01—Abstract
Summary
Summary of the 10-K filed February 28, 2020. Cited figures are marked; the original filing is the authoritative source.
Xylem Inc. (NYSE: XYL) reported 2019 revenue of $5.249 billiona, up $42 million, or 0.8%, from $5.207 billion in 2018; on a constant currency basis revenue grew 3.2%, driven by organic revenue growth of $188 million, or 3.6%, while foreign currency translation reduced revenue by $124 million, or 2.4%.
Net income attributable to Xylem fell to $401 millionb, or $2.21 per diluted share, from $549 million, or $3.03 per diluted share, in 2018, as operating income declined 25.7% to $486 million. The decline reflects a $148 million goodwill impairment charge related to the Advanced Infrastructure Analytics (AIA) reporting unit, and increased special charges of $147 million, consisting entirely of non-cash impairment charges. Adjusted net income rose to $547 million, or $3.02 per diluted share, up 4.8% from 2018, and adjusted operating margin edged up to 13.9% from 13.7%.
Cash from operating activities increased to $839 millionc from $586 million, and free cash flow excluding Sensus acquisition-related costs was $613 million, up 75% from 2018. Orders were $5.339 billion, down 1.8%, with organic orders up 0.9%. Total backlog was $1.801 billion at December 31, 2019, up 6.6% from $1.689 billion, with approximately 60% expected to be recognized as revenue in 2020.
Total debt was $2.316 billion, and cash and cash equivalents rose to $724 milliond. Management guides to total revenue growth of approximately 1% in 2020, with organic growth of 1% to 3%, and expects restructuring and realignment costs of $35 million to $45 million in 2020. The company operates three segments: Water Infrastructure ($2.177 billion revenue), Applied Water ($1.541 billion), and Measurement & Control Solutions ($1.531 billion).
Measurement & Control Solutions posted an operating loss of $67 million in 2019 due to the impairment charges, compared with operating income of $118 million in 2018. The Board declared a first-quarter 2020 dividend of $0.26 per share.
02—Key points
Key Highlights
- Revenue of $5.249 billion, up 0.8% reported and 3.2% at constant currency; organic revenue growth of 3.6%, offset by a 2.4% foreign currency headwind.
- Net income attributable to Xylem declined 27.0% to $401 million ($2.21 diluted EPS) from $549 million ($3.03), driven by a $148 million goodwill impairment on the AIA reporting unit and $147 million of higher special charges.
- Adjusted net income of $547 million ($3.02 per diluted share), up 4.8% from 2018, excluding restructuring, special charges and tax-related special items.
- Operating cash flow rose to $839 million from $586 million; free cash flow was $613 million, up 75% from 2018.
- Backlog increased 6.6% to $1.801 billion at year-end 2019, with about 60% expected to convert to revenue in 2020.
- Measurement & Control Solutions swung to an operating loss of $67 million, while Water Infrastructure and Applied Water grew operating income by 1.7% and 2.1%, respectively.
- 2020 guidance calls for total revenue growth of approximately 1% and organic growth of 1% to 3%; $0.26 quarterly dividend declared for Q1 2020.
03—One dollar
Follow one dollar
Of each $1.00 of revenue in FY2019, Xylem kept $0.08.
- Revenue$5.25B100.0%
- Cost of revenue−$3.20B61.0%
- Gross profit$2.05B39.0%
- Operating costs−$1.56B29.7%
- Operating income$486.0M9.3%
- Interest, other & tax−$85.0M1.6%
- Net income$401.0M7.6%
Where FY2019 revenue went
$5.25B- Cost of revenue: $3.20B, 61% of revenue
- SG&A: $1.16B, 22% of revenue
- Net income: $401.0M, 7.6% of revenue
- R&D: $191.0M, 3.6% of revenue
- Other operating costs: $211.0M, 4.0% of revenue
- Interest, other & tax: $85.0M, 1.6% of revenue
Kept 7.6% as net income
Full revenue history →04—Financials
Financial Highlights
Figures from 10-KFY2019filed February 28, 2020Financial Statements
FY2019 against FY2018
| Line item | FY2019FY2018 | Change |
|---|---|---|
| Revenue | $5.25B$5.21B | +0.8% |
| Cost of Revenue | $3.20B$3.18B | +0.7% |
| Gross Profit | $2.05B$2.03B | +1.0% |
| R&D Expenses | $191.00M$189.00M | +1.1% |
| SG&A Expenses | $1.16B$1.16B | −0.3% |
| Operating Income | $486.00M$654.00M | −25.7% |
| Interest Expense | $67.00M$82.00M | −18.3% |
| Net Income | $401.00M$549.00M | −27.0% |
| EPS (Basic) | $2.23$3.05 | −26.9% |
| EPS (Diluted) | $2.21$3.03 | −27.1% |
| Shares Outstanding (Basic) | 179.99M179.78M | +0.1% |
| Shares Outstanding (Diluted) | 181.20M181.13M | 0.0% |
05—Questions
Frequently Asked Questions
Why did Xylem's net income decline sharply in 2019 despite revenue growth?
Net income fell to $401 million from $549 million mainly because of a $148 million goodwill impairment charge related to the Advanced Infrastructure Analytics reporting unit, and special charges rose by $147 million, consisting entirely of non-cash impairment charges. Excluding these items and restructuring costs, adjusted net income increased to $547 million.
How did the segments perform in 2019?
Water Infrastructure revenue was $2.177 billion with operating income of $365 million, up from $359 million. Applied Water revenue was $1.541 billion with operating income of $241 million, up from $236 million. Measurement & Control Solutions revenue was $1.531 billion, but it recorded an operating loss of $67 million compared with operating income of $118 million in 2018.
What is Xylem's outlook for 2020?
Management anticipates total revenue growth of approximately 1% in 2020, with organic revenue growth in the range of 1% to 3%. The company expects to incur between $35 million and $45 million in restructuring and realignment costs in 2020 and anticipates about $25 million of incremental net savings from 2018 and 2019 actions.
How strong is Xylem's liquidity and debt position?
Cash and cash equivalents were $724 million at December 31, 2019, up from $296 million, and total debt was $2.316 billion. The 2019 Credit Facility of $800 million was undrawn at year-end, and the company stated it believed it had sufficient liquidity to meet its funding requirements over the next twelve months.
What returns has Xylem provided to shareholders?
Cash dividends declared were $0.96 per share in 2019, up from $0.84 in 2018, and dividends paid totaled $174 million. Share repurchases totaled $40 million in 2019, and $338 million remained available under the Board's $500 million repurchase authorization. No shares were repurchased under that program in the fourth quarter of 2019.
06—Continue