Xylem Inc. (NYSE:XYL), a leading global water technology company dedicated to solving the world’s most challenging water issues, today reported first quarter 2016 net income of $66 million, or $0.37 per share. Excluding restructuring and realignment charges and other special items, adjusted net income was $62 million or $0.35 per share, an increase of two cents or six percent from the comparable period in 2015. First quarter revenue was $847 million, up four percent on an organic basis, reflecting strength in the U.S. public utility and commercial building markets and growth across all key regions. Excluding restructuring and realignment charges and other special items, first quarter adjusted operating margin improved 10 basis points, driven by continued improvement in operating efficiencies. Excluding the impact of acquisitions, adjusted operating margin expanded 40 basis points in the quarter.
“We are off to a solid start in 2016 as our teams’ strong project execution helped accelerate our performance in mixed market conditions,” said Patrick Decker, President and Chief Executive Officer of Xylem. “Our top-line growth in the quarter reflects the benefits of our diversified end-market exposure. We are pleased with the continuing strength we see in the global public utility market, up 12 percent in the quarter, and we believe this market in the U.S. is in the early stages of a long-term recovery. In the industrial end market, we were able to offset ongoing headwinds from the oil and gas and mining sectors to bring our total industrial results to flat. And our teams delivered double-digit revenue growth in India and the Middle East, driving two-percent top-line growth in our Emerging Markets.”
Decker continued, “The fundamentals of our core business continue to improve and we are realizing the benefits of our cost savings and productivity initiatives across our businesses, enabling us to invest more in our strategic growth initiatives to drive greater shareholder value.”
Full-year 2016 Outlook
Xylem reaffirmed its forecast of full-year 2016 revenue of approximately $3.7 billion, including approximately one-percent growth from completed acquisitions and the unfavorable impacts of foreign exchange. On an organic basis, Xylem’s revenue growth is anticipated to be in the range of two to four percent.
The Company also reaffirmed its full-year 2016 adjusted operating income projection of $493 to $515 million. Full-year 2016 adjusted EPS are now expected to be in the range of $1.98 to $2.08, reflecting the interest savings from the Company’s recent refinancing of its 3.55% senior notes. This range represents growth of nine to 15 percent, excluding foreign exchange translation. The Company’s adjusted earnings outlook continues to exclude projected restructuring and realignment costs of approximately $25 million for the year.
First Quarter Segment Results
Water Infrastructure
Xylem’s Water Infrastructure segment consists of its businesses serving clean water delivery, wastewater transport and treatment, dewatering and analytical instrumentation.
- First quarter 2016 Water Infrastructure revenue was $514 million, up 6 percent organically from 2015. This growth was driven by strength in the public utility end market across all major regions, particularly in the U.S. where the Company achieved share gains as well.
- First quarter adjusted segment operating income, which excludes restructuring and realignment charges as well as initial acquisition costs, was $62 million versus $53 million in the prior year period. Adjusted operating margin for the quarter expanded 150 basis points to 12.1 percent, primarily driven by the impact of cost savings from global procurement, productivity gains and volume leverage, which more than offset cost inflation.
Applied Water
Xylem’s Applied Water segment consists of its portfolio of businesses in residential and commercial building services, and industrial and agricultural applications.
- First quarter 2016 Applied Water segment revenue grew one percent organically to $333 million. The increase was driven by strength in Europe and the Middle East, partially offset by slower sales in the U.S.
- First quarter adjusted segment operating income, which excludes restructuring and realignment charges, was $42 million, down from $47 million in the comparable prior year period. Adjusted operating margin for the quarter decreased 130 basis points to 12.6 percent. This decline was due to the timing of investments and unfavorable mix, which more than offset cost savings from global procurement and productivity gains, net of inflation.
Supplemental information on Xylem’s first quarter earnings and reconciliations for non-GAAP items are posted at http://investors.xyleminc.com.
