Xylem Reports Solid Earnings Growth on Five Percent Organic Revenue Increase

Excluding the impact of restructuring and realignment, the Company delivered adjusted net income of $143 million or $0.79 per share in the quarter. Excluding the impact of foreign exchange translation, adjusted earnings per share was up 10 percent. Second quarter revenue was $1.3 billion, up 5 percent organically with revenue growth across all end markets, led by double-digit growth in the U.S. and continued solid momentum in China and India. Reported operating margin in the quarter was 12.7 percent and adjusted operating margin was 14.3 percent, up 50 basis points compared to the prior year.

Patrick Decker, President and Chief Executive of Xylem, said “We have delivered another quarter of strong revenue growth and margin expansion. That consistent, organic orders and sales momentum – especially in the utilities market – reflects strong customer demand, and an equally strong focus on disciplined execution.”

Decker continued, “We are confident that our Xylem team will continue to deliver mid-single-digit growth and strong margin expansion in the second half of the year, despite seeing some slowing in Europe. As digitization of the water sector drives new demand, we’re seeing accelerating interest in our offerings. We continue to invest in technology and capabilities that deliver step-changes in performance and economics alongside water and energy savings.”

Full-year 2019 Outlook
Xylem is updating its forecasted full-year 2019 revenue outlook to be in the range of $5.29 to $5.38 billion. On an organic basis, Xylem’s revenue growth is narrowed to a range of 5 to 6 percent (2 to 3 percent on a reported basis) from previous guidance of 4 to 6 percent.

Xylem is revising its full-year 2019 adjusted operating margin outlook from 14.5 to 14.9 percent to 14.3 to 14.5 percent. The full-year adjusted earnings per share is now expected to be $3.12 to $3.22 from previous guidance of $3.12 to $3.32, an increase of 8 percent to 12 percent versus prior year. The Company’s adjusted earnings outlook excludes projected restructuring and realignment costs. 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.

Second 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.

• Second quarter 2019 revenue was $561 million, up 6 percent organically compared with second quarter 2018. Double-digit growth in the U.S. from strength in the utilities and industrial end-markets led the performance in the quarter, partially offset by a slight decline in Western Europe.
• Second quarter reported operating income for the segment was $98 million and adjusted operating income, which excludes $9 million of restructuring and realignment costs, was $107 million. The segment’s reported operating margin was 17.5 percent and adjusted operating margin was 19.1 percent, up 130 basis points versus the prior year as productivity, price realization and volume leverage offset inflation, unfavorable mix 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.

• Second quarter 2019 Applied Water revenue was $394 million, a 4 percent increase organically year-over-year, driven by healthy commercial and industrial end markets in the U.S. and Emerging Markets. Commercial was strong across most geographies from project activity.
• Second quarter reported operating income for the segment was $62 million and adjusted operating income, which excludes $4 million of restructuring and realignment costs, was $66 million. The segment’s reported operating margin was 15.7 percent and adjusted operating margin was 16.8 percent, a 60 basis point increase over prior year period. Productivity and price realization more than offset inflation and unfavorable mix.

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.

• Second quarter 2019 Measurement & Control Solutions revenue was $390 million, up 6 percent organically versus the prior year. Revenue growth was driven by strength in the North American water business.
• Second quarter reported operating income for the segment was $26 million, and adjusted operating income, which excludes $8 million of restructuring and realignment costs, was $34 million. The segment’s reported operating margin was 6.7 percent. Adjusted operating margin was 8.7 percent, down 40 basis points versus the prior year as higher volume, price realization and productivity were more than offset by unfavorable mix and investments for growth in our new AIA platform and the pursuit of large AMI deployments.