Water Technology Company Xylem Records Solid Q3 Amid Intensifying Water Challenges; Revenue Soars 50.4%

Xylem Inc. XYL reported third-quarter FY23 revenue growth of 50.4% Y/Y to $2.08 billion (+10% organically), beating the consensus of $1.99 billion.

Third-quarter adjusted EPS was $0.99 (+14% Y/Y), beating the consensus of $0.89. Net income margin increased 640 bps to 7.3%.

Orders were up 43% on a reported basis and +3% organically, while backlog grew to $5.2 billion, up 5% organically.

Gross profit increased by 45.8% Y/Y to $764 million, and margin contracted by 117 bps to 36.8%.

Adjusted EBITDA margin expanded by 150 bps to 19.8%. Excluding Evoqua’s results, the adjusted EBITDA margin was 18.9%, up 60 bps.

Measurement & Control Solutions revenue was $440 million (+26% Y/Y); adjusted operating income was $50 million (+72% Y/Y), and margin expanded by 310 bps to 11.4%.

Water Infrastructure revenue was $8.3 million (+40% Y/Y); adjusted operating income was $152 million (+41% Y/Y), and the margin was 18.9%, up 10 bps.

Applied Water revenue was $465 million (+2% Y/Y); adjusted operating income was $79 million (+1% Y/Y), and the margin was flat at 17%.

Integrated Solutions & Services revenue was $368 million; adjusted operating income was $49 million, and margin was 13.3%.

Operating cash flow for the nine months ended September 30, 2023, stood at $382 million, compared to $234 million a year ago.

The company exited the quarter with cash and equivalents worth $705 million. 

FY23 Outlook, raised: Xylem now expects revenue of approximately $7.3 billion (prior expectation ~$7.20 billion), up ~11% on an organic basis. The street view stands at $7.2 billion.

The company expects adjusted EPS of $3.71-$3.73 (prior view $3.50-$3.70). The street view stands at $3.62. Adjusted EBITDA margin is expected to be ~19% (prior ~18%).

Price Action: XYL shares are trading higher by 3.90% to $92.75 on the last check Tuesday.