About Xylem
Xylem (XYL) is a leading global water technology provider, enabling customers to transport, treat, test and efficiently use water in public utility, residential and commercial building services, industrial and agricultural settings. The Company does business in more than 150 countries through a number of market-leading product brands, and its people bring broad applications expertise with a strong focus on finding local solutions to the world’s most challenging water and wastewater problems. Xylem is headquartered in Rye Brook, New York, with 2015 revenue of $3.7 billion and more than 12,500 employees worldwide. Xylem was named to the Dow Jones Sustainability Index, North America for the last four years for advancing sustainable business practices and solutions worldwide, and the Company has satisfied the requirements to be a constituent of the FTSE4Good Index Series each year since 2013.
The name Xylem is derived from classical Greek and is the tissue that transports water in plants, highlighting the engineering efficiency of our water-centric business by linking it with the best water transportation of all – that which occurs in nature. For more information, please visit us at www.xylem.com.
Forward-Looking Statements
This press release contains information that may constitute “forward-looking statements.” Forward-looking statements by their nature address matters that are, to different degrees, uncertain. Generally, the words “anticipate,” “estimate,” “expect,” “project,” “intend,” “plan,” “forecast,” “believe,” “target,” “will,” “could,” “would,” “should” and similar expressions identify forward-looking statements, which generally are not historical in nature. However, the absence of these words or similar expressions does not mean that a statement is not forward-looking.
These forward-looking statements include statements about the capitalization of Xylem Inc. (the “Company”), the Company’s restructuring and realignment, future strategic plans and other statements that describe the Company’s business strategy, outlook, objectives, plans, intentions or goals. All statements that address operating or financial performance, events or developments that we expect or anticipate will occur in the future – including statements relating to orders, revenues, operating margins and earnings per share growth, and statements expressing general views about future operating results – are forward-looking statements. Forward-looking statements involve known and unknown risks, uncertainties and other important factors that could cause actual results to differ materially from those expressed or implied in, or reasonably inferred from, such forward-looking statements.
Factors that could cause results to differ materially from those anticipated include: economic, political and other risks associated with our international operations, including military actions, economic sanctions or trade embargoes that could affect customer markets, and non-compliance with laws, including foreign corrupt practice laws, export and import laws and competition laws; potential for unexpected cancellations or delays of customer orders in our reported backlog; our exposure to fluctuations in foreign currency exchange rates; competition and pricing pressures in the markets we serve; the strength of housing and related markets; ability to retain and attract key members of management; our relationship with and the performance of our channel partners; our ability to successfully identify, complete and integrate acquisitions; our ability to borrow or to refinance our existing indebtedness and availability of liquidity sufficient to meet our needs; changes in the value of goodwill or intangible assets; risks relating to product defects, product liability and recalls; governmental investigations; security breaches or other disruptions of our information technology systems; litigation and contingent liabilities; and other factors set forth in Item 1A of our Annual Report on Form 10-K for the year ended December 31, 2015, and those described from time to time in subsequent reports filed with the Securities and Exchange Commission.
All forward-looking statements made herein are based on information currently available to the Company. The Company undertakes no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise, except as required by law.
