DXP Enterprises (NASDAQ:DXPE) reported record third-quarter sales of $587.2 million, up 14.3% from a year earlier, as acquisitions and organic growth contributed to gains across all three business segments.
Net income rose 24.2% to $26.9 million, or $1.64 per diluted share, from $21.6 million, or $1.31 per share, a year earlier. Adjusted EBITDA increased 19% to $67.3 million, while its adjusted EBITDA margin expanded to 11.5% from 11%.
Chairman and CEO David Little said organic sales increased 8.7% year over year, alongside contributions from acquired businesses. He said gross margins declined primarily because a portion of the company’s growth came from lower-margin business, while operating expense leverage partially offset that effect.
“There is nothing structurally different about the business,” Little said. “We did achieve operating leverage on our expenses as a percent of sales, which partially offset the lower gross margin percentage.”
Water and acquisitions drive pumping growth
Innovative Pumping Solutions, or IPS, led the company’s segment growth, with sales rising 43.3% to $144.1 million. CFO Kent Yee attributed the increase to activity in DXP Water, production contracts and acquisitions. Recent acquisitions contributed $40.8 million to IPS sales during the quarter, compared with $6.7 million a year earlier.
Little said DXP Water sales rose 71% year over year and 1.8% sequentially. For the first nine months of 2026, sales at the water business were up 80% from the comparable period of 2025. Yee said the platform recorded its 16th consecutive quarter of sequential sales growth.
Yee said energy and water and wastewater bookings and backlog increased. Excluding a large engineered-solutions project expected to be completed by the end of the fourth quarter, backlog was up 7.8% sequentially and 18.5% from the first quarter, he said.
Service Centers sales rose 7.6% to $376.6 million, with organic growth of 11.3%, according to Yee. Management cited activity in several regions, including California, the Texas Gulf Coast and South Rockies, as well as strength in metalworking products. Supply Chain Services sales increased to $66.4 million as new customers and facilities helped offset lower activity at some existing customers.
Margins and cash flow face pressure from mix and working capital
Third-quarter gross margin declined to 30.7% from 31.4% a year earlier. Yee said shifts in sales mix within Service Centers and IPS were the primary cause. Selling, general and administrative expenses rose to $128 million, but fell as a percentage of sales to 21.8% from 22.9%.
Asked about the sequential decline in IPS operating margin, Yee cited the change in mix and said he expected margins to return to historical levels. Little said the company was not structurally cutting prices to win sales and that the segment’s margin movement reflected the mix of everyday business.
Free cash flow was $14.4 million in the third quarter, down from $28.1 million a year earlier and $29.8 million in the second quarter. Yee said investments in working capital to support growth, acquisitions and project activity tempered cash generation. For the first nine months, free cash flow rose to $70.5 million from $19.5 million in the prior-year period.
DXP ended September with $218.8 million in cash, $839.5 million in total debt and no borrowings outstanding under its asset-based lending facility. Yee said the company expects working capital to normalize in the fourth quarter.
Acquisition pipeline and sales trends
DXP acquired five businesses in the first nine months of 2026, including Mequipco Limited in the third quarter. Yee said Mequipco gives DXP Water a foothold for expansion in Canada. He also said DXP entered into an agreement on Nov. 1 to acquire MDS of Michigan.
Average daily sales rose from $8.45 million in July to $9.51 million in August and $9.60 million in September. In response to an analyst’s question, Yee said October average daily sales were $9.03 million.
For the first nine months of 2026, sales grew 13.2% to approximately $1.69 billion, while adjusted EBITDA increased 17.5% to $195.4 million. Little said fourth-quarter priorities include organic growth, margin expansion, building the water and wastewater platform, acquisitions and cash generation.
About DXP Enterprises (NASDAQ:DXPE)
DXP Enterprises, Inc is an industrial distribution and services company headquartered in Houston, Texas. The company supplies maintenance, repair and operating products used by industrial, commercial and government customers, with an emphasis on rotating equipment, fluid handling and related industrial applications.
Its product offerings include pumps, valves, bearings, power-transmission components, hose and rubber products, industrial supplies, safety equipment and other maintenance products.
