Xylem Inc. reports second quarter 2013 results

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Xylem Inc. reports second quarter 2013 results

  • Second quarter 2013 adjusted net income was $66 million or $0.36 per share, down $0.13 from second quarter 2012; GAAP net income was $46 million or $0.25 per share
  • Second quarter 2013 revenue was $960 million, down 3.4 percent organically from second quarter 2012
  • Second quarter orders up 4 percent to $1.01 billion
  • Full-year outlook adjusted to reflect on-going market weakness

WHITE PLAINS, N.Y.--(BUSINESS WIRE)-- Xylem Inc. (NYS: XYL) , a leading global water technology company dedicated to solving the world's most challenging water issues, today reported second quarter 2013 net income of $46 million, or $0.25 per share. Adjusted net income was $66 million, or $0.36 per share, excluding the impact of special items that included restructuring and realignment charges, and special tax items. Second quarter revenue was $960 million, down $6 million from the second quarter 2012. Strength in the company's U.S. residential, commercial and agriculture business was more than offset by continued softness in Europe, as well as in the public utilities and industrial markets. Second quarter 2013 adjusted operating margins were 10.2 percent, excluding the impact of restructuring and realignment costs, down 380 basis points resulting from lower volume and continued investments in growth initiatives, the unfavorable impact of foreign exchange rates, and other items.

"While our second quarter results were lower than expected, we captured important contract wins in June, resulting in record orders of more than $1 billion in the quarter," said Gretchen McClain, president and chief executive officer of Xylem Inc. "We continue to take strong and decisive actions to position the company for efficient operation and profitable growth. While we're seeing the initial benefits from our on-going restructuring and organizational realignment, we are accelerating additional short- and long-term actions to further reduce our cost base and drive more efficiencies throughout our business."

McClain said the company expects to benefit from investments in growth initiatives and from continued efforts to transform the business and improve growth execution.

"We are encouraged by our second quarter order rate and several new products that we launched during the second quarter, including our 'smart' dewatering solutions from Flygt and Godwin that are efficient, compact and meet our customers' needs for more reliable and durable technologies," McClain said. "These new products and some key contract wins give us confidence in an improved second half of the year and position us for long-term growth."

Notable business wins in the second quarter include:

  • The company began working with its local partner Visenti in Singapore to monitor and improve that country's water infrastructure and help preserve its limited water supply;
  • In China, Xylem was awarded a large contract from the Beijing Drainage Group to improve downtown Beijing water stations' storage capability by installing its Flygt pumps;
  • In Spain, the company received its first order for the newly launched open channel ultraviolet disinfection system, WEDECO Duron;
  • The company won several large orders for industrial fire protection systems with oil and gas giant CNOOC in China; and
  • Xylem also won a contract for a pre-treatment system to remove harmful microorganisms from seawater prior to desalination in the United Arab Emirates.

Full-year 2013 Outlook

Xylem's full-year revenues are now expected to be approximately $3.7 billion, and adjusted net income is expected to be in the range of $260 to $279 million, or $1.40 to $1.50 per share, down from the earlier projection of adjusted net income of $1.79 to $1.89 per share. Full-year GAAP net income is now anticipated to be in the range of $205 to $237 million, or $1.10 to $1.27 per share, which includes $60 to $80 million of restructuring and realignment costs.

Second Quarter Segment Results

Water Infrastructure

Xylem's Water Infrastructure segment consists of its businesses serving clean water delivery, wastewater transport and treatment, dewatering and analytical instrumentation.

  • Second quarter 2013 revenue was $596 million, down 6 percent organically compared with the second quarter 2012, reflecting U.S. industrial weakness, European economic challenges and decreased treatment project shipments.
  • Second quarter adjusted segment operating income was $63 million. Adjusted operating margin was 10.6 percent, down 480 basis points from last year reflecting lower volumes, acquisition impacts, continued investments, unfavorable foreign exchange rates, and other items.

Applied Water

Xylem's Applied Water segment consists of its portfolio of businesses in residential and commercial building services, industrial and agricultural applications.

  • Second quarter 2013 revenue was $381 million, up 1 percent organicallycompared with the second quarter 2012, reflecting strong growth in U.S. residential, commercial and agricultural end markets, partially offset by weak industrial demand and European economic challenges.
  • Second quarter adjusted segment operating income was $51 million. Adjusted operating margin was 13.4 percent, down 50 basis points from last year reflecting higher volume more than offset by continued investment and other items.

Supplemental information on Xylem's second quarter earnings and reconciliations for certain non-GAAP items are posted at http://investors.xyleminc.com.

About Xylem

Xylem (NYS: XYL) is a leading global water technology provider, enabling customers to transport, treat, test and efficiently use water in public utility, residential and commercial building services, industrial and agricultural settings. The company does business in more than 150 countries through a number of market-leading product brands, and its people bring broad applications expertise with a strong focus on finding local solutions to the world's most challenging water and wastewater problems. Xylem is headquartered in White Plains, N.Y., with 2012 annual revenues of $3.8 billion and approximately 12,900 employees worldwide. In 2012, Xylem was named to the Dow Jones Sustainability World Index for advancing sustainable business practices and solutions worldwide.

