Full-year organic growth, adjusted EBITDA margin expansion, adjusted earnings per share in line with November guidance
Full-year revenue of $5.2 billion, up 7% on a reported basis, up 4% organically
Full-year reported earnings per share of $2.35, up 68%; adjusted earnings per share of $2.49, up 21%
Strong demand drives continuing commercial momentum in all business segments; fourth quarter and full-year reported and organic orders growth in excess of 20%
Provides 2022 organic revenue growth guidance range of 3% to 5% and adjusted earnings per share range of $2.35 to $2.70, reflecting ongoing chip constraints across the technology sector
USA: Xylem Inc has reported fourth-quarter revenue of $1.32 billion, and full-year 2021 revenue of $5.20 billion, in line with previous guidance.
Fourth-quarter adjusted earnings before interest, tax, depreciation, and amortization (EBITDA) margin decreased 260 basis points to 16.2 percent. Inflation and strategic investments drove the margin decline, exceeding the benefits of price realization and productivity savings. Xylem generated a net income of $113 million, or $0.62 per share, and adjusted net income of $115 million, or $0.63 per share, which excludes the impact of restructuring, realignment, and special charges.
For the full year, Xylem delivered an adjusted EBITDA margin of 17.1 percent, up 80 basis points year-over-year. Productivity and volume drove the increase, exceeding inflation impacts. Full-year reported net income was $427 million, or $2.35 per share, and adjusted net income, which excludes the impact of restructuring, realignment, and special charges, was $452 million, or $2.49 per share. The company generated $538 million of operating cash flow, representing a 126 percent conversion, and $330 million of free cash flow, representing a 77 percent conversion.
“The team closed out 2021 with a strong performance, delivering full-year margin expansion alongside solid growth in revenue and earnings in the face of accelerating supply chain headwinds through the quarter,” said Patrick Decker, president, and CEO of Xylem. “To mitigate the effects of inflation, the team also drove solid productivity improvements and price realization above our expectations. Market demand was clearly robust, as evidenced by continued strong orders and backlog growth in both the quarter and the year.”
“We expect the first half of 2022 to continue to be supply constrained due to ongoing chip shortages,” Decker continued. “Order-to-revenue conversion is set to pick up pace progressively, as we expect those constraints to begin easing in the latter part of the year. Overall, we expect full-year growth in the mid-single digits, with significant margin expansion in the second half, keeping us on track to achieve our 2025 growth and strategic milestones.”
Xylem announced that its Board of Directors declared a dividend in the amount of $0.30 per share, an increase of 7 percent. The dividend is payable on March 17, 2022, to shareholders of record as of February 17, 2022.
Full-year 2022 Outlook
Xylem forecasts full-year 2022 revenue in the range of $5.25 to $5.35 billion, up 1 to 3 percent on a reported basis and up 3 to 5 percent on an organic basis.
Full-year 2022 adjusted EBITDA margin is expected to be in the range of 16 to 17 percent. This results in adjusted earnings per share of $2.35 to $2.70, which represents a decline of 6 percent to an increase of 8 percent from Xylem’s 2021 adjusted results. 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 2021 revenue was $622 million, a 2 percent increase compared with fourth-quarter 2020. This result was driven by healthy growth in the industrial end market, particularly in the Emerging Markets, partially offset by delayed revenue conversion in the U.S. utility market primarily due to extended lead-times for ocean transit.
Fourth-quarter adjusted EBITDA margin was 21.7 percent, down 50 basis points from the prior year. The reported operating income for the segment was $122 million. Adjusted operating income for the segment, which excludes $2 million of restructuring and realignment, was $124 million, flat versus the comparable period last year. The reported operating margin for the segment was 19.6 percent, up 60 basis points versus the prior year, and the adjusted operating margin was 19.9 percent, down 20 basis points versus the prior year. Productivity benefits and price realization were more than offset by inflation and investments.
Xylem’s Applied Water segment consists of its portfolio of businesses in residential and commercial building services, and industrial applications.
Fourth-quarter 2021 Applied Water revenue was $406 million, a 3 percent increase organically year-over-year. Industrial end-market strength in Emerging Markets, the US, and Western Europe was partially offset by weakness in the residential market in China particularly in light of strong prior-year performance.
Fourth-quarter adjusted EBITDA margin was 13.8 percent, down 340 basis points from the prior year. The reported operating income for the segment was $50 million and the adjusted operating income, which excludes $2 million of restructuring and realignment costs, was $52 million, a 16 percent decrease versus the comparable period last year. The segment reported operating margin was 12.3 percent, down 310 basis points versus the prior-year period. Adjusted operating margin declined 290 basis points to 12.8 percent. Productivity benefits and price realization were more than offset by inflation.
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 2021 Measurement & Control Solutions revenue was $295 million, down 17 percent organically versus the prior year. The decline is in-line with our expectations and a result of the ongoing chip supply shortage and the outsized impact on our North American smart metering business.
Fourth-quarter adjusted EBITDA margin was 7.1 percent, down 750 basis points from the prior year. The reported operating income for the segment was -$17 million, and the adjusted operating income, which excludes $2 million of restructuring and realignment costs, was -$15 million, a 194 percent decrease versus the comparable period last year. The Measurement & Control Solutions segment reported operating margin was -5.8 percent, down 970 basis points versus the prior-year period. Adjusted operating margin of -5.1 percent also decreased 950 basis points over the prior-year period. Volume declines from component shortages as well as inflation more than offset productivity savings and modest price realization.
Xylem is a global water technology company committed to solving critical water and infrastructure challenges with innovation. Its 17,000 diverse employees delivered revenue of $5.2 billion in 2021. It is helping communities in more than 150 countries become water-secure.
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