Xylem Inc. has reported fourth quarter revenue of $1.37 billion, and full-year 2020 revenue of $4.88 billion, exceeding expectations on strengthening end-market performance, despite COVID-19 related impacts.
Fourth quarter reported operating margin was 13.0%, and adjusted operating margin was 13.8%, 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%. COVID-related impacts and inflation drove the margin decline, exceeding productivity improvements and cost savings. Xylem generated net income of $148 million, or $0.82 per share, and adjusted net income of $145 million, or $0.81 per share, which excludes the impact of restructuring, realignment and special charges.
For the full year, Xylem delivered reported operating margin of 7.5%, down 180 basis points versus the prior year, and adjusted operating margin of 10.8%, down 310 basis points for the same period. Adjusted EBITDA margin was 16.3%, 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 $254 million, or $1.40 per share, with a reported operating margin of 7.5%. Adjusted net income, which excludes the impact of restructuring, realignment and special charges, was $374 million, or $2.06 per share. The Company generated $824 million of operating cash flow, representing a 324% conversion, and $641 million of free cash flow, representing a 181% conversion.
“Our team again delivered solid operational performance, exceeding expectations across all major indicators, including revenue, margin, and EPS,” said Patrick Decker, president and 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 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 $0.28 per share, an increase of 8%. 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 $5.16 to $5.26 billion, up 6-8% on a reported basis and up 3-5% on an organic basis.
Full-year 2021 adjusted EBITDA margin is expected to be in the range of 16.7-17.7% and adjusted operating margin is expected to be in the range of 11.5-12.5%. This results in adjusted earnings per share of $2.35 to $2.60, which represents an increase of 14-26% from Xylem’s 2020 adjusted results. The Company’s adjusted earnings outlook excludes projected restructuring and realignment costs of approximately $50 to $60 million for the year. Further 2021 planning assumptions are included in Xylem’s fourth quarter 2020 earnings materials posted at www.xylem.com/investors. 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 $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 $117 million. Adjusted operating income for the segment, which excludes $7 million of restructuring and realignment, was $124 million, a less than one% decrease versus the comparable period last year. Reported operating margin for the segment was 19.0%, down 70 basis points versus the prior year, and adjusted operating margin was 20.1%, down 60 basis points versus prior year. Adjusted EBITDA margin was 22.2%, 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 unfavourable 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 $395 million, a one% decline organically year-over-year. Volume weakness in industrial end markets continued in the quarter, with particular softness in the U.S. and 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 $61 million and adjusted operating income, which excludes $1 million of restructuring and realignment costs, was $62 million, a 5% decrease versus the comparable period last year. The segment reported operating margin was 15.4%, down 40 basis points versus the prior year period. Adjusted operating margin declined 90 basis points to 15.7%. Adjusted EBITDA margin was 17.2%, down 170 basis points from the prior year. Productivity benefits, favourable 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 $362 million, down 5% organically versus the prior year, lapping large project deployments in the U.S. and Middle East. 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 $14 million, and adjusted operating income, which excludes $2 million of restructuring and realignment costs, was $16 million, a 45% decrease versus the comparable period last year. The Measurement & Control Solutions segment reported operating margin was 3.9%, down 330 basis points versus the prior year period. Adjusted operating margin of 4.4% also decreased 330 basis points over the prior year period. Adjusted EBITDA margin was 14.6%, down 350 basis points from the prior year. Strong productivity results and cost savings programs partly offset lower volume, inflation and unfavourable mix.