The name Xylem is derived from classical Greek and is the tissue that transports water in plants, highlighting the engineering efficiency of our water-centric business by linking it with the best water transportation of all -- that which occurs in nature. For more information, please visit us at www.xyleminc.com.

Forward-Looking Statements

This document contains information that may constitute "forward-looking statements." Forward-looking statements by their nature address matters that are, to different degrees, uncertain. Generally, the words "anticipate," "estimate," "expect," "project," "intend," "plan," "believe," "target" and similar expressions identify forward-looking statements, which generally are not historical in nature. However, the absence of these words or similar expressions does not mean that a statement is not forward-looking.

These forward-looking statements include, but are not limited to, statements about the separation of Xylem Inc. (the "Company") from ITT Corporation in 2011, capitalization of the Company, future strategic plans and other statements that describe the Company's business strategy, outlook, objectives, plans, intentions or goals, and any discussion of future operating or financial performance. All statements that address operating performance, events or developments that we expect or anticipate will occur in the future — including statements relating to orders, sales, operating margins and earnings per share growth, and statements expressing general views about future operating results — are forward-looking statements.

Caution should be taken not to place undue reliance on any such forward-looking statements because they involve risks, uncertainties and other factors that could cause actual results to differ materially from those expressed or implied in, or reasonably inferred from, such statements. The Company undertakes no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise, except as required by law. In addition, forward-looking statements are subject to certain risks and uncertainties that could cause actual results to differ materially from the Company's historical experience and our present expectations or projections. These risks and uncertainties include, but are not limited to, those set forth in Item 1A in our Annual Report on Form 10-K, and those described from time to time in subsequent reports filed with the Securities and Exchange Commission.




(in millions, except per share data)

Three Months, Six Months,
For the period ended June 30,     2013     2012 2013     2012
Revenue $ 960 $ 966 $ 1,839 $ 1,891
Cost of revenue 589   583   1,134   1,145  
Gross profit 371 383 705 746
Selling, general and administrative expenses 252 220 488 451
Research and development expenses 28 28 54 56
Restructuring charges 20

Separation costs 1   6   2   11  
Operating income 70 129 136 228
Interest expense 14 13 27 27
Other non-operating income (expense), net 1  


) (1 ) (2 )
Income before taxes 57 115 108 199
Income tax expense 11   26   21   47  
Net income $ 46   $ 89   $ 87   $ 152  
Earnings per share:
Basic $ 0.25 $ 0.48 $ 0.47 $ 0.82
Diluted $ 0.25 $ 0.48 $ 0.47 $ 0.82
Weighted average number of shares:
Basic 185.4 185.8 185.6 185.6
Diluted 186.1 186.2 186.3 186.1
Dividends declared per share $ 0.1164 $ 0.1012 $ 0.2328 $ 0.2024



(in millions, except per share amounts)

        June 30,
December 31,
Current assets:
Cash and cash equivalents $ 360 $ 504
Receivables, less allowances for discounts and doubtful accounts of $27 and $34 in 2013 and 2012, respectively 792 776
Inventories, net 471 443
Prepaid and other current assets 113 110
Deferred income tax assets 43   41  
Total current assets 1,779 1,874
Property, plant and equipment, net 470 487
Goodwill 1,674 1,647
Other intangible assets, net 498 484
Other non-current assets 190   187  
Total assets $ 4,611   $ 4,679  
Current liabilities:
Accounts payable $ 311 $ 332
Accrued and other current liabilities 420 443
Short-term borrowings and current maturities of long-term debt 5   6  
Total current liabilities 736 781
Long-term debt 1,199 1,199
Accrued postretirement benefits 393 400
Deferred income tax liabilities 179 173
Other non-current accrued liabilities 52   52  
Total liabilities 2,559   2,605  
Commitments and contingencies (Note 17)
Stockholders' equity:
Common Stock - par value $0.01 per share:
Authorized 750.0 shares, issued 186.4 shares and 186.2 shares in 2013 and 2012, respectively 2 2
Capital in excess of par value 1,718 1,706
Retained earnings 308 264
Treasury stock - at cost 1.1 shares and 0.5 shares in 2013 and 2012, respectively (31 ) (13 )
Accumulated other comprehensive income 55   115  
Total stockholders' equity 2,052   2,074  
Total liabilities and stockholders' equity $ 4,611   $ 4,679  



(in millions)

For the six months ended June 30,      



Operating Activities
Net income $ 87 $ 152
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation 49 44
Amortization 25 23
Share-based compensation 12 10
Restructuring charges 25
Other, net 7 (5 )
Payments for restructuring (11 )
Changes in assets and liabilities (net of acquisitions):
Changes in receivables (31 ) (16 )
Changes in inventories (44 ) (44 )
Changes in accounts payable (4 ) 12
Other, net (53 ) (51 )
Net Cash - Operating activities 62   125  
Investing Activities
Capital expenditures (60 ) (57 )
Acquisitions, net of cash acquired (81 )
Proceeds from the sale of property, plant and equipment 3 3
Other, net   1  
Net Cash - Investing activities (138 ) (53 )
Financing Activities
Repurchase of common stock (18 ) (3 )
Proceeds from exercise of employee stock options 1 16
Dividends paid (43 ) (39 )
Other, net   (5 )
Net Cash - Financing activities (60 ) (31 )
Effect of exchange rate changes on cash (8 ) (1
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