- Operational performance exceeds expectations on the top and bottom line; quarter sequential gains across all segments and end markets
- Fourth-quarter and full-year revenue of USD 1.37 billion and USD 4.88 billion, respectively
- Fourth-quarter 2020 reported net income of USD 148 million or USD 0.82 per share; adjusted net income of USD 145 million or USD 0.81 per share
- Full-year 2020 reported net income of USD 254 million or USD 1.40 per share; adjusted full-year net income of USD 374 million or USD 2.06 per share
- Strong full-year cash performance of 324% operating cash flow conversion and 181% free cash flow conversion
- Announces 8% increase in cash dividend, representing the Company’s 10th consecutive annual dividend increase
- Provides 2021 organic revenue growth guidance range of 3% to 5% and adjusted earnings per share range of USD 2.35 to USD 2.60
USA: Xylem Inc. has reported fourth-quarter revenue of USD 1.37 billion, and full-year 2020 revenue of USD 4.88 billion, exceeding expectations on strengthening end-market performance, despite COVID-19 related impacts.
Fourth-quarter reported operating margin was 13.0 percent, and adjusted operating margin was 13.8 percent, each declining 120 basis points year-over-year. Adjusted earnings before interest, tax, depreciation, and amortization (EBITDA) margin declined 170 basis points to 18.8 percent. COVID-related impacts and inflation drove the margin decline, exceeding productivity improvements and cost savings. Xylem generated net income of USD 148 million, or USD 0.82 per share, and adjusted net income of USD 145 million, or USD 0.81 per share, which excludes the impact of restructuring, realignment, and special charges.
For the full year, Xylem delivered a reported operating margin of 7.5 percent, down 180 basis points versus the prior year, and an adjusted operating margin of 10.8 percent, down 310 basis points for the same period. Adjusted EBITDA margin was 16.3 percent, down 320 basis points year-over-year. The margin declines for the full year were driven by the same factors as in the fourth quarter. Full-year reported net income was USD 254 million, or USD 1.40 per share, with a reported operating margin of 7.5 percent. Adjusted net income, which excludes the impact of restructuring, realignment, and special charges, was USD 374 million, or USD 2.06 per share. The Company generated USD 824 million of operating cash flow, representing a 324 percent conversion, and USD 641 million of free cash flow, representing a 181 percent conversion.
“Our team again delivered solid operational performance, exceeding expectations across all major indicators, including revenue, margin, and EPS,” said Patrick Decker, President & CEO of Xylem. “We drove better-than-anticipated top-line improvements in all segments, taking full advantage of stabilizing demand, demonstrated by sequential gains globally, and with a particularly strong performance in Europe and China. Our improved bottom-line performance reflects effective cost containment and supply chain execution through the pandemic, and over-delivery on our free cash flow conversion commitments on the back of disciplined working capital management.”
“That performance gives us positive momentum entering 2021,” Decker continued, “as our end markets showed encouraging signs of recovery in the fourth quarter, with healthy orders trends and significant backlog growth. We also delivered strong performance with our industry-leading digital portfolio, as the pandemic continues to accelerate customer adoption of digital technologies across the water sector. This clearly positions Xylem well in both the near and long term.”
Xylem announced that its Board of Directors declared a dividend in the amount of USD 0.28 per share, an increase of 8 percent. The dividend is payable on March 18, 2021, to shareholders of record as of February 18, 2021.
Full-Year 2021 Outlook
Xylem forecasts full-year 2021 revenue in the range of USD 5.16 to USD 5.26 billion, up 6 to 8 percent on a reported basis and up 3 to 5 percent on an organic basis.
The full-year 2021 adjusted EBITDA margin is expected to be in the range of 16.7 to 17.7 percent and the adjusted operating margin is expected to be in the range of 11.5 to 12.5 percent. This results in adjusted earnings per share of USD 2.35 to USD 2.60, which represents an increase of 14 to 26 percent from Xylem’s 2020 adjusted results. The Company’s adjusted earnings outlook excludes projected restructuring and realignment costs of approximately USD 50 to USD 60 million for the year. Further 2021 planning assumptions are included in Xylem’s fourth quarter 2020 earnings materials. 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.
Fourth-Quarter Segment Results
Xylem’s Water Infrastructure segment consists of its portfolio of businesses serving clean water delivery, wastewater transport and treatment, and dewatering.
- Fourth-quarter 2020 revenue was USD 616 million, flat organically compared with fourth-quarter 2019. This result, achieved despite difficult market conditions, was driven by modest growth in the wastewater utility end market in Europe, Asia, and Canada offset by softness in the U.S. industrial market.
- Fourth-quarter reported operating income for the segment was USD 117 million. Adjusted operating income for the segment, which excludes USD 7 million of restructuring and realignment, was USD 124 million, a less than one percent decrease versus the comparable period last year. The reported operating margin for the segment was 19.0 percent, down 70 basis points versus the prior year, and the adjusted operating margin was 20.1 percent, down 60 basis points versus the prior year. THE adjusted EBITDA margin was 22.2 percent, down 70 basis points from the prior year. Productivity benefits cost control and modest price realization were more than offset by inflation, increased reserves, and unfavorable volume and mix impacts.
Xylem’s Applied Water segment consists of its portfolio of businesses in residential and commercial building services, and industrial applications.
- Fourth-quarter 2020 Applied Water revenue was USD 395 million, a one percent decline organically year-over-year. Volume weakness in industrial end markets continued in the quarter, with particular softness in the U.S. and the Middle East, partly offset by robust growth in the residential market in the U.S. and China.
- Fourth-quarter reported operating income for the segment was USD 61 million and adjusted operating income, which excludes USD 1 million of restructuring and realignment costs, was USD 62 million, a 5 percent decrease versus the comparable period last year. The segment reported operating margin was 15.4 percent, down 40 basis points versus the prior-year period. Adjusted operating margin declined 90 basis points to 15.7 percent. The adjusted EBITDA margin was 17.2 percent, down 170 basis points from the prior year. Productivity benefits, favorable mix, and modest price realization were more than offset by inflation and lower volumes.
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.
- Fourth-quarter 2020 Measurement & Control Solutions revenue was USD 362 million, down 5 percent organically versus the prior year, lapping large project deployments in the U.S. and the Middle East. The strong sequential improvement reflects healthy demand in the test business and Advanced Infrastructure Analytics, both of which were up high single digits.
- Fourth-quarter reported operating income for the segment was USD 14 million, and adjusted operating income, which excludes USD 2 million of restructuring and realignment costs, was USD 16 million, a 45 percent decrease versus the comparable period last year. The Measurement & Control Solutions segment reported operating margin was 3.9 percent, down 330 basis points versus the prior-year period. Adjusted operating margin of 4.4 percent also decreased 330 basis points over the prior-year period. The adjusted EBITDA margin was 14.6 percent, down 350 basis points from the prior year. Strong productivity results and cost savings programs partly offset lower volume, inflation, and unfavorable mix.
Xylem (XYL) is a leading global water technology company committed to solving critical water and infrastructure challenges with innovation. Our more than 16,000 diverse employees delivered revenue of USD 4.88 billion in 2020. We are creating a more sustainable world by enabling our customers to optimize water and resource management and helping communities in more than 150 countries become water-secure.
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