DXP Enterprises (DXPE) Q3 2026 earnings review
DXP's branches win more work, but its pump business stalls
DXP won more work at its branches, while its pump business grew only by buying other firms. The industrial parts distributor set a sales record of $587 million. Excluding companies bought in the past year, it sold 9% more than a year earlier. Cash generation almost halved, because customers owed far more at the end of September.
| Sales from businesses it owned a year ago | $538.3M +8.7% from a year ago |
|---|---|
| Profit per share | $1.64 +25% from a year ago |
| Free cash flow | $14.4M $28.1M a year ago |
| Outlook for the year | No figures given company repeats it will finish 2026 strong |
⚖️ Verdict: 🔴 Bearish
The case got worse, because the segment meant to carry DXP's expansion went almost nowhere on its own. Excluding acquired firms, pump and water sales added under 2%, and that segment's operating margin gave up two percentage points. The offset: the branch network kept winning orders without help from deals.
The question now is whether the water and pump business can grow without more deals. One answer: the big project finished, the order book is filling, and the segment recovers next year. The other: deals have been dressing up a slow-growing pump shop. The like-for-like sales table in the next filing settles it.
🐂 Bull Case
The Branch Business Grew Without Acquisitions
Service Centers is DXP's largest business. It supplies factories with bearings, hoses, power transmission parts, metalworking tools and safety gear, and sends technicians out to keep that equipment running. The unit booked $376.6 million of sales in the quarter, close to two-thirds of the group total.
Reported sales rose 7.6%, which understates the work done. A year ago the segment still counted $11.7 million from businesses DXP had just bought; those now sit in the comparison base. On the same ownership footing, branch sales climbed 11.3%, and this quarter the segment bought in nothing at all.
DXP credits "increased volume within our California, Gulf Coast, Alaska, and North Texas regions", "offset by decreases in sales in our Ohio River Valley, South Central, and Southwest regions". That matters because the story around this distributor has lately been water projects and deals, so double-digit growth in the plain parts business moves where the growth comes from. The segment earned an operating margin of 14.8%, a touch wider than a year ago.
What to watch: the organic sales table in the next quarterly filing, due with the annual report in February. A fourth quarter above 10% on that line would show DXP can compound without spending on acquisitions, which is the cheapest growth it has.
Lower Overheads Lifted Operating Profit
Selling, general and administrative costs cover the pay, rent, insurance, depreciation and professional fees behind DXP's branches and offices. They rose $10.5 million from a year ago, but sales rose faster, so they fell to 21.8% of sales from 22.9%. Yee called the result operating leverage, and put it at 1.3 times.
That 1.1 point saving is what carried the quarter. Operating profit grew 20.1% to $52.5 million while sales advanced 14.3%, and the operating margin reached 8.9%. Adjusted profit before interest, tax and non-cash charges came to $67.3 million, or 11.5% of sales, against 11.0% a year earlier.
This matters because DXP could not lean on gross margin this quarter, which went the other way. Overheads are the lever it still controls, and the saving came from scale rather than cuts: the company is paying more people and more rent, just spreading the bill over a larger business.
What to watch: overheads as a share of sales in the fourth quarter, when acquired branches carry a full period of cost and no offsetting newness. Another reading near 21.8% would show the saving is structural rather than the product of one busy quarter.
Pump Orders Rose For A Third Quarter
Innovative Pumping Solutions builds custom pump packages and "products and process lines for the water and wastewater treatment industries". These are long jobs, so the order book tells you what the segment will bill next year rather than what it billed this one.
Yee told analysts "Our Q3 energy-related average backlog grew 5.8% sequentially", a third consecutive gain after two quarters of decline in late 2025. Set aside one large job now shipping and he said the order book is "up 7.8% sequentially and 18.5% from Q1". He argued the rebuild "positions us to do well going into 2027".
What to watch: whether DXP ever attaches a dollar figure to that order book. Until it does, readers get percentages with exclusions the company chooses. A fourth quarterly gain, together with the delivery of the large job, would point to a stronger first half of 2027 in this segment.