XYLEM INC. AND SUBSIDIARIES | |||||||||||
CONDENSED CONSOLIDATED INCOME STATEMENTS (Unaudited) | |||||||||||
(in millions, except per share data) | |||||||||||
| For the three months ended March 31, | 2016 | 2015 | |||||||||
| Revenue | $ | 847 | $ | 837 | |||||||
| Cost of revenue | 518 | 522 | |||||||||
| Gross profit | 329 | 315 | |||||||||
| Selling, general and administrative expenses | 219 | 206 | |||||||||
| Research and development expenses | 25 | 23 | |||||||||
| Restructuring charges | 6 | 3 | |||||||||
| Operating income | 79 | 83 | |||||||||
| Interest expense | 14 | 14 | |||||||||
| Other non-operating (expense), net | — | (1 | ) | ||||||||
| Gain from sale of businesses | — | 9 | |||||||||
| Income before taxes | 65 | 77 | |||||||||
| Income tax (benefit) expense | (1 | ) | 13 | ||||||||
| Net income | $ | 66 | $ | 64 | |||||||
| Earnings per share: | |||||||||||
| Basic | $ | 0.37 | $ | 0.35 | |||||||
| Diluted | $ | 0.37 | $ | 0.35 | |||||||
| Weighted average number of shares: | |||||||||||
| Basic | 178.6 | 182.1 | |||||||||
| Diluted | 179.3 | 183.1 | |||||||||
| Dividends declared per share | $ | 0.1549 | $ | 0.1408 | |||||||
XYLEM INC. AND SUBSIDIARIES | |||||||||
CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited) | |||||||||
(in millions, except per share amounts) | |||||||||
March 31, |
December 31, | ||||||||
| ASSETS | |||||||||
| Current assets: | |||||||||
| Cash and cash equivalents | $ | 1,193 | $ | 680 | |||||
Receivables, less allowances for discounts and doubtful | 752 | 749 | |||||||
| Inventories | 482 | 433 | |||||||
| Prepaid and other current assets | 148 | 143 | |||||||
| Total current assets | 2,575 | 2,005 | |||||||
| Property, plant and equipment, net | 446 | 439 | |||||||
| Goodwill | 1,632 | 1,584 | |||||||
| Other intangible assets, net | 464 | 435 | |||||||
| Other non-current assets | 187 | 194 | |||||||
| Total assets | $ | 5,304 | $ | 4,657 | |||||
| LIABILITIES AND STOCKHOLDERS’ EQUITY | |||||||||
| Current liabilities: | |||||||||
| Accounts payable | $ | 332 | $ | 338 | |||||
| Accrued and other current liabilities | 380 | 407 | |||||||
| Short-term borrowings and current maturities of long-term debt | 720 | 78 | |||||||
| Total current liabilities | 1,432 | 823 | |||||||
| Long-term debt | 1,153 | 1,196 | |||||||
| Accrued postretirement benefits | 340 | 335 | |||||||
| Deferred income tax liabilities | 106 | 118 | |||||||
| Other non-current accrued liabilities | 114 | 101 | |||||||
| Total liabilities | 3,145 | 2,573 | |||||||
| Stockholders’ equity: | |||||||||
| Common Stock – par value $0.01 per share: | |||||||||
Authorized 750.0 shares, issued 190.8 shares and 190.2 | 2 | 2 | |||||||
| Capital in excess of par value | 1,848 | 1,834 | |||||||
| Retained earnings | 923 | 885 | |||||||
Treasury stock – at cost 11.9 shares and 11.8 shares in | (402 | ) | (399 | ) | |||||
| Accumulated other comprehensive loss | (212 | ) | (238 | ) | |||||
| Total stockholders’ equity | 2,159 | 2,084 | |||||||
| Total liabilities and stockholders’ equity | $ | 5,304 | $ | 4,657 | |||||
XYLEM INC. AND SUBSIDIARIES | |||||||||
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) | |||||||||
(in millions) | |||||||||
For the three months ended March 31, | 2016 | 2015 | |||||||
Operating Activities | |||||||||
| Net income | $ | 66 | $ | 64 | |||||
Adjustments to reconcile net income to net cash provided by | |||||||||
| Depreciation | 20 | 24 | |||||||
| Amortization | 12 | 11 | |||||||
| Share-based compensation | 5 | 4 | |||||||
| Restructuring charges | 6 | 3 | |||||||
