01—Abstract
Summary
Summary of the 10-K filed February 26, 2021. Cited figures are marked; the original filing is the authoritative source.
Xylem Inc. reported 2020 revenue of $4,876 milliona, a decrease of $373 million, or 7.1%, from $5,249 million in 2019, driven by an organic decline across all end markets and segments as the COVID-19 pandemic reduced volumes, particularly in the U.S., the Middle East and India.
Operating income fell to $367 millionb (operating margin of 7.5%) from $486 million, and net income was $254 million, or $1.40 per diluted share, versus $401 million, or $2.21, in 2019. The decline reflected a $58 million goodwill impairment related to the Advanced Infrastructure Analytics reporting unit within Measurement & Control Solutions, along with lower volumes and cost inflation. Adjusted earnings per share were $2.06, against $3.02 in 2019, per the filing's non-GAAP reconciliation.
Net cash from operating activities was $824 millionc and free cash flow was $641 million. Balance sheet liquidity improved during the year. Xylem issued $1 billion of Green Bond senior notes in June 2020, and cash and cash equivalents rose to $1,875 million from $724 million, while total debt increased to $3,084 million from $2,316 million.
The company stated it had available liquidity of approximately $2.7 billiond, consisting of $1.9 billion of cash and $800 million of available credit facilities. Backlog grew to $2,124 million from $1,801 million, and orders declined 5.7% to $5,033 million.
For 2021, management anticipates total revenue growth of 6% to 8%, with organic growth of 3% to 5%, and expects restructuring and realignment costs of $50 million to $60 million. The company also declared a quarterly dividend of $0.28 per share, and total dividends per share were $1.04 in 2020, up from $0.96 in 2019.
02—Key points
Key Highlights
- Revenue fell 7.1% to $4,876 million in 2020, with organic revenue down $364 million, mainly from COVID-19 related volume reductions.
- Operating margin declined to 7.5% from 9.3%, and adjusted operating margin declined to 10.8% from 13.9%.
- Diluted EPS was $1.40, compared with $2.21 in 2019; adjusted EPS was $2.06, down 31.6% from $3.02 per the filing.
- A $58 million goodwill impairment was recorded in Q3 2020 for the AIA reporting unit within Measurement & Control Solutions, which posted an operating loss of $106 million.
- Free cash flow was $641 million, and cash and cash equivalents ended the year at $1,875 million.
- Total debt rose to $3,084 million after issuing $1 billion of Green Bond senior notes in June 2020, and the company reported liquidity of approximately $2.7 billion.
- Backlog increased 17.9% to $2,124 million at December 31, 2020, and 2021 guidance calls for total revenue growth of 6% to 8%.
03—One dollar
Follow one dollar
Of each $1.00 of revenue in FY2020, Xylem kept $0.05.
- Revenue$4.88B100.0%
- Cost of revenue−$3.05B62.5%
- Gross profit$1.83B37.5%
- Operating costs−$1.46B30.0%
- Operating income$367.0M7.5%
- Interest, other & tax−$113.0M2.3%
- Net income$254.0M5.2%
Where FY2020 revenue went
$4.88B- Cost of revenue: $3.05B, 62% of revenue
- SG&A: $1.14B, 23% of revenue
- Net income: $254.0M, 5.2% of revenue
- R&D: $187.0M, 3.8% of revenue
- Other operating costs: $133.0M, 2.7% of revenue
- Interest, other & tax: $113.0M, 2.3% of revenue
Kept 5.2% as net incomeNet income $254.0M · 5.2%
Full revenue history →04—Financials
Financial Highlights
Figures from 10-KFY2020filed February 26, 2021Financial Statements
FY2020 against FY2019
| Line item | FY2020FY2019 | Change |
|---|---|---|
| Revenue | $4.88B$5.25B | −7.1% |
| Cost of Revenue | $3.05B$3.20B | −4.9% |
| Gross Profit | $1.83B$2.05B | −10.6% |
| R&D Expenses | $187.00M$191.00M | −2.1% |
| SG&A Expenses | $1.14B$1.16B | −1.3% |
| Operating Income | $367.00M$486.00M | −24.5% |
| Interest Expense | $77.00M$67.00M | +14.9% |
| Net Income | $254.00M$401.00M | −36.7% |
| EPS (Basic) | $1.41$2.23 | −36.8% |
| EPS (Diluted) | $1.40$2.21 | −36.7% |
| Shares Outstanding (Basic) | 180.12M179.99M | +0.1% |
| Shares Outstanding (Diluted) | 181.10M181.20M | −0.1% |
05—Questions
Frequently Asked Questions
What drove the decline in Xylem's 2020 revenue and profitability?
The filing attributes the decline primarily to organic volume reductions across all segments and regions, largely due to COVID-19, with significantly lower volumes in the U.S., the Middle East, India and Latin America. Cost inflation, increased quality management costs, unfavorable mix and increased strategic investment also weighed on adjusted operating margin, partly offset by productivity and restructuring savings.
Why was there a goodwill impairment charge in 2020?
The company recorded a $58 million goodwill impairment charge in the third quarter of 2020 for the Advanced Infrastructure Analytics reporting unit, which includes the Pure assessment services business and digital solutions. Management's updated cash flow forecast reflected significant negative volume impacts from COVID-19 travel restrictions and site closures, as well as continued investment that affects near-term profitability.
How is Xylem positioned from a liquidity and debt standpoint?
At year end 2020, Xylem had cash and cash equivalents of $1,875 million and total debt of $3,084 million. The company stated it had available liquidity of approximately $2.7 billion, including $800 million of available credit facilities, and that its $600 million of 2021 Senior Notes maturities were expected to be paid from cash. The filing states that its securities are rated investment grade.
What is the outlook for 2021 and what restructuring costs are expected?
Management anticipates total revenue growth of 6% to 8% in 2021, with organic growth of 3% to 5%. The company expects to incur between $50 million and $60 million of restructuring and realignment costs in 2021 and anticipates about $46 million of incremental net savings in 2021 and beyond from its 2019 and 2020 actions.
06—Continue