🐻 Bear Case
The Pump Segment's Growth Came From Purchases
Little says "Water is deliberately a growth platform for DXP", and the pump segment is where that platform sits. Sales there reached $144.1 million, the fastest advance in the group, and Yee reported a "16th consecutive quarter of sequential sales growth" in water.
Almost all of the increase was bought. Businesses DXP has owned for less than a year supplied $48.8 million of segment sales, against $6.7 million a year earlier. On a like-for-like ownership basis the segment added $1.5 million of sales.
- Segment sales as reported: up 43.3% from a year ago
- Segment sales excluding businesses bought in the past year: up 1.6%
- Water sales: up 71% from a year ago, acquisitions included
- Goodwill: $573.0 million, 15.9% higher than in December
Three months ago the pumps and the branches were growing at almost the same underlying pace, so water looked like a genuine engine. This quarter the gap runs close to ten points the other way. The filing's own pro forma table makes the point: had DXP owned every acquired business a year earlier, profit for shareholders would have been lower this quarter, not higher.
What to watch: the like-for-like line for this segment in the next filing. Another reading near 2%, while reported growth runs above 40%, would mark water as a consolidation project rather than a growth platform, and the price of it keeps showing up in goodwill.
Cash Generation Halved While Profit Rose
DXP turned $26.9 million of net profit into $18.7 million of operating cash this quarter. A year ago the same company produced $34.9 million of operating cash on a smaller profit. Yee said DXP "made a meaningful investment in working capital to support growth, which tempered free cash flow".
The gap sits in money customers have not yet paid. Receivables climbed $32.5 million during the quarter and unbilled project costs added $9.5 million, which the finance chief tied to "receivable days increasing within DXP Water". Free cash flow, meaning operating cash after equipment spending, came to $14.4 million against $28.1 million.
Receivables now stand 24.5% above a year ago while sales are 14.3% higher. By our math customers take about six days longer to pay than they did last September. Across nine months the picture is far better than last year's, helped by much lower spending on equipment, so the worry is the direction of travel rather than the level.
What to watch: fourth-quarter operating cash, after Yee said "we expect working capital to normalize as we move into the fourth quarter". A second quarter near $19 million would make this year's cash recovery look like a first-half event built on deferred equipment spending.
Gross Margin Fell Across The Two Big Segments
Gross margin is what is left of each sales dollar after DXP pays for the goods it resells and the parts it fabricates. It slipped to 30.7% from 31.4%, the weakest of the past five quarters. Little put the fall down to the mix of work: "a portion of that growth came from lower margin business".
The quarterly filing gives a different reason for the same 0.65 of a percentage point, naming "increased input costs compared to the last quarter". Those two explanations point to different cures, and only the mix one is temporary. The pump segment took the harder knock, with its operating margin at 16.3% against 18.3% a year earlier. Little told an analyst: "There is nothing structurally different about the business."
What to watch: that segment's margin in the fourth quarter, once the large low-margin job ships. Yee expects margins "to be historically what they've been" afterwards, a level near 18%. A reading there would support the mix explanation and leave the cost question for the annual report.
Risks This Quarter Didn't Answer
Four long-running worries about this distributor got partial readings in the quarter, and none of them was settled. Each has a figure attached and a named place where the next reading will appear.
- Floating-rate debt: $839.5 million at 7.15%, and interest of $16.9 million absorbed 32% of operating profit. Leverage did improve, to 2.30 times from 2.59 after the first quarter, and S&P raised DXP's rating to B+ in July.
- Energy demand: management reports the order book only as a percentage change, with exclusions that move between quarters, so the cycle inside the pump business stays hard to read from outside.
- Supply Chain Services: sales grew 5.5% to $66.4 million, the fastest in two years, on new customers and their facilities, held back by lower activity at existing ones. Two more quarters near that pace would retire this one.
- Tax: the nine-month effective rate is 26.5% against 25.4% last year. DXP released part of a reserve for prior-year research credits this quarter, which cut the quarterly rate, but has never sized what remains.
