Xylem Inc. reports second quarter 2013 results

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.

XYLEM INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED INCOME STATEMENTS (Unaudited)

(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

25

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

)

(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

XYLEM INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(in millions, except per share amounts)

June 30,
2013

December 31,
2012

(Unaudited)

ASSETS

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

LIABILITIES AND STOCKHOLDERS' EQUITY

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

XYLEM INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)

(in millions)

For the six months ended June 30,

2013

2012

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