Xylem Reports Strong Revenue, Orders and Earnings Growth in Fourth Quarter 2018

• Fourth quarter 2018 reported net income was $225 million or $1.24 per share; Adjusted net income for the quarter was $159 million or $0.88 per share, up 16 percent versus the prior year period
• Full-year 2018 reported net income was $549 million or $3.03 per share; Adjusted net income was $522 million or $2.88 per share, up 20 percent year-over-year
• Delivered $1.4 billion in revenue for the fourth quarter, up nine percent organically
• Fourth quarter orders of $1.4 billion were up 10 percent organically year-over-year
• Announces 14% increase in quarterly cash dividend
• Company projects full-year 2019 organic revenue growth of four to six percent, adjusted earnings per share of $3.20 to $3.40

RYE BROOK, N.Y.--(BUSINESS WIRE)--Jan. 31, 2019-- Xylem Inc. (NYSE:XYL), a leading global water technology company dedicated to solving the world’s most challenging water issues, today reported fourth quarter 2018 net income of $225 million, or $1.24 per share. Excluding the impact of restructuring, realignment and special charges, the Company delivered adjusted net income of $159 million or $0.88 per share in the quarter, a 16-percent increase over the prior year period. Fourth quarter revenue was $1.4 billion, up 9 percent organically. Revenue for the quarter was driven by double-digit growth in the Utility and Commercial end markets along with eight percent growth in Industrial. Adjusted earnings before interest, tax, depreciation and amortization (EBITDA) improved by 40 basis points year-over-year to 20.6 percent driven by productivity, volume leverage and price realization. Reported operating margin in the quarter was 14.0 percent and adjusted operating margin increased 10 basis points year-over-year to 15.1 percent, including a 20-basis-point impact due to purchase accounting amortization.

For the full year 2018, Xylem generated $5.2 billion in revenue, up 11 percent on a reported basis and eight percent on an organic basis. Full-year reported net income was $549 million, or $3.03 per share, a 66% increase over the prior year. Reported operating margin was 12.6 percent, up 90 basis points versus the prior year. Adjusted net income, which excludes the impact of restructuring, realignment and special charges, was $522 million, or $2.88 per share, a 20-percent increase over the prior year. Adjusted EBITDA improved by 80 basis points to 19.5 percent year-over-year. Xylem delivered a full-year 2018 adjusted operating margin of 13.7 percent, up 40 basis points versus the prior year including a 20-basis-point impact due to purchase accounting amortization.

“We continued to build strong momentum throughout 2018, generating solid revenue and orders growth across each of our business lines,” said Patrick Decker, President and Chief Executive Officer of Xylem. “With our expanded digital offerings and leveraging our extensive installed base, we delivered significant value to our customers, and demand for our solutions grew across all of our end markets. We are well-positioned as we begin the year and focused on delivering each of our 2019 commitments and long-term financial objectives.”

Xylem announced that its Board of Directors declared a dividend in the amount of $0.24 per share, an increase of 14 percent. The dividend is payable on March 14, 2019, to shareholders of record as of February 14, 2019.

Full-year 2019 Outlook

Xylem forecasts full-year 2019 revenue in the range of $5.3 to $5.4 billion, up two to four percent. On an organic basis, Xylem’s revenue growth is anticipated to be in the range of four to six percent.

Full-year 2019 adjusted operating margin is expected to be in the range of 14.7 to 15.2 percent, resulting in adjusted earnings per share of $3.20 to $3.40. This represents an increase of 11 to 18 percent from Xylem’s 2018 adjusted results. The Company’s adjusted earnings outlook excludes projected restructuring and realignment costs of approximately $30 million for the year. 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

Water Infrastructure

Xylem’s Water Infrastructure segment consists of its portfolio of businesses serving clean water delivery, wastewater transport and treatment, and dewatering.

• Fourth quarter 2018 revenue was $609 million, up nine percent organically compared with fourth quarter 2017. This increase was driven by strong results in the Utility end market across all key geographies, including double-digit growth in the Emerging Markets. The Industrial end market was driven by healthy growth in the U.S., Latin America and Europe.
• Fourth quarter reported operating income for the segment was $119 million. Adjusted operating income for the segment, which excludes $7 million of restructuring and realignment and special charges, was $126 million, a 15-percent increase over the same period a year ago. Reported operating margin for the Water Infrastructure segment was 19.5 percent, up 130 basis points versus the prior year, and adjusted operating margin was up 180 basis points to 20.7 percent. Productivity gains, volume leverage and increased price realization more than offset inflation, negative currency impacts and investments.

Applied Water

Xylem’s Applied Water segment consists of its portfolio of businesses in residential and commercial building services, and industrial applications.