| Gain from sale of businesses | — | (9 | ) | ||||||
| Other, net | 1 | 1 | |||||||
| Payments for restructuring | (2 | ) | (6 | ) | |||||
| Changes in assets and liabilities (net of acquisitions): | |||||||||
| Changes in receivables | 22 | 4 | |||||||
| Changes in inventories | (31 | ) | (33 | ) | |||||
| Changes in accounts payable | (1 | ) | 4 | ||||||
| Other, net | (57 | ) | (28 | ) | |||||
Net Cash – Operating activities | 41 | 39 | |||||||
| Investing Activities | |||||||||
| Capital expenditures | (37 | ) | (37 | ) | |||||
| Acquisition of business, net of cash acquired | (70 | ) | — | ||||||
| Proceeds from sale of businesses | — | 1 | |||||||
| Other, net | 2 | — | |||||||
| Net Cash – Investing activities | (105 | ) | (36 | ) | |||||
| Financing Activities | |||||||||
| Short-term debt issued | 40 | — | |||||||
| Long-term debt issued | 540 | — | |||||||
| Repurchase of common stock | (3 | ) | (53 | ) | |||||
| Proceeds from exercise of employee stock options | 8 | 6 | |||||||
| Dividends paid | (28 | ) | (26 | ) | |||||
| Other, net | 2 | 2 | |||||||
| Net Cash – Financing activities | 559 | (71 | ) | ||||||
| Effect of exchange rate changes on cash | 18 | (41 | ) | ||||||
| Net change in cash and cash equivalents | 513 | (109 | ) | ||||||
| Cash and cash equivalents at beginning of year | 680 | 663 | |||||||
| Cash and cash equivalents at end of period | $ | 1,193 | $ | 554 | |||||
| Supplemental disclosure of cash flow information: | |||||||||
| Cash paid during the period for: | |||||||||
| Interest | $ | 25 | $ | 11 | |||||
| Income taxes (net of refunds received) | $ | 15 | $ | 8 | |||||
| Xylem Inc. Non-GAAP Measures |
| Management views key performance indicators including revenue, gross margins, segment operating income and margins, orders growth, free cash flow, working capital, and backlog, among others. In addition, we consider certain measures to be useful to management and investors evaluating our operating performance for the periods presented, and provide a tool for evaluating our ongoing operations, liquidity and management of assets. This information can assist investors in assessing our financial performance and measures our ability to generate capital for deployment among competing strategic alternatives and initiatives. These metrics, however, are not measures of financial performance under GAAP and should not be considered a substitute for revenue, operating income, net income, earnings per share (basic and diluted) or net cash from operations as determined in accordance with GAAP. We consider the following non-GAAP measures, which may not be comparable to similarly titled measures reported by other companies, to be key performance indicators: |
| “Organic revenue" and "Organic orders” defined as revenue and orders, respectively, excluding the impact of fluctuations in foreign currency translation and contributions from acquisitions and divestitures. Divestitures include sales of portions of our business that did not meet the criteria for classification as a discontinued operation or insignificant portions of our business that we did not classify as a discontinued operation. The period-over-period change resulting from foreign currency fluctuations assumes no change in exchange rates from the prior period. |
| “Constant currency” defined as financial results adjusted for currency translation impacts by translating current period and prior period activity using the same currency conversion rate. This approach is used for countries whose functional currency is not the U.S. dollar. |
