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Xylem Inc. reports second quarter 2015 earnings

Second quarter 2015 adjusted earnings per share (EPS) of $0.43 were down 10 percent from the second quarter 2014, but up two percent excluding foreign exchange headwinds; GAAP EPS were $0.41, down 13 percent year-over-year

Second quarter 2015 revenue was $920 million, an increase of one percent on an organic basis

Free cash flow increased 21 percent to $64 million compared with the second quarter 2014

Xylem Inc., a leading global water technology company dedicated to solving the world’s most challenging water issues, today reported second quarter 2015 net income of $74 million, or $0.41 per share. Excluding restructuring and realignment charges and other special items, adjusted net income was $78 million or $0.43 per share, down 10 percent from the comparable period in 2014, but up two percent excluding the impact of foreign exchange translation. Second quarter revenue was $920 million, an increase of one percent organically, reflecting strength in the commercial and public utility end-markets. Second quarter operating margin was 11.3 percent, down 20 basis points from the prior year. Adjusted operating margin was 12.0 percent, flat year-over-year excluding the 40-basis-point impact of foreign exchange translation. This result reflects volume leverage and lower expenses offset by inflation, the divestiture of a business and unfavorable mix.

“Xylem again delivered solid results that met our earnings expectations, despite challenging market conditions,” said Patrick Decker, Xylem President and Chief Executive Officer. “I’m pleased with our team’s performance in this environment, particularly their strong execution. This is an area on which we will continue to focus, as well as driving our initiatives to accelerate growth and maintaining strong cost discipline.”

Decker continued, “While we continue to manage near-term headwinds, particularly in the industrial sector, there are signs of improving conditions in other key end-markets. In the second quarter, we delivered impressive growth in backlog that is shippable in 2016 and beyond – an encouraging indicator of growing demand. These factors contribute to an increasingly optimistic long-term outlook for our business.”

Full-year 2015 Outlook

Xylem is narrowing the range of its full-year outlook, which continues to reflect ongoing foreign exchange fluctuations. Xylem continues to expect full-year 2015 revenue of approximately $3.7 billion, a decrease of six to seven percent from the full-year 2014 results. On an organic basis, Xylem now expects to generate revenue growth of approximately one to two percent.

Full-year 2015 adjusted operating income is now expected to be in the range of $470 million to $483 million, resulting in adjusted earnings per share of $1.82 to $1.87. Excluding the projected unfavorable impact of foreign exchange translation, Xylem’s adjusted earnings per share growth expectations are in the range of six to seven percent over the comparable full-year 2014 results. The Company’s outlook for projected restructuring and realignment costs of $20 million for the year is unchanged.

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 2015 Water Infrastructure revenue was $551 million, flat relative to the prior year period on an organic basis. Growth in the public utility and industrial sectors in Europe and Australia was offset primarily by declines in dewatering, particularly in the oil and gas market.

Second quarter adjusted segment operating income was $69 million, down $12 million from the prior year result, reflecting the unfavorable impact of foreign exchange translation. Operating income for the quarter was $65 million, down $11 million from last year. Adjusted operating margin for the quarter decreased 30 basis points to 12.8 percent, excluding the 30-basis-point impact of foreign exchange translation. Strengthening execution and solid cost reductions were more than offset by inflation and unfavorable mix, as well as increased investment in growth initiatives.

Applied Water

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

Second quarter 2015 revenue was $369 million, an increase of three percent organically compared with the second quarter 2014. This increase was driven by strong organic growth in the commercial and industrial sectors, which resulted in double-digit growth in emerging markets. Growth in the U.S. commercial end-market was offset by declines in industrial water applications in the region.

Adjusted segment operating income was $53 million in the second quarter, down $4 million from the comparable period last year. Operating income was $51 million, which was $2 million lower than last year. The impact of productivity actions, cost reductions and volume growth helped to drive a 10-basis-point increase in the adjusted operating margin for the segment to 14.8 percent, excluding the 40-basis-point impact of foreign exchange translation.

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

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