Xylem Reports Second Quarter 2022 Results

Second quarter adjusted earnings before interest, tax, depreciation and amortization (EBITDA) margin was 16.6 percent, better than the Company’s previous guidance and reflecting a year-over-year decrease of 70 basis points. Inflation and the impact of continuing chip shortages drove the margin decline, exceeding the benefits of price realization and productivity savings. Xylem generated net income of $112 million, or $0.62 per share, and adjusted net income of $120 million, or $0.66 per share, which excludes the impact of restructuring, realignment and special charges.

“The team delivered very strong second quarter performance on all key metrics, and well ahead of our guidance for the quarter,” said Patrick Decker, Xylem president and CEO. “The result reflects our commercial momentum on continuing underlying demand, disciplined operational execution, and a moderate easing in chip supply constraints.”
“On the strength of robust backlog and orders growth, and the team’s demonstrated success mitigating the effects of inflation, we are raising our full-year guidance on revenue and earnings. This further reinforces our longer-term growth and value creation thesis for Xylem.”

Outlook
Xylem now expects full-year 2022 organic revenue growth to be in the range of 8 to 10 percent, and 3 to 5 percent on a reported basis. This represents an increase from the Company’s previous full-year organic revenue guidance of 4 to 6 percent, and 1 to 3 percent on a reported basis. Full-year 2022 adjusted EBITDA margin is now expected to be in the range of 16.5 to 17.0 percent, raising the low end of the previous range of 16.0 to 17.0 percent. This results in adjusted earnings per share of $2.50 to $2.70, raising the low end from the previous range of $2.40 to $2.70. The increased guidance reflects strong demand, gradual easing of supply chain constraints and price realization partially offset by inflation and foreign exchange headwinds.

Second Quarter Segment Results
Water Infrastructure
Xylem’s Water Infrastructure segment consists of its portfolio of businesses serving clean water delivery, wastewater transport and treatment, and dewatering.

• Second quarter 2022 Water Infrastructure revenue was $589 million, a 9.0 percent increase organically compared with second quarter 2021. This robust growth was driven by strong price realization, industrial dewatering demand, and healthy activity in our wastewater utility business in the U.S. and Western Europe.
• Second quarter adjusted EBITDA margin was 21.4 percent, up 240 basis points from the prior year. Reported operating income for the segment was $108 million. Adjusted operating income for the segment, which excludes $3 million of restructuring and realignment, was $111 million, a 14.4 percent increase versus the comparable period last year. Reported operating margin for the segment was 18.3 percent, up 200 basis points versus the prior year, and adjusted operating margin was 18.8 percent, up 180 basis points versus the prior year. Strong price realization, volume, and productivity savings more than offset inflation and strategic investments.

Applied Water
Xylem’s Applied Water segment consists of its portfolio of businesses in industrial, commercial building, and residential applications.

• Second quarter 2022 Applied Water revenue was $429 million, a 7.0 percent increase organically year-over-year. The segment delivered strong price realization and backlog execution in industrial and residential end markets, partially offset by continued supply chain constraints in commercial buildings in the United States.
• Second quarter adjusted EBITDA margin was 16.1 percent, down 130 basis points from the prior year. Reported operating income for the segment was $61 million and adjusted operating income, which excludes $2 million of restructuring and realignment costs, was $63 million, a 4.5 percent decrease versus the comparable period last year. The segment reported operating margin was 14.2 percent, down 130 basis points versus the prior year period. Adjusted operating margin declined 120 basis points to 14.7 percent. Strong price realization and productivity savings were more than offset by inflation and lower volume.

Measurement & Control Solutions
Xylem’s Measurement & Control Solutions segment consists of its portfolio of businesses in smart metering, network technologies, advanced infrastructure analytics and analytic instrumentation.

• Second quarter 2022 Measurement & Control Solutions revenue was $346 million, down 2.0 percent organically versus the prior year. While chip supply remains constrained, the result is better than our expectations due to improved chip supply in the quarter, and strength in our water quality test applications.
• Second quarter adjusted EBITDA margin was 9.8 percent, down 410 basis points from the prior year. Reported operating income for the segment was $(5) million, and adjusted operating income, which excludes $3 million of restructuring and realignment costs and $1 million of special charges, was $(1) million, a 108 percent decrease versus the comparable period last year. The Measurement & Control Solutions segment reported operating margin was (1.4) percent, down 490 basis points versus the prior year period. Adjusted operating margin of (0.3) percent decreased 380 basis points over the prior year period. Volume declines from chip shortages, unfavorable mix and higher inflation more than offset price realization and productivity savings.