2025Q3 Earnings Review Part II: Communication Services, Industrials & Utilities

• Vertiv Holdings delivered a classic beat-and-raise quarter as the secular growth tailwinds of the AI data center buildout are benefiting the company.
• Honeywell completed its Materials business spinoff and raised its guidance.
• Xylem reported a strong quarter despite tariff headwinds, and management raised its guidance for the end of 2025.
• American Electric Power had a strong operational quarter, but the headline numbers were mixed, and management reaffirmed its 2025 guidance.
• Alphabet reported a blowout earnings report, highlighting AI growth tailwinds, as management raised AI capex spending.

Vertiv Holdings(VRT): For the quarter, Vertiv reported adjusted EPS of $1.24, up 63% year-over-year and beating consensus estimates by 25%. Revenue reached $2.68 billion, up 29% year-over-year and ahead of the $2.59 billion forecast. The cooling technology provider showed that the company is benefiting from the secular growth in AI data center buildouts. Organic sales growth reached 28% overall, with the Americas increasing by 43%, APAC up by 21%, and EMEA decreasing by 4%. Organic orders surged 60% year over year, driven by hyperscaler demand and AI infrastructure scaling. The bulk of Vertiv’s revenue comes from product sales, and the company’s recent acquisition of Waylay NV will add to the services segment.

Adjusted operating profit rose 43% to $596 million, yielding a 22.3% margin. On a GAAP basis, the operating margin came in at 19.3% up from 17.9% in the same period last year. The net income margin came in at 14.9% up from 8.5% showing that management is executing at a high level as they capitalize on this AI data center buildout. Free cash flow totaled $462 million, a 38% increase from the previous year, and backlog grew to $9.5 billion, a 30% increase. The book-to-bill ratio was 1.4x. Vertiv raised full-year guidance across all key metrics. FY25 adjusted EPS is now expected at $4.10, representing 44% growth. Revenue guidance was lifted to $10.2 billion, implying 27% organic growth, and free cash flow is projected at $1.5 billion with a 95% conversion rate.

Management cited tariff-related supply chain inefficiencies and regulatory challenges in EMEA, with recovery not expected until the second half of 2026. This contributed to EMEA revenue growth coming in flat during the quarter. CEO Giordano Albertazzi emphasized Vertiv’s positioning in the “AI factory era,” supported by partnerships with NVIDIA and reference designs for GB300 NVL72 platforms. The company increased its R&D expenditures as it prepares its products to support the Vera Rubin chip, set to launch in 2026. Vertiv’s acquisitions of Waylay NV and Great Lakes Data Racks & Cabinets further strengthen its AI and infrastructure capabilities.

Grade: Vertiv delivered a strong Q3 2025 beat-and-raise, but the stock showed a mixed reaction — rising 4.8% in pre-market trading before dropping 2.8% in after-hours trading. The stock probably faded on valuation concerns. Despite the stock reaction, Vertiv delivered an A+ quarter with a classic beat-and-raise.

Honeywell International (HON): Honeywell delivered a solid third quarter, exceeding guidance across key metrics and raising its full-year outlook. Adjusted EPS came in at $2.82, up 9% year-over-year and ahead of the $2.57 consensus estimate. Revenue reached $10.4 billion, up 7% year-over-year and surpassing the $10.16 billion forecast. Honeywell’s headline numbers came in ahead of our fund estimates of earnings of $2.63 per share from a revenue base of $10.2 billion. This was a strong back from the industrial company, organic sales grew 6%, led by double-digit gains in Aerospace and high single-digit growth in Building Automation. The Energy & Sustainability segment posted 11% revenue growth, while the Industrial Automation segment posted a 9% revenue decline.

Segment profit rose 5% to $2.4 billion, with a segment margin of 23.1%, at the high end of guidance. Segment performance was mixed. Aerospace Technologies grew 12% organically with a 26.1% margin, supported by strong aftermarket and defense demand. Building Automation rose 7% organically with 80 basis points of margin expansion. Industrial Automation was flat, with margin pressure from inflation and mix. Energy and Sustainability Solutions declined 2% organically due to licensing delays. However, operating margin contracted by 220 basis points to 16.9%, and free cash flow decreased by 16% to $1.5 billion, driven by timing differences in working capital and capital expenditures. The operating margin was affected by several one-time spinoff separations. The net income margin grew 3.4% to 17.9% thanks to a one-time $822 million dividend from the Solstice spinoff, which was categorized in Other Income. Orders surged 22% organically to $11.9 billion, pushing backlog to a record high.

