments for $215 million. The acquisition expands Xylem’s role as a “systems intelligence” partner. Systems intelligence includes the use of databases, machine learning and artificial intelligence to provide actionable insights. It will help the company provide higher value digital and service solutions.
Meanwhile, in May 2026, Xylem completed the sale of its international water metering business to Aurelius, a European alternative asset manager. The sale price has not yet been disclosed. Xylem will retain its North American water metering business.
Xylem is selling its international business to focus on its water metering business in North America, which has higher profit margins and more potential for growth.
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Xylem’s growth fueled by robust pricing power
In the three months ended June 30, 2026, Xylem’s revenue rose 1.5% to $2.34 billion from $2.30 billion a year earlier. Revenue rose due to increased sales volume in the U.S. in our Water Infrastructure segment and strong data center project growth in our Applied Water segment. Revenue gains reflect growth in Water Infrastructure (up 5.1% to $683 million), Applied Water (up 3.7% to $501 million), and Water Solutions and Services (up 2.5% to $644 million), which was offset by a decline in Measurement and Control Solutions (down 5.9% to $508 million).
Excluding one-time items, earnings rose 12.4% to $345 million, or $1.46 a share, in the latest quarter. That was up from $307 million, or $1.26 a share, a year earlier. Earnings rose at a faster rate than revenue because of productivity savings and strong price realization.
Xylem raised its quarterly dividend by 7.5% with the March 2026 payment, to $0.43 a share from $0.40. The stock yields 2.0%.
The company’s outlook remains positive. Demand will remain strong, driven by the need for water infrastructure solutions in utilities, industrial applications, and commercial building services.
For example, increasing water scarcity, aging infrastructure, and climate-related pressures are pushing governments, utilities, and industries to invest in advanced water technologies. At the same time, the need for artificial intelligence-driven water management tools should keep rising. These features offer predictive demand forecasting, leak detection, and energy optimization, which are increasingly critical across many industries.
Recommendation in Pat’s Inner Circle: Xylem Inc. is a buy for aggressive investors.
