Xylem Reports First Quarter 2019 Results

Excluding the impact of foreign exchange translation, adjusted earnings per share was up 12 percent. First quarter revenue was $1.2 billion, up 6 percent organically driven by strength across all end markets and double-digit growth in the U.S. and Emerging Markets. Reported operating margin in the quarter was 8.8 percent and adjusted operating margin was 10.8 percent, down 30 basis points compared to the prior year due primarily to the impact of unfavorable sales mix and lower absorption of overhead costs.

“We continue to see robust momentum in the demand for our solutions as we help our customers solve their water challenges and drive the digital transformation of the sector,” said Patrick Decker, President and Chief Executive Officer of Xylem. “While we’re disappointed with our margin performance in the quarter, we’re confident in our long-term growth outlook and in continuing to achieve attractive margin expansion.”

Full-year 2019 Outlook

Xylem continues to forecast full-year 2019 revenue in the range of $5.3 to $5.4 billion, up 2 to 4 percent. On an organic basis, Xylem’s revenue growth also remains unchanged in the range of 4 to 6 percent.

Xylem is revising its full-year 2019 adjusted operating margin outlook from 14.7 to 15.2 percent to 14.5 to 14.9 percent due to the impact of foreign exchange translation and the results from the first quarter. The full-year adjusted earnings per share is now expected to be $3.12 to $3.32 down from $3.20 to $3.40. The Company’s adjusted earnings outlook excludes projected restructuring and realignment costs, which are now expected to be approximately $60 to $70 million for the year as a result of actions to simplify the organization. Excluding revenue, Xylem provides guidance only on a non-GAAP basis due to the inherent difficulty in forecasting certain amounts that would be included in GAAP earnings, such as discrete tax items, without unreasonable effort.

First Quarter Segment Results

Water Infrastructure

Xylem’s Water Infrastructure segment consists of its portfolio of businesses primarily serving wastewater operations for utility and industrial customers through transport, dewatering and treatment applications.

• First quarter 2019 revenue was $482 million, up seven percent organically compared with first quarter 2018. Double digit organic growth in Emerging Markets and the U.S. from strength in the Utilities and Industrial end markets led top-line performance at the high end of guidance.

• First quarter reported operating income for the segment was $51 million. Adjusted operating income for the segment, which excludes $9 million of restructuring and realignment costs, was $60 million, an 11-percent increase over the same period a year ago. Reported operating margin for the Water Infrastructure segment was 10.6 percent, up 40 basis points versus the prior year. Adjusted operating margins of 12.4 percent were up 110 basis points versus prior year as cost reductions, volume leverage and price realization more than offset inflation, lower absorption of overhead costs and growth investments.

Applied Water

Xylem’s Applied Water segment consists of its portfolio of businesses primarily serving the end users of water through industrial water management, commercial building services and residential applications.

• First quarter 2019 Applied Water revenue was $379 million, a seven percent increase organically year-over-year, driven by growth in the U.S. and Emerging Markets. There was strength in all end markets led by 12 percent organic revenue growth in the Commercial end market.

• First quarter reported operating income for the segment was $56 million and adjusted operating income, which excludes $3 million of restructuring and realignment costs, was $59 million, an 11-percent increase over the comparable period last year. The segment’s reported operating margin was 14.8 percent and adjusted operating margin was 15.6 percent, both up 110 basis points over the prior year period. Cost reductions and price realization more than offset inflationary pressures, lower absorption of overhead costs and foreign exchange headwinds.

Measurement & Control Solutions

Xylem’s Measurement & Control Solutions segment consists of its portfolio of businesses primarily serving the clean water and energy operations for utility and industrial customers through smart metering, network technologies, advanced infrastructure analytics and analytic instrumentation applications.

• First quarter 2019 Measurement & Control Solutions revenue was $376 million, up five percent organically versus the prior year. Revenue growth was driven by strength in the North American water business and partially offset by the lapping of a large electric project deployment and software sale in the first quarter of 2018.

• First quarter reported operating income for the segment was $16 million, and adjusted operating income, which excludes $12 million of restructuring and realignment costs and special charges, was $28 million. The Measurement & Control Solutions segment reported operating margin was 4.3 percent. Adjusted operating margin contracted 420 basis points over the prior year period to 7.4 percent as higher volume and cost reductions were more than offset by inflation, higher investments for growth and unfavorable mix.