01—Abstract
Summary
Summary of the 10-K filed February 22, 2019. Cited figures are marked; the original filing is the authoritative source.
Xylem Inc. (NYSE: XYL) reported 2018 revenue of $5.2 billiona (up 10.6% from $4,707 million in 2017), with organic revenue growth of $390 million, or 8.3%, driven by growth across all end markets and geographies.
Operating income rose 18.5% to $654 millionb, with operating margin of 12.6% versus 11.7%. Net income attributable to Xylem was $549 million, or $3.03 per diluted share, compared with $331 million in 2017. Adjusted earnings per share were $2.88, up 20.6% from 2017, and the 6.1% effective tax rate was lowered by an intercompany asset sale, a reduction in the Transition Tax and the lower U.S. federal rate.
Cash from operations fell to $586 millionc from $686 million, mainly due to higher inventory and receivables. Free cash flow excluding Sensus acquisition costs was $350 million, down 35.7% from 2017. Orders rose 11.7% to $5,437 million, and backlog ended the year at $1,689 million, up 11.6%.
Total debt was $2,308 milliond, and the company acquired Pure Technologies Ltd. for about $420 million net of cash received. Management guides to 2019 total revenue growth of 2% to 4% and organic growth of 4% to 6%. Investors should note the company's three segments (Water Infrastructure, Applied Water and Measurement & Control Solutions), the $363 million remaining under the share repurchase authorization, and the goodwill concentration in the AIA business within Measurement & Control Solutions, whose fair value exceeded carrying value by less than 10%.
02—Key points
Key Highlights
- 2018 revenue of $5,207 million, up 10.6%; organic revenue growth of $390 million, or 8.3%
- Operating income of $654 million (12.6% margin) versus $552 million (11.7%) in 2017; adjusted operating margin of 13.7%
- Diluted EPS of $3.03 (GAAP) and $2.88 adjusted, up 20.6% from 2017 on an adjusted basis
- Effective tax rate of 6.1%, versus 29.2% in 2017, aided by an intercompany sale of assets and Tax Act items
- Orders of $5,437 million, up 11.7%; backlog of $1,689 million at year end, up 11.6%
- Operating cash flow fell to $586 million from $686 million; free cash flow excluding Sensus costs was $350 million, down 35.7%
- 2019 outlook: total revenue growth of 2% to 4% and organic growth of 4% to 6%
03—One dollar
Follow one dollar
Of each $1.00 of revenue in FY2018, Xylem kept $0.11.
- Revenue$5.21B100.0%
- Cost of revenue−$3.18B61.1%
- Gross profit$2.03B38.9%
- Operating costs−$1.37B26.3%
- Operating income$654.0M12.6%
- Interest, other & tax−$105.0M2.0%
- Net income$549.0M10.5%
Where FY2018 revenue went
$5.21B- Cost of revenue: $3.18B, 61% of revenue
- SG&A: $1.16B, 22% of revenue
- Net income: $549.0M, 11% of revenue
- R&D: $189.0M, 3.6% of revenue
- Interest, other & tax: $105.0M, 2.0% of revenue
Kept 11% as net income
Full revenue history →04—Financials
Financial Highlights
Figures from 10-KFY2018filed February 22, 2019Financial Statements
FY2018 against FY2017
| Line item | FY2018FY2017 | Change |
|---|---|---|
| Revenue | $5.21B$4.71B | +10.6% |
| Cost of Revenue | $3.18B$2.86B | +11.2% |
| Gross Profit | $2.03B$1.85B | +9.7% |
| R&D Expenses | $189.00M$181.00M | +4.4% |
| SG&A Expenses | $1.16B$1.09B | +6.6% |
| Operating Income | $654.00M$552.00M | +18.5% |
| Interest Expense | $82.00M$82.00M | 0.0% |
| Net Income | $549.00M$331.00M | +65.9% |
| EPS (Basic) | $3.05$1.84 | +65.8% |
| EPS (Diluted) | $3.03$1.83 | +65.6% |
| Shares Outstanding (Basic) | 179.78M179.63M | +0.1% |
| Shares Outstanding (Diluted) | 181.13M180.86M | +0.2% |
05—Questions
Frequently Asked Questions
What drove Xylem's revenue growth in 2018?
Revenue rose $500 million, or 10.6%, to $5,207 million. Organic growth contributed $390 million, or 8.3%, with growth in all end markets and major regions. Acquisitions added $111 million, partly offset by $24 million from divestitures and a $23 million favorable currency translation effect.
Why did operating cash flow decline in 2018?
Operating cash flow was $586 million, compared with $686 million in 2017. Management attributed the $100 million decline mainly to increased working capital use for inventory, built at year end to maintain service levels amid component shortages and to make strategic purchases to manage tariff impacts, plus higher receivables from growth. Higher earnings partly offset these effects.
Why was the 2018 effective tax rate so low?
The effective tax rate was 6.1%, compared with 29.2% in 2017. The filing attributes the decrease mainly to an intercompany sale of assets, the reduction of the Transition Tax, and the reduction of the U.S. federal corporate rate, partially offset by a 2017 benefit from remeasuring deferred tax assets and liabilities. The 2018 tax provision was $36 million.
What is Xylem's outlook for 2019?
Management anticipates total revenue growth of 2% to 4% in 2019, with organic revenue growth of 4% to 6%. It expects restructuring and realignment costs of approximately $30 million in 2019 and net savings of about $8 million from 2017 and 2018 actions in 2019 and beyond.
What acquisitions and debt activity did Xylem undertake in 2018?
Xylem acquired Pure Technologies Ltd. on January 31, 2018 for approximately $420 million net of cash received, funded partly by a €225 million (about $257 million) term loan. Total debt was $2,308 million at year end, including $257 million of short-term borrowings and current maturities. The company also repaid the $120 million EIB R&D finance contract in November 2018.
06—Continue