• Revenue Growth: 6% for the full year; 7% in the fourth quarter.
• EBITDA Margin: Expanded by 170 basis points for the full year; 21% in the fourth quarter, up 140 basis points from the prior year.
• Earnings Per Share (EPS): Record EPS of $1.18 in the fourth quarter, a 19% increase over the prior year.
• Orders Growth: 7% in the fourth quarter, with Water Infrastructure leading at 10% growth.
• Ending Backlog: $5.1 billion, essentially flat from the prior year.
• Free Cash Flow: Increased by 29% year-to-date from the prior year, with a conversion rate of 116%.
• Net Debt to Adjusted EBITDA: 0.5 times.
• Measurement and Control Solutions Revenue: Up 6%, with a backlog of $1.9 billion.
• Water Infrastructure Revenue: Increased 8%, with a 360 basis points increase in EBITDA margin.
• Applied Water Revenue: Essentially flat, with a 60 basis points increase in EBITDA margin.
• Water Solutions and Services Revenue: Up 11%, with a segment EBITDA margin of 22.8%.
• 2025 Revenue Guidance: $8.6 billion to $8.7 billion, with organic growth of 3% to 4%.
• 2025 EBITDA Margin Guidance: 21.3% to 21.8%, representing 70 to 120 basis points of expansion.
• 2025 EPS Guidance: $4.50 to $4.70, up 8% at the midpoint over the prior year.

• Warning! GuruFocus has detected 3 Warning Signs with XYL.

Release Date: February 04, 2025

For the complete transcript of the earnings call, please refer to the full earnings call transcript.

Positive Points

• Xylem Inc (NYSE:XYL) reported a strong finish to 2024 with record revenue, EBITDA margins, and EPS.
• The integration of Evoqua is delivering cost synergies faster than expected.
• All segments delivered Q4 orders growth of mid-single digits or better, indicating strong demand.
• The company expanded EBITDA margins by 170 basis points and achieved a 19% increase in EPS.
• Xylem Inc (NYSE:XYL) has a robust balance sheet with net debt to adjusted EBITDA at 0.5 times.

Negative Points

• The Measurement and Control Solutions segment experienced a 120 basis point decline in EBITDA margin due to mix, inflation, and investments.
• Applied Water segment faced softness in emerging markets, impacting revenue growth.
• The company anticipates headwinds from 80/20 actions, which will impact revenue growth in early 2025.
• Free cash flow will be impacted in 2025 by restructuring actions, potentially dropping below long-term goals.
• The company faces potential challenges from recently enacted tariffs, though they are not expected to have a material impact on 2025 results.

Q & A Highlights

Q: Can you provide more details on the restructuring plan, including its impact on headcount and geographical distribution? A: Matthew Pine, CEO: The restructuring is part of our effort to simplify our business and implement 80/20 principles. It involves reducing complexity and making it easier for our colleagues and customers. The majority of workforce reductions will be completed in 2025, with some extending into 2026. Bill Grogan, CFO: We expect to incur pretax charges of $95 million to $115 million, with $130 million in net benefits over the next two years. The plan impacts less than 10% of our workforce, mainly in SG&A, with Europe being the most affected region.

Q: What is your outlook on PFAS regulations and their potential impact on Xylem? A: Matthew Pine, CEO: We have not included PFAS regulatory impacts in our guidance. The recent halt on industrial PFAS testing was aimed at the chemical industry and does not affect municipal drinking water regulations. We remain optimistic about PFAS opportunities, although timing may be delayed. Some states are setting their own standards, which could provide a tailwind.

Q: How do you see the margin progression for Measurement and Control Solutions (MCS) throughout the year? A: William Grogan, CFO: MCS margins will improve sequentially through the year as mix normalizes and restructuring benefits take hold. We expect expanded margins for the full year, with significant expansion in the second half. The energy meters will drive growth, with water meters growing at low single digits.

Q: Can you elaborate on the headwinds affecting margin expansion despite restructuring benefits? A: William Grogan, CFO: Productivity and price are offsetting inflation and investments, providing 50 basis points of expansion. Restructuring and Evoqua synergies add another 125 basis points. However, negative mix within MCS, due to energy and water mix shifts, puts about 75 basis points of pressure, resulting in a net 100 basis points of margin expansion.

Q: What is your approach to capital deployment, and how does the Idrica acquisition fit into your strategy? A: Matthew Pine, CEO: We aim to be consistent deployers of capital, focusing on core and accretive M&A. The Idrica acquisition allows us to integrate and leverage their platform across Xylem, enhancing our ability to manage data and application management for customers. We remain disciplined and aligned with our strategy for capital deployment.

For the complete transcript of the earnings call, please refer to the full earnings call transcript.