- Tariffs and rates: Little said these "can certainly challenge our customers", while the filing repeats that the effect "cannot be predicted at this time".
👓 Other Themes
A Bigger Buyback Plan, Unused So Far
DXP's board approved a plan on 28 October under which "up to $150.0 million or 1.0 million shares of its outstanding common stock may be acquired in the open market over the next 24 months". The previous plan ran out in August. The company bought no shares at all during the first nine months of this year, directing its cash to acquisitions instead.
Mequipco Takes DXP Water Into Canada
DXP bought Mequipco during the quarter, paying with cash and its own shares. The deal "gives DXP Water a beachhead to expand in Canada", Yee said, a country where the company sold $19.5 million in the quarter. On 1 November it agreed to buy MDS of Michigan, its sixth deal of the year, again from cash on hand.
💲 Other KPIs
DXP ended September with $218.8 million of cash and $192.2 million it can still draw on its asset-backed credit line, which remains undrawn. That cash is down from $303.8 million at the end of December, mostly because of acquisitions, and the line itself was enlarged in July.
Slightly fewer shares than the 16.5 million of a year ago, because the group has bought none back and issued almost none. Profit is therefore spread a little thinner, which added about one point to the growth in profit per share, by our math.
Stock on the shelves grew 13.8% from a year ago, roughly in step with sales. It has held near a fifth of quarterly sales for five quarters. Unfinished pump packages, counted as work in process, rose to $17.2 million from $10.1 million in December, which follows the project work.
🔮 Guidance
Unchanged. The Houston company again puts no numbers on its year, saying only that it will close 2026 strongly and carry momentum into 2027. One hard figure sits behind the words: sales ran at $9.03 million a day in October, against $9.18 million across the third quarter. That October pace is about 6% above last year's fourth-quarter average, by our math.
New. Yee agreed that roughly $17 million a quarter is a fair assumption for the fourth quarter, and said "it should taper slightly" as quarterly principal payments come through. By our math that is about 5% above the same quarter last year, the mildest such increase since the term loan was repriced, because the refinancing itself now sits in the comparison base.
New. The large, lower-margin job inside the segment "should be complete by the end of Q4", the finance chief said, and he then expects margins "to be historically what they've been". Those ran between 18.0% and 18.7% in the four quarters before this one, so the bar he has set sits about two points above where the segment landed in the third quarter.
New. Yee expects the money tied up in receivables and unfinished projects to come back in the final quarter. It rose $27.6 million from June, to $420.9 million. That equals 19% of sales over the past twelve months. Seasonality is on his side: the fourth quarter of 2025 was the strongest of that year for cash, at $34.5 million of free cash flow.
Unchanged. Yee describes deals as "a disciplined and repeatable growth lever for DXP" and the pipeline as active. Five closed through September and MDS of Michigan was signed on 1 November, paid from cash. Spending reached $126.2 million over nine months, against $24.4 million a year earlier, so this lever now costs about five times what it did.
❓ Key Questions
What is the pump order book worth in dollars?
DXP reports its backlog only as a percentage change, and sets aside a large project when that suits the number. A dollar figure, split between energy and water work, would let anyone judge the 2027 claim.
How fast is water growing without acquisitions?
Water sales rose 71% from a year ago, yet the segment holding them added 1.6% on a like-for-like basis. DXP has never published water's own underlying rate, or its margin against the rest of the segment.
Why do the filing and the call differ on margin?
The quarterly filing blames "increased input costs" for the lost gross margin, while Little blamed the mix of work. The two point to different cures, and only one of them fades on its own.
How large is the research-credit tax reserve?
Releasing part of a reserve tied to research and development credits lowered the quarterly tax rate. DXP has never sized the remaining reserve, nor what it would owe if the tax authorities disagree.
Will DXP buy shares or keep buying companies?
The board approved a $150 million repurchase plan in October, after a year in which the company bought no shares and spent $126.2 million on acquisitions. Which claim on cash comes first in 2027?