Xylem Inc. (NYSE: XYL), a leading global water technology company dedicated to solving the world’s most challenging water issues, 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 20basis-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 wellpositioned 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 10percent 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.
