01—Abstract
Summary
Summary of the 10-K filed February 23, 2018. Cited figures are marked; the original filing is the authoritative source.
Xylem Inc. (NYSE: XYL) reported 2017 revenue of $4,707 milliona, up $936 million or 24.8% from $3,771 million in 2016, driven mainly by $790 million of revenue from acquisitions (principally Sensus, acquired October 31, 2016) and organic growth of $122 million.
Operating income rose to $556 millionb (operating margin 11.8%, up 100 basis points), and net income attributable to Xylem was $331 million, or $1.83 per diluted share. On an adjusted basis, adjusted net income was $433 million, or $2.40 per diluted share, up 19% from 2016. Operating cash flow was $686 million and free cash flow excluding Sensus acquisition related costs was $544 million, up 40.9% from 2016.
Total orders were $4,868 millionc, up 27.3% (6.8% on an organic basis), and total backlog was $1,513 million at December 31, 2017, up from $1,292 million; the company expects over 60% of that backlog to be recognized as revenue in 2018. Management guided to 2018 total revenue growth of 8% to 10%, including roughly 2% from the Pure Technologies acquisition announced and completed January 31, 2018, with organic growth of 4% to 6%. Total debt was $2,200 million at year-end, down from $2,368 million, and the company recorded a provisional net tax expense of $46 million related to the Tax Cuts and Jobs Act, which lifted the effective tax rate to 29.2%.
The filing also reports total outstanding indebtedness of $2,200 milliond and goodwill plus indefinite-lived intangibles of approximately $3 billion, which the company notes could be subject to impairment. Management states that its business is not dependent on any single customer and that no customer accounted for more than 10% of 2017 revenue. The board declared a first-quarter 2018 dividend of $0.21 per share, up from $0.18 per quarter in 2017.
02—Key points
Key Highlights
- Revenue of $4,707 million, up 24.8% year over year; organic growth contributed $122 million and acquisitions contributed $790 million.
- Operating income of $556 million, with operating margin of 11.8% versus 10.8% in 2016; adjusted operating margin was 13.4% versus 13.6% in 2016.
- Net income attributable to Xylem of $331 million, or $1.83 per diluted share; adjusted EPS was $2.40, up 19% from $2.03 in 2016.
- Operating cash flow of $686 million and free cash flow excluding Sensus acquisition related costs of $544 million, up 40.9% from 2016.
- Orders of $4,868 million, up 27.3% (6.8% organic); year-end backlog of $1,513 million, with over 60% expected to convert to 2018 revenue.
- 2018 guidance of 8% to 10% total revenue growth, including about 2% from the Pure Technologies acquisition, and 4% to 6% organic growth.
- Provisional net tax expense of $46 million from the Tax Cuts and Jobs Act; total debt reduced to $2,200 million from $2,368 million.
03—One dollar
Follow one dollar
Of each $1.00 of revenue in FY2017, Xylem kept $0.07.
- Revenue$4.71B100.0%
- Cost of revenue−$2.86B60.8%
- Gross profit$1.85B39.2%
- Operating costs−$1.29B27.5%
- Operating income$552.0M11.7%
- Interest, other & tax−$221.0M4.7%
- Net income$331.0M7.0%
Where FY2017 revenue went
$4.71B- Cost of revenue: $2.86B, 61% of revenue
- SG&A: $1.09B, 23% of revenue
- Net income: $331.0M, 7.0% of revenue
- R&D: $181.0M, 3.8% of revenue
- Other operating costs: $25.0M, 0.5% of revenue
- Interest, other & tax: $221.0M, 4.7% of revenue
Kept 7.0% as net incomeOther operating costs $25.0M · 0.5%
Full revenue history →04—Financials
Financial Highlights
Figures from 10-KFY2017filed February 23, 2018Financial Statements
FY2017 against FY2016
| Line item | FY2017FY2016 | Change |
|---|---|---|
| Revenue | $4.71B$3.77B | +24.8% |
| Cost of Revenue | $2.86B$2.31B | +23.9% |
| Gross Profit | $1.85B$1.46B | +26.3% |
| R&D Expenses | $181.00M$110.00M | +64.5% |
| SG&A Expenses | $1.09B$914.00M | +19.1% |
| Operating Income | $552.00M$408.00M | +35.3% |
| Interest Expense | $82.00M$70.00M | +17.1% |
| Net Income | $331.00M$260.00M | +27.3% |
| EPS (Basic) | $1.84$1.45 | +26.9% |
| EPS (Diluted) | $1.83$1.45 | +26.2% |
| Shares Outstanding (Basic) | 179.63M179.11M | +0.3% |
| Shares Outstanding (Diluted) | 180.86M180.04M | +0.5% |
05—Questions
Frequently Asked Questions
What drove the increase in Xylem's 2017 revenue?
Revenue rose $936 million, or 24.8%, to $4,707 million. The filing attributes $790 million of the increase to acquisitions, mainly Sensus, and $122 million to organic growth, with foreign currency translation adding $34 million.
How did Xylem's profitability change in 2017?
Operating income increased $150 million, or 36.9%, to $556 million, and operating margin rose to 11.8% from 10.8%. The filing cites global procurement and productivity initiatives, lower Sensus acquisition related costs, and restructuring savings. Adjusted operating margin declined to 13.4% from 13.6%, mainly due to cost inflation, strategic investment spending and Sensus purchase accounting.
What is the outlook for 2018?
Xylem anticipates total revenue growth of 8% to 10% in 2018, with about 2 percentage points from the Pure Technologies acquisition and organic growth of 4% to 6%. The company expects to incur approximately $35 million in restructuring, realignment and integration costs in 2018.
How did the Tax Act affect Xylem's 2017 results?
Xylem recorded a provisional net tax expense of $46 million as a discrete item, consisting of a $107 million benefit from the corporate rate reduction and a $153 million repatriation transition tax expense. The effective tax rate was 29.2%, compared with 23.5% in 2016. The company states that some accounting remains incomplete and provisional amounts may change.
What is Xylem's balance sheet and capital return position?
Cash and cash equivalents were $414 million and total debt was $2,200 million at December 31, 2017. Dividends paid totaled $130 million in 2017, and $413 million remained authorized under the August 2015 share repurchase program. The company declared a first-quarter 2018 dividend of $0.21 per share.
06—Continue