| “EBITDA” defined as earnings before interest, taxes, depreciation, amortization expense, and share-based compensation. “Adjusted EBITDA” reflects the adjustment to EBITDA to exclude restructuring and realignment costs, gain on sale of business and special charges. |
| "Adjusted Operating Income", "Adjusted Segment Operating Income", and “Adjusted EPS” defined as operating income, segment operating income and earnings per share, adjusted to exclude restructuring and realignment costs, gain on sale of businesses, special charges and tax-related special items, as applicable. |
| “Free Cash Flow” defined as net cash from operating activities, as reported in the Statement of Cash Flow, less capital expenditures as well as adjustments for other significant items that impact current results which management believes are not related to our ongoing operations and performance. Our definition of free cash flows does not consider non-discretionary cash payments, such as debt. |
| “Realignment costs” defined as costs not included in restructuring costs that are incurred as part of actions taken to reposition our business, including items such as professional fees, severance, relocation, travel, facility set-up and other costs. |
| “Special charges" defined as costs incurred by the Company, such as initial acquisition related costs, costs incurred for the contractual indemnification of tax obligations to ITT and other special non-operating items. |
| “Tax-related special items" defined as tax items, such as tax return versus tax provision adjustments, tax exam impacts, tax law change impacts, significant reserves for cash repatriation and other discrete tax adjustments. |
| Xylem Inc. Non-GAAP Reconciliation | ||||||||||||||||||||||||
| Reported vs. Organic & Constant Currency Orders | ||||||||||||||||||||||||
| ($ Millions) | ||||||||||||||||||||||||
| (As Reported - GAAP) | (As Adjusted - Organic) | Constant Currency | ||||||||||||||||||||||
| (A) | (B) | (C) | (D) | (E) = B+C+D | (F) = E/A | (G) = (E - C) / A | ||||||||||||||||||
| Change | % Change | Acquisitions/ | Change | % Change | ||||||||||||||||||||
| Orders | Orders | 2016 v. 2015 | 2016 v. 2015 | Divestitures | FX Contribution | Adj. 2016 v. 2015 | Adj. 2016 v. 2015 | |||||||||||||||||
| 2016 | 2015 | |||||||||||||||||||||||
Quarter Ended March 31 | ||||||||||||||||||||||||
Xylem Inc. | 888 | 915 | (27) | -3% | (5) | 31 | (1) | 0% | 0% | |||||||||||||||
| Water Infrastructure | 534 | 562 | (28) | -5% | (5) | 24 | (9) | -2% | -1% | |||||||||||||||
| Applied Water | 354 | 353 | 1 | 0% | - | 7 | 8 | 2% | 2% | |||||||||||||||
| Xylem Inc. Non-GAAP Reconciliation | ||||||||||||||||||
| Reported vs. Organic & Constant Currency Revenue | ||||||||||||||||||
| ($ Millions) | ||||||||||||||||||
| (As Reported - GAAP) | (As Adjusted - Organic) | Constant Currency | ||||||||||||||||
| (A) | (B) | (C) | (D) | (E) = B+C+D | (F) = E/A | (G) = (E - C) / A | ||||||||||||
| Change | % Change | Acquisitions/ | Change | % Change | ||||||||||||||
| Revenue | Revenue | 2016 v. 2015 | 2016 v. 2015 | Divestitures | FX Contribution | Adj. 2016 v. 2015 | Adj. 2016 v. 2015 | |||||||||||
| 2016 | 2015 | |||||||||||||||||
Quarter Ended March 31 | ||||||||||||||||||
| Xylem Inc. | 847 | 837 | 10 | 1% | (6) | 27 | 31 | 4% | 4% | |||||||||
| Water Infrastructure | 514 | 500 | 14 | 3% | (6) | 21 | 29 | 6% | 7% | |||||||||
| Applied Water | 333 | 337 | (4) | -1% | - | 6 | 2 | 1% | 1% | |||||||||
| Xylem Inc. Non-GAAP Reconciliation | ||||||
| Adjusted Operating Income | ||||||
| ($ Millions) | ||||||
| Q1 | ||||||
2016 | 2015 | |||||
| Total Revenue | ||||||