Honeywell International returned $835 million to shareholders, up from $715 million in the same period last year. The company raised its full-year adjusted EPS guidance to $10.60–$10.70 and now expects organic sales growth of 6–7% for FY25. This includes the impact of the Solstice Advanced Materials spin-off, which is expected to reduce FY25 sales by $700 million and EPS by $0.21. Management reported that the Solstice Advanced Materials spinoff has concluded and started trading on the Nasdaq on October 30, 2025. Management told investors that the Aerospace company is on schedule to IPO in the second half of 2026. Management announced that its company, Quantinuum, raised $600 million at a $10 billion valuation, reflecting increased investor sentiment in Quantum Computing.
Grade: This was a B+ quarter from Honeywell. The stock responded positively, rising 4.06% in pre-market trading and closing up 5.89% post-release at $215, approaching its 52-week high of $242.77. The move reflects investor confidence in Honeywell’s execution and strategic realignment, including its plan to separate into three focused public companies starting in Q1 2026. We were happy to add to our position in the low $ 200s during Q3 2025.

Xylem (XYL): Xylem delivered a strong third quarter, driven by disciplined execution and resilient demand across its water infrastructure and metering segments. Adjusted EPS came in at $1.37, up 23% year-over-year and 11.4% above consensus estimates of $1.23. Revenue reached $2.3 billion, up 7.8% year-over-year and ahead of the $2.22 billion forecast. Xylem’s headline numbers showcase strong execution from management during the quarter as it has fully integrated its acquisition of Evoqua from last year. The water technology provider beat fund estimates, reporting earnings of $1.30 per share on revenue of $2.24 billion.

Xylem had revenue growth across all revenue segments. Segment performance was led by Measurement & Control Solutions (MCS), which grew revenue by 14% on strong energy metering demand. Water Solutions and Services (WSS) posted 10% growth, while Water Infrastructure rose 5% and Applied Water increased 1%. Margin expansion was broad-based, with WSS reaching 26.3%, Water Infrastructure at 24.4%, and Applied Water at 21.7%. Management mentioned strength in North America, with smart metering demand high, driven by capital projects. Xylem reported margin expansion across gross and operating margins despite $180 million in tariff charges, which came in at 38.93% (up from 37.26%) and 14.72% (up from 13.3%), respectively. Management said they are passing along the tariffs through higher prices. The company ended the quarter with a substantial backlog of $5.3 billion. Despite strong execution, orders declined 2% due to softness in China, which remains a headwind. Management cited macro uncertainties, including tariffs and FX volatility, though pricing actions and supply chain levers helped offset inflationary pressures.

The company achieved a record adjusted EBITDA margin of 23.2%, expanding 200 basis points from the prior year. However, the net income margin on a GAAP basis came in at 10% down 30 basis points as a result of a $37 million loss related to an international metering business. Free cash flow came in at $450 million, down 3.6% year over year. The company returned approximately $105 million to shareholders, up from $98 million in the same period last year. Xylem raised its full-year 2025 guidance. Revenue is now expected to reach approximately $9.0 billion, up 5–6% versus prior guidance of 4–5%. Adjusted EPS is projected at $5.03–$5.08, up from the previous range of $4.70–$4.85. Full-year EBITDA margin is expected to expand 140–170 basis points to 22.0–22.3%.

Grade: B+; The stock responded positively, rising 2.14% in pre-market trading to $152.60, near its 52-week high of $152.84. Analysts noted the valuation remains elevated, with XYL trading at an EV/EBITDA multiple of 21.6x and a P/E ratio of 39x, suggesting limited upside unless growth accelerates further.

American Electric Power (AEP): American Electric Power reported Q3 2025 operating earnings of $1.80 per share, missing EPS estimates by $0.01 but beating revenue forecasts by over 7.9%. Operating earnings came in at $1.80 per share, down from $1.85 in Q3 2024 and slightly below the $1.81 consensus estimate. However, revenue surged to $6.01 billion, up 10.9% year-over-year and well ahead of the $5.57 billion forecast. GAAP earnings were $1.82 per share, totaling $972 million. The utility company’s headline EPS was disappointing, coming in below our $1.94-per-share estimate, but its headline revenue beat our $5.89 billion estimate. America Electric Power reported revenue growth across all revenue segments.

Segment-level performance showed strength in transmission and distribution. Vertically Integrated Utilities delivered 29,565 GWh of energy sales, exceeding analyst estimates by 2.4%. Transmission & Distribution Utilities posted 28,636 GWh, beating forecasts by 3.3%. Operating earnings for the Transmission & Distribution segment reached $259.1 million, outperforming expectations by over 12%. This underscores the demand for electricity driven by AI usage and data center buildout. The operating margin came in at 25.3% up 40 basis points from the same period last year, but the net income contracted from 17.7% to 16.2%. The contraction was due to lower Other income, down 58%, and to higher interest expense, up 2%. American Electric Power had a cash burn of $966 million, the same as the same period last year, due to increased capex spend for power generation. Despite the cash burn, the company still returned $1.5 billion to shareholders, raising its dividend by 2.2% to $0.95/share. In 2025, American Electric Power paid $7.75 billion on new power generation projects.

