Third quarter revenue for water technology company and pump manufacturer Xylem was $1.2 billion, down 6 percent on a reported basis and 7 percent organically, declining less than previously expected, primarily driven by the resilience of the wastewater utility business and healthy residential demand. Orders were down 7 percent on a reported basis and 8 percent, organically.
Reported operating margin in the quarter was 6 percent, up 520 basis points versus the prior year. Adjusted operating margin was 13.0 percent, down 210 basis points compared to the prior year. The decline was driven largely by the pandemic’s impact on volume in the quarter.
Xylem generated $275 million of operating cash flow and $234 million of free cash flow in the quarter, representing a conversion of 215 percent, driven by discipline on capital spending and working capital, as well as favorable timing of interest and tax payments. The company’s liquidity remains strong, at approximately $2.4 billion, including cash and committed credit facilities.
“Our team delivered operational performance exceeding expectations on both the top line and bottom line,” said Patrick Decker, Xylem’s president and CEO. “Our supply chain continues to be robust, we’re maintaining discipline on cost and capital, and cash generation is healthy. Overall, we’re executing with focus and purpose to make sure our customers can continue delivering essential services to their communities. Despite continuing macro uncertainty, we are serving end-markets that showed signs of increasing stability through the quarter.
“China returned to pre-pandemic growth, Europe grew modestly, and the U.S., while still lagging other regions, improved sequentially in the quarter. We continue to set strong commercial pace as utilities accelerate interest in transformational technologies that increase operational and financial resilience. Physical distancing is delaying some project revenues dependent on fieldwork in the short term, and we continue to closely monitor COVID-19 developments. We are well-positioned irrespective of how the pandemic plays out and set to emerge in an even stronger position.”
Xylem expects fourth quarter organic revenue declines in the range of 6 to 8 percent and adjusted operating margin in the range of 13 percent to 13.5 percent. Full-year free cash flow conversion is anticipated to be greater than 100 percent.
Xylem’s Water Infrastructure segment consists of its portfolio of businesses serving wastewater transport and treatment, clean water delivery, and dewatering.
Third quarter 2020 revenue was $524 million, down 2 percent organically, and down 1 percent as reported, compared with third quarter 2019. Resilience in wastewater transport and treatment spending continued as the utilities end market returned to mid-single digit growth. The industrial end market declined mid-teens driven by softness in dewatering applications. Third quarter reported operating income for the segment was $89 million. Adjusted operating income for the segment, which excludes $8 million of restructuring and realignment costs, was $97 million. Reported operating margin for the segment was 17.0 percent, down 130 basis points versus prior year. Adjusted operating margin of 18.5 percent was down 110 basis points versus prior year from lower sales volume, unfavorable mix and higher inflation partially offset by productivity benefits and cost reductions.
