Xylem (XYL) Q4 2023 earnings summary

Executive summary

• Q4 revenue was $2.118B, up 41% reported and 9% organically; orders rose 42% reported and 10% organically, with a $5.1B backlog, up 5% organically.

• FY 2023 revenue was $7.364B, up 33% reported and 12% organically; adjusted EPS was $3.78, up 20%.

• Evoqua integration was on track and ahead of schedule, with cost synergies ahead of plan; the Q4 exit run-rate was $55M, $15M above guidance.

Financial highlights

• Q4 operating income was $211M reported and $313M adjusted; operating margin was 10.0% reported and 14.8% adjusted.

• Q4 net income was $266M, or $1.10 diluted EPS; adjusted net income was $239M and adjusted EPS was $0.99, down 1% YoY.

• FY net income was $609M versus $355M in 2022; diluted EPS was $2.79 versus $1.96, and adjusted operating income was $1.072B versus $744M.

• Q4 adjusted free cash flow was $361M; FY adjusted free cash flow was $729M, with 122% adjusted FCF conversion.

• FY net cash from operating activities was $837M, compared with $596M in 2022.

Outlook and guidance

• FY 2024 revenue guidance is $8.4B–$8.5B, up 14%–15% reported and 3%–5% organically; Evoqua is expected to contribute $0.8B of inorganic revenue.

• FY adjusted EBITDA margin guidance is 19.4%–19.9%, with 50–100 bps expansion; adjusted EPS guidance is $4.00–$4.20.

• FY 2024 segment organic revenue outlook: MCS low-teens growth, Water Infrastructure mid-single digits, Applied Water down low-single digits, and ISS mid-single digits.

• Guidance assumes $100M in cost synergies, $390M capex, a 23% estimated tax rate, $50M–$70M of restructuring and realignment costs, and ~115% FCF conversion to net income.