• Fourth quarter 2018 Applied Water revenue was $402 million, a 10-percent increase organically year-over-year, driven by robust growth in the Commercial end market in the U.S., as well as China and India. The Company’s business in the Industrial end market also saw healthy growth from project business activity in the U.S.
• Fourth quarter reported operating income for the segment was $66 million and adjusted operating income, which excludes $3 million of restructuring and realignment costs, was $69 million, a 10-percent increase over the comparable period last year. The segment reported operating margin was 16.4 percent, up 30 basis points over the prior year period. Adjusted operating margin increased 30 basis points to 17.2 percent as continued traction from price, volume and cost reductions more than offset inflation, negative currency impacts and investments.

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 2018 Measurement & Control Solutions revenue was $375 million, up 11 percent organically versus the prior year, driven by double-digit growth in water in North America and Emerging Markets, as well as the continued deployment of large gas projects.
• Fourth quarter reported operating income for the segment was $23 million, and adjusted operating income, which excludes $5 million of restructuring and realignment costs and special charges, was $28 million. Measurement & Control Solutions segment reported operating margin was 6.1 percent. Adjusted operating margin of 7.5% decreased 280 basis points over the prior year period, primarily due to higher inflation and adverse sales mix from component shortages, investments and purchase accounting.

Supplemental information on Xylem’s fourth quarter and full-year 2018 earnings and reconciliations for certain non-GAAP items is posted at www.xylem.com/investors.

About Xylem

Xylem (XYL) is a leading global water technology company committed to developing innovative technology solutions to the world’s water challenges. The Company’s products and services move, treat, analyze, monitor and return water to the environment in public utility, industrial, residential and commercial building services settings. Xylem also provides a leading portfolio of smart metering, network technologies and advanced infrastructure analytics solutions for water, electric and gas utilities. The Company’s approximately 17,000 employees bring broad applications expertise with a strong focus on identifying comprehensive, sustainable solutions. Headquartered in Rye Brook, New York, with 2018 revenue of $5.2 billion, Xylem does business in more than 150 countries through a number of market-leading product brands.

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” within the meaning of the Private Securities Litigation Act of 1995. 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. However, the absence of these words or similar expressions does not mean that a statement is not forward-looking. These forward-looking statements include any statements that are not historical in nature, including any 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: overall economic and business conditions, political and other risks associated with our international operations, including military actions, economic sanctions or trade barriers including tariffs and 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; weather conditions; ability to retain and attract talent and 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; claims or investigations by governmental or regulatory bodies; security breaches or other disruptions of our information technology systems; litigation and contingent liabilities; and other factors set forth under Item 1A. Risk Factors of our Annual Report on Form 10-K for the year ended December 31, 2017 and in subsequent filings we make with the Securities and Exchange Commission (“SEC”).

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

CONSOLIDATED INCOME STATEMENTS (Unaudited)

(In Millions, except per share data)

XYLEM INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS (Unaudited)

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XYLEM INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS (In Millions) (Unaudited)

Note:2017 amounts have been restated in accordance with the adoption of the new guidance on presentation of net periodic benefit costs.

a QTD: Restructuring & realignment costs of $11 million and $9 million in 2018 and 2017, respectively; special charges of $4 million in 2018 ($2 million of acquisition related costs and $2 million of asset impairment) and $3 million of acquisition related costs in 2017; and $3 million of Sensus acquisition related costs in 2017.

YTD: Restructuring & realignment costs of $48 million and $41 million in 2018 and 2017, respectively; special charges of $12 million in 2018 ($10 million acquisition of related costs and $2 million of asset impairment) and $11 million n 2017 ($5 million of asset impairment, $3 million of due diligence costs and $3 of other acquisition costs); and 2017 Sensus acquisition related costs of $22 million.

b QTD: Net tax impact on restructuring & realignment costs of $2 million in both 2018 and 2017; net tax impact on special charges of $0 million and $1 million in 2018 and 2017, respectively; net tax impact on 2017 Sensus acquisition related costs of $1 million; and tax-related special items of $80 million of expense and $40 million of benefit in 2018 and 2017, respectively.

YTD: Net tax impact on restructuring & realignment costs of $12 million and $13 million in 2018 and 2017, respectively; net tax impact on special charges of $1 million and $4 million in 2018 and 2017, respectively; net tax impact of $8 million on 2017 Sensus acquisition related costs; net tax impact of $2 million benefit on the gain from sale of business in 2017; and tax-related special items of $75 million of expense and $40 million of benefit in 2018 and 2017, respectively.

c Special charges of a write-down of investment in joint venture of $2 million in the fourth quarter of 2017.

d Special item consisting of minority interest income attributable to the loss on a joint venture held for sale in the fourth quarter of 2017.