Water technology company Xylem (NYSE:XYL) reported strong third-quarter performance for 2023, exceeding expectations in organic revenue growth, EBITDA margin, and earnings per share. The company's total revenue grew 10% organically, and orders were up by 3%. In addition, Xylem raised its full-year guidance on the back of this robust performance and a healthy business backlog of $5.2 billion.
Key takeaways from the call:
- Xylem reported a successful integration of Evoqua, completed in the previous quarter, which is expected to deliver cost synergies.
- The company announced leadership changes, with CEO Patrick Decker to be succeeded by Matthew Pine from January 1, 2024, and the appointment of a new CFO, Bill Grogan, effective from October 1, 2023.
- Xylem raised its full-year revenue, EBITDA margin, and EPS guidance, anticipating total revenue growth of about 32% and organic revenue growth of about 11%.
- The company is committed to achieving a free cash flow conversion of above 100% of net income.
- Xylem expects resilient demand in the utilities sector and steady growth in the industrial and building solutions sectors.
- The company is implementing an 80/20 initiative to eliminate complexity and focus on core analytics.
Xylem, a water solutions company, is focused on organic growth, margin expansion, and cash flow conversion. The company's strategy revolves around creating value for customers by solving water challenges with advanced solutions. Xylem's CEO, Patrick Decker, expressed pride in the company's progress and excitement for its future under Matthew Pine's leadership.
The company recently integrated Evoqua, and they are already seeing benefits in terms of scale, reach, and integrated offerings. Xylem plans to optimize its portfolio for growth and make it easier for customers to access solutions. The company expects resilient demand in the utilities sector and steady growth in the industrial and building solutions sectors.
During the earnings call, Xylem executives discussed the company's financial outlook, emphasizing the broadest water platform in the industry and the importance of the treatment bidding pipeline as an indicator of the health of utilities. The executives expressed confidence in the company's position and thanked everyone for their contributions.
Looking ahead to 2024, the company expressed optimism about secular trends, government funding, and the resiliency of their business model. They mentioned some watch items, such as cyclical end markets and the situation in China. The company expects pricing to moderate and anticipates a normalization of mix in the future.
The industrial sector has remained resilient for Xylem, particularly in China. The company expects pricing to moderate in 2024, but pricing actions and a step-up in Q4 are anticipated to have a positive impact. The mix may continue to be uneven due to the energy sector, but the backlog is expected to normalize in 2024. Xylem's partnership with Idrica has been successful, with over 200 customers globally and a strong pipeline. The 80/20 initiative is being implemented to eliminate complexity and focus on core analytics. The infrastructure order rate has been strong and stable.
During an earnings call, Bill Grogan discussed implementing an 80/20 culture at Xylem, focusing on eliminating complexity and prioritizing what matters most. The company is piloting this initiative in a few locations before rolling it out more thoroughly. Patrick Decker emphasized that Xylem's platform is now ready to apply the 80/20 concept, which will create value for customers and shareholders.
InvestingPro Insights
Drawing upon real-time data from InvestingPro, Xylem (XYL) currently possesses a market capitalization of $22.53 billion. The company's Price to Earnings (P/E) ratio stands at 49.5, indicating a high earnings multiple. This is further confirmed by the adjusted P/E ratio for the last twelve months as of Q2 2023, which is 37.18. This high earnings multiple, coupled with a Price / Book ratio of 2.18 for the same period, may suggest a premium valuation of the company by the market.
Delving into the InvestingPro Tips, Xylem has demonstrated a strong financial performance with accelerating revenue growth. This is supported by the data showing a revenue growth of 15.93% for the last twelve months as of Q2 2023. Furthermore, the company has a commendable track record of raising its dividend for 12 consecutive years, reflecting its commitment to shareholder returns.
Moreover, it's noteworthy that analysts anticipate sales growth in the current year, aligning with Xylem's raised full-year guidance. The company's net income is also expected to grow this year, suggesting a positive financial outlook.
In conclusion, with over 13 additional tips available on InvestingPro, investors can gain a comprehensive understanding of Xylem's performance and make informed decisions. The InvestingPro platform offers a wealth of information and tips, making it a valuable resource for those interested in the financial markets.
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