| • Total Xylem | 847 | 837 | ||||
| • Water Infrastructure | 514 | 500 | ||||
| • Applied Water | 333 | 337 | ||||
| Operating Income | ||||||
| • Total Xylem | 79 | 83 | ||||
| • Water Infrastructure | 54 | 47 | ||||
| • Applied Water | 39 | 46 | ||||
| • Total Segments | 93 | 93 | ||||
| Operating Margin | ||||||
| • Total Xylem | 9.3% | 9.9% | ||||
| • Water Infrastructure | 10.5% | 9.4% | ||||
| • Applied Water | 11.7% | 13.6% | ||||
| • Total Segments | 11.0% | 11.1% | ||||
| Special Charges | ||||||
| • Total Xylem | 4 | 1 | ||||
| • Water Infrastructure | 4 | 1 | ||||
| • Applied Water | - | - | ||||
| • Total Segments | 4 | 1 | ||||
| Restructuring & Realignment Costs | ||||||
| • Total Xylem | 9 | 6 | ||||
| • Water Infrastructure | 4 | 5 | ||||
| • Applied Water | 3 | 1 | ||||
| • Total Segments | 7 | 6 | ||||
| Adjusted Operating Income* | ||||||
| • Total Xylem | 92 | 90 | ||||
| • Water Infrastructure | 62 | 53 | ||||
| • Applied Water | 42 | 47 | ||||
| • Total Segments | 104 | 100 | ||||
| Adjusted Operating Margin* | ||||||
| • Total Xylem | 10.9% | 10.8% | ||||
| • Water Infrastructure | 12.1% | 10.6% | ||||
| • Applied Water | 12.6% | 13.9% | ||||
| • Total Segments | 12.3% | 11.9% | ||||
*Adjusted Operating Income excludes restructuring & realignment
costs and | ||||||
| Xylem Inc. Non-GAAP Reconciliation | |||||||||||||||||||||||||||
| Adjusted Diluted EPS | |||||||||||||||||||||||||||
| ($ Millions, except per share amounts) | |||||||||||||||||||||||||||
| Q1 2015 | Q1 2016 | ||||||||||||||||||||||||||
As Reported | Adjustments | Adjusted | As Reported | Adjustments | Adjusted | ||||||||||||||||||||||
| Total Revenue | 837 | 837 | 847 | 847 | |||||||||||||||||||||||
| Operating Income | 83 | 7 | a | 90 | 79 | 13 | a | 92 | |||||||||||||||||||
| Operating Margin | 9.9 | % | 10.8 | % | 9.3 | % | 10.9 | % | |||||||||||||||||||
| Interest Expense | (14 | ) | (14 | ) | (14 | ) | (14 | ) | |||||||||||||||||||
| Other Non-Operating Income (Expense) | (1 | ) | 1 | b | - | - | - | ||||||||||||||||||||
| Gain from sale of business | 9 | (9 | ) | - | - | - | |||||||||||||||||||||
| Income before Taxes | 77 | (1 | ) | 76 | 65 | 13 | 78 | ||||||||||||||||||||
| Provision for Income Taxes | (13 | ) | (3 | ) | c | (16 | ) | 1 | (17 | ) | b | (16 | ) | ||||||||||||||
| Net Income | 64 | (4 | ) | 60 | 66 | (4 | ) | 62 | |||||||||||||||||||
| Diluted Shares | 183.1 | 183.1 | 179.3 | 179.3 | |||||||||||||||||||||||
| Diluted EPS | $ | 0.35 | $ | (0.02 | ) | $ | 0.33 | $ | 0.37 | $ | (0.02 | ) | $ | 0.35 | |||||||||||||
| a | Restructuring & realignment costs and special charges | ||||||||||||||||||||||||||
b | Special charges | ||||||||||||||||||||||||||
c | Net tax impact of restructuring & realignment costs and special charges, and tax-related special items | ||||||||||||||||||||||||||
| Xylem Inc. Non-GAAP Reconciliation | ||||||||
| Net Cash - Operating Activities vs. Free Cash Flow | ||||||||
| ($ Millions) | ||||||||
| Q1 | ||||||||
| 2016 | 2015 | |||||||
| Net Cash - Operating Activities | $ | 41 | $ | 39 | ||||
| Capital Expenditures | (37 | ) | (37 | ) | ||||
| Free Cash Flow | $ | 4 | $ | 2 | ||||
| Net Income | 66 | 64 | ||||||
| Gain from sale of businesses | - | 9 | ||||||
| Net Income, excluding gain on sale of businesses | $ | 66 | $ | 55 | ||||
| Free Cash Flow Conversion | 6 | % | 4 | % | ||||
View source version on businesswire.com: http://www.businesswire.com/news/home/20160503006020/en/
Contacts:
Media
Kelly McAndrew, +1 (914) 323-5969
Kelly.McAndrew@xyleminc.com
or
Investors
Phil
DeSousa, +1 (914) 323-5930
Phil.DeSousa@xyleminc.com
