Industrial distributor DXP Enterprises (NASDAQ: DXPE) met Wall Street’s revenue expectations in Q3 2026, with sales up 14.3% year on year to $587.2 million. Its non-GAAP profit of $1.64 per share was 8.4% below analysts’ consensus estimates.

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StockStory’s take

DXP Enterprises delivered double-digit sales growth in the most recent quarter, but the market responded negatively, reflecting concerns over profitability. Management pointed to continued expansion across all core segments, with notable gains from both organic growth and recent acquisitions. CEO David Little emphasized that, while gross profit margins slipped due to business mix, there were no structural issues affecting the company’s fundamentals. Instead, operational leverage from increased sales helped offset some margin pressure, and DXP’s water and wastewater platform remained a standout area of growth.

Looking ahead, management is focused on maintaining momentum through a blend of organic growth and disciplined acquisitions, with water and wastewater as a strategic priority. CFO Kent Yee stated that gross margin should normalize, as the recent dip was attributed to temporary sales mix shifts rather than pricing or structural challenges. The leadership team expects continued backlog strength in energy and water-related projects, and aims to further leverage expense discipline to support profitability, noting that working capital management and integration of recent acquisitions will be key areas of attention.

Key insights from management’s remarks

Management attributed the quarter’s performance to robust activity in its water, wastewater, and energy end markets, the contribution of recent acquisitions, and ongoing operating leverage, though profitability was tempered by less favorable sales mix.

• Acquisitions fuel growth: Recent acquisitions, especially in the water and wastewater sector, meaningfully contributed to both top-line growth and expansion of DXP’s technical capabilities. Management highlighted Mequipco as a key addition, expanding the company’s Canadian water business.
• Water platform accelerates: DXP Water achieved 16 consecutive quarters of sequential sales growth, with sales up 71% year-over-year. This segment is positioned as a long-term growth engine, benefiting from demand in municipal and industrial water projects.
• Organic growth in Service Centers: The Service Centers segment delivered higher sales across key regions, underpinned by strength in the metalworking product category. Management emphasized that local customer relationships and tailored technical solutions remain a differentiator for this business.
• Margins impacted by mix: Both CEO David Little and CFO Kent Yee cited sales mix as the main factor behind lower gross margins. The impact was most notable in Innovative Pumping Solutions, where a large, lower-margin project temporarily weighed on profitability, but management expects a return to historical margin levels.
• Working capital investment: Increased project activity, acquisitions, and sales growth required additional working capital, leading to a decline in free cash flow for the quarter. Management stated that this is expected to normalize as billing aligns with investments in the coming periods.

Drivers of future performance

DXP’s outlook centers on continued end-market demand, integration of acquired businesses, and a focus on margin recovery through disciplined cost control and operating leverage.

• Sustained water market momentum: Management believes the DXP Water platform will remain a key growth driver, citing recurring project activity and a growing backlog in water and wastewater as supporting long-term revenue expansion.
• Margin improvement efforts: Leadership expects gross margins to stabilize as temporary mix headwinds subside, and plans to leverage SG&A (selling, general and administrative) expenses more effectively as the business scales, supporting adjusted EBITDA and operating margins.
• Acquisition integration and capital discipline: The company is prioritizing the integration of recent acquisitions to realize cross-selling and operational synergies, while maintaining a disciplined approach to capital allocation. Management sees additional acquisition opportunities as a lever for future growth but remains focused on ensuring each deal contributes positively to both revenue and margins.

Catalysts in upcoming quarters

In the coming quarters, the StockStory team will be watching (1) whether DXP sustains growth momentum in its water and wastewater segment, (2) if margin recovery materializes as sales mix normalizes and large projects wind down, and (3) the pace and effectiveness of acquisition integration, particularly in new markets like Canada. Continued improvement in working capital efficiency and free cash flow conversion will also be key areas to track.

DXP currently trades at $132.57, down from $158.38 just before the earnings. Is there an opportunity in the stock? Find out in our full research report (it’s free).

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