Water growth is changing DXP
- Q1 2026 sales rose 9.5% to $521.7 million, helped by a sharp rebound after a weak January.
- Innovative Pumping Solutions grew 37.7%, and DXP Water was 66% of that segment's Q1 sales.
- Service Centers is still the largest unit, with $338.0 million of Q1 sales.
- Adjusted EBITDA margin stayed strong at 11.1%, but SG&A rose faster than revenue.
- The big cash risk is an IRS review tied to $37.0 million of R&D tax credits.
Water is carrying the story
DXP is an industrial distributor, but the main debate is now about pumps and water. In Q1 2026, total sales rose 9.5% to $521.7 million. The standout was Innovative Pumping Solutions, where sales grew 37.7% and DXP Water made up 66% of the segment's sales.
That shift matters because water and wastewater can be steadier than oil and gas. It also appears to help margins. Adjusted EBITDA margin was 11.1%, even while costs were moving higher.
The bear case is not gone. Management said January was weak across water, oil and gas, and general industry, and they did not know why. Sales improved through March and April, including 15% year-over-year growth in April daily sales, but the January drop is a warning sign.
Costs are the other check on the story. SG&A rose from 23.0% to 24.2% of sales year over year. Management said some Q1 costs were one-time, but healthcare claims and other corporate costs may stay higher as DXP adds people through acquisitions. The stock also does not screen as cheap, so investors need the water growth to keep showing up.
Industrial supplies plus pump work
DXP sells maintenance, repair, and operating products to other businesses. These are the parts and supplies factories, energy sites, utilities, and other industrial customers need to keep running.
The company makes money in two main ways. First, it distributes a wide range of products through service centers and customer supply programs. Second, it builds, assembles, and repairs custom pump systems, especially in the IPS segment.
Growth comes from more customer activity, new customer wins, and acquisitions. Recent deals have pushed DXP deeper into water and wastewater, which is now the key growth engine.
The model can break if industrial demand slows, if acquired businesses do not fit well, or if higher payroll, rent, professional fees, and healthcare costs eat the extra gross profit.
What DXP sells
Service Centers
This is the largest business. It sells industrial parts and services such as rotating equipment, bearings, power transmission, hose, fluid power, metalworking, supplies, and safety products.
Innovative Pumping Solutions
IPS builds, assembles, and remanufactures custom and private-label pump packages. It grew 37.7% in Q1 2026.
DXP Water
DXP Water serves water and wastewater customers inside IPS. It made up 66% of IPS sales in Q1 2026.
Supply Chain Services
This unit manages MRO inventory and purchasing functions for customers. It returned to growth in Q1 2026 as new customers came on board.
Custom and private-label pumps
These products give DXP more value-added work than simple resale. They also tie the company to project timing, which can make bookings uneven.
Q1 sales mix
Segment shares use sales for the three months ended March 31, 2026. Service Centers is still the largest segment, while IPS has the fastest growth and the biggest mix change.
What could go wrong
IRS tax credit hit
High impact · Medium oddsDXP has recognized $37.0 million of federal R&D tax credits for 2015 through Q3 2025. The IRS is examining the 2018 tax year, and the company says it will defend its position. If a large share is disallowed, cash and reported results could take a real hit.
Costs cap the margin story
Medium impact · High oddsSG&A rose 14.9% in Q1 2026, faster than the 9.5% sales growth. Management also said corporate expenses could run between $20 million and $28 million over the short to medium term. Higher healthcare claims from acquired headcount may limit margin gains.
January weakness repeats
Medium impact · Medium oddsManagement said January was surprisingly slow across water, oil and gas, and general industry. That is concerning because the weakness was broad and unexplained. March and April improved, but one soft month shows the business is still tied to customer activity cycles.
Water growth slows
High impact · Medium oddsThe bull case leans on IPS and water. In Q1 2026, DXP Water was 66% of IPS sales, and the water and wastewater division posted 14.5% organic growth. If that pace fades, the market may question whether DXP is really becoming a steadier water platform.
Acquisition integration strain
Medium impact · Medium oddsRecent acquisitions added $35.0 million of Q1 IPS sales, and management is still working on more deals. Acquisitions can add growth, but they also add payroll, systems, insurance claims, and integration risk. If DXP pays too much or integrates poorly, growth may not convert to cash.
In one breath
What does DXP Enterprises do?
DXP sells industrial maintenance, repair, and operating products to business customers. It also builds and repairs custom pump systems, with a growing focus on water and wastewater.
Why is DXP Water important?
DXP Water is now a major part of the IPS segment. It made up 66% of IPS sales in Q1 2026, which supports the idea that DXP is moving toward steadier water infrastructure work.
What is the biggest risk for DXPE stock?
The clearest single risk is the IRS review of R&D tax credits tied to $37.0 million recognized from 2015 through Q3 2025. The broader business risk is that costs rise faster than sales or that water growth slows.
Is DXP still exposed to oil and gas?
Yes. DXP has reduced its reliance on legacy energy markets, but management still cited oil and gas when discussing demand swings. The January slowdown also hit oil and gas, water, and general industry at the same time.