Xylem acquired Sensus and Visenti in October 2016. During the Investor Day on Tuesday 4 April 2017, Xylem president and CEO Patrick Decker, along with other senior leadership, provided an update on the company’s plans to drive above-market organic growth and capture significant cost and revenue synergies through the integration of Sensus.
“The addition of Sensus is reshaping the growth and profitability profile of Xylem by expanding our smart infrastructure portfolio and increasing our exposure to faster-growing end markets and geographies,” said Decker. “With the combination of Sensus’ higher growth rate, the robust revenue synergies we expect to realize and our ongoing productivity initiatives, we now expect to deliver higher organic revenue growth and an additional 100 basis points of margin expansion by 2020 versus previous targets laid out in 2015. In addition, our ability to generate significantly more operating cash flow as well as our larger scale and leverage capacity will provide us with an additional $1.8 billion for disciplined capital deployment, which brings the total capital available for deployment from 2015 through 2020 to $5.3 billion. With our acquired businesses serving as catalysts for accelerated growth, we are well positioned to create even more value for our stakeholders.”
Xylem now projects to generate organic revenue growth of 4-6% to 2020, up from the previous forecast of 3-5%. The company expects to achieve 400 to 500 basis points of operating margin expansion by 2020 – a 100 basis-point increase from the previous target of 300 to 400 basis points – driven by its ongoing focus on driving productivity as well as the expected impact from the cost and revenue synergies from its recent acquisitions. Xylem anticipates delivering adjusted core earnings per share growth in the mid-teen range and, with the impact of capital deployment, the growth range is projected to be in the high teens.
Xylem also announced during the Investor Day that it will combine its Analytics, Sensus and Visenti businesses during Q2 2017. As a result of this change, the company will report the financial and operational results from these businesses as one segment. Xylem’s Water Infrastructure segment will no longer include the results of its Analytics business. The Applied Water segment remains unchanged.
Xylem has also reaffirmed its 2017 outlook, including full-year revenue in the range of $4.5 to $4.6 billion, up 20 -22% from 2016 results, including growth from previously announced acquisitions and projected unfavourable impacts of foreign exchange translation. On an organic basis, Xylem’s revenue growth is expected to be in the range of one to three percent, and two to four percent on a pro forma basis.
Full-year 2017 adjusted operating margin is tipped by Xylem to be in the range of 13.2-13.7%, resulting in adjusted earnings per share of $2.20 to $2.35. This represents an increase of 8-16% from Xylem’s 2016 adjusted results. Excluding projected unfavourable impacts of foreign exchange translation, Xylem’s adjusted earnings per share growth is anticipated to be in the range of 12-20%. The company’s adjusted operating margin and earnings outlook excludes projected integration, restructuring and realignment costs of approximately $30 million for the year.