AEP unveiled a new five-year capital plan totaling $72 billion — up more than 30% from prior projections. This plan supports a revised long-term operating earnings growth rate of 7–9% through 2030, with a targeted 9% CAGR from 2026 to 2030. The capital plan is anchored by 28 GW of contracted incremental load, primarily from data centers and industrial customers. AEP’s peak system demand is projected to rise from 37 GW to 65 GW by 2030. Investments will be allocated across transmission ($30B), generation ($20B), and distribution ($17B), with nearly 90% of capital recovered through formula rates and forward-looking test years. The company reaffirmed its full-year 2025 operating earnings guidance of $5.75 to $5.95 per share and expects results to land in the upper half of that range.

Grade: This was a B+ if the headline EPS had beaten expectations; an A grade would have been assigned to the earnings report. Following the earnings release, AEP shares rose 5.3%, reflecting investor confidence in the company’s growth trajectory and infrastructure positioning. While EPS declined year over year due to the prior sale of On-site Partners, the revenue beat and strategic clarity helped offset concerns.

Alphabet Inc. (GOOGL): Alphabet’s third-quarter results marked a milestone, with the company surpassing $100 billion in quarterly revenue for the first time. Revenue rose 16% year-over-year to $102.35 billion, beating consensus estimates of $100.14 billion. Adjusted EPS came in at $2.87, up 35% year-over-year and well above the $2.26 forecast. The technology giant reported blowout headline numbers well ahead of our fund’s estimates of earnings of $2.38 from a revenue base of $100.28 billion. The headline numbers were driven by AI-led growth across Search, Cloud, and YouTube.

Google Search and YouTube ads each grew 15% YoY, with YouTube ad revenue hitting $10.26 billion. Alphabet has recognized the increased competition to its Search business, with AI modes added to Google Search, which has stabilized since the emergence of ChatGPT and other generative AI models. Google Cloud revenue surged 34% YoY to $15.15 billion, with operating income up 85% to $3.59 billion. The cloud backlog reached $155 billion, up 46% quarter over quarter. The strong cloud growth is showing increased activity in artificial intelligence as computing demands continue to grow. The Google Services segment generated $87.1 billion in revenue, up 14%. The Other Bets segment’s losses increased from $728 million to $1.08 billion due to increased spending on other frontiers, such as Quantum computing. Operating income rose 22% YoY to $31.23 billion, excluding a $3.5 billion EC fine. Operating margin expanded to 33.9%, up 350 basis points. Factoring in the EC fine, the operating margin was down 1% at 31% compared to the same quarter last year.

Alphabet’s R&D spend was up 21.7% to $15.2 billion as the AI buildout intensifies, as they try to ensure Gemini keeps up with the latest generative AI models. The net income came in at 34.2%, up from 29.8%, thanks to gains from the company’s investments of $12.8 billion, which are categorized in Other Income, up from $3.19 billion in the same period last year. Alphabet generated $24.46 billion, up from $17.64 billion, and ended the quarter with a strong cash balance of $98.5 billion. The company returned $14.04 billion to shareholders, down from $17.75 billion, as share repurchases were dialed back amid the stock’s run. The company raised its 2025 capital expenditure guidance to $91–93 billion, up from $85 billion, reflecting continued investment in AI infrastructure. CEO Sundar Pichai emphasized that Alphabet is “firmly in the generative AI era,” citing the Gemini platform’s 650 million monthly active users and a 3x increase in query volume.

Grade: This was a great quarter from Alphabet and deserves an A+. Alphabet’s full-stack AI strategy — spanning infrastructure, models, and consumer platforms — is driving monetization and enterprise adoption. The company highlighted strong uptake of its seventh-generation TPUs and new NVIDIA-powered instances for Cloud customers. The stock responded sharply, rising 7.85% in pre-market and 8% in extended trading following the release. This reaction reflects investor enthusiasm for Alphabet’s AI momentum and margin expansion.

Disclosure: Cresco Investments is long Vertiv Holdings (VRT), Xylem Inc. (XYL), Honeywell International Inc. (HON), American Electric Power (AEP), and Alphabet Inc. (GOOGL).

I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.

Additional disclosure: This article is intended for information, engagement & entertainment purposes only and is not to be construed as investment advice or direction. Investors are strongly encouraged to perform due diligence and consult with their financial advisor(s).