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Water solutions provider, Xylem Inc. (XYL - Analyst Report) reported fourth-quarter 2013 results, showing year-over-year improvement in both earnings and revenues. The company posted adjusted earnings of $103 million or 56 cents a share compared with $88 million or 47 cents in the year-ago quarter. This represented a year-over-year increase of 19% on a per share basis. Adjusted earnings for the reported quarter also surpassed the Zacks Consensus Estimate of 52 cents by 7.7%.

On a GAAP basis, the company reported quarterly earnings of $68 million or 37 cents per share from continuing operations compared with $73 million or 39 cents in the fourth-quarter 2012.

For 2013, Xylem reported adjusted earnings per share of $1.67, up 2.5% compared with the Zacks Consensus Estimate of $1.63. Reported earnings were below the year-ago earnings of $1.77 per share. On a GAAP basis, the company generated earnings per share of $1.22, compared with $1.59 in 2012.

Revenues: Revenues for the reported quarter improved roughly 7% year over year to $1.03 billion and beat the Zacks Consensus Estimate of $990 million. The increase in revenues was a result of improved demand in the industrial and public utility markets.

During the quarter, Xylem received total orders worth $986 million, which reflected an increase of 6% year over year on a constant currency basis. 

For 2013, Xylem reported revenues of $3,837 million, up from the Zacks Consensus Estimate of $3,791 million. Revenues were also higher than $3,791 million revenues generated in 2012.

Margins/Costs: Gross margin in 2013 was recorded at 39%, down slightly compared with 40% in the year-ago quarter. Selling, general and administrative expenses increased 8% year over year in 2013 to $986 million. Adjusted operating margin in the year declined roughly 110 basis points (bps) year over year to 11.8%.

Segment Details: The Water Infrastructure segment generated revenues of $691 million in the quarter, up 8.5% year over year. The sales increase was a result of improvement in the Transport business in the Americas and Europe. The segment’s adjusted operating margin declined 30 bps year over year to 16.2%.

The Applied Water segment’s revenues were recorded at $358 million compared with $346 million in the year-ago quarter. The year-over-year sales hike of 3% was a result of increase in the usage of industrial and irrigation applications. The segment’s adjusted operating margin increased 120 bps year over year to 12.8%.

Balance Sheet/Cash Flow: Exiting the fourth quarter of 2013, Xylem’s cash and cash equivalents were recorded at $533 million, compared with $394 million in the preceding quarter. Xylem had long-term debt of $1,199 million, flat with the quarter-ended Sep 30, 2013.

In 2013, Xylem generated cash flow from operations of $324 million, against $396 million generated a year ago, while capital expenditure was recorded at $126 million against $112 million in 2012.

In the fourth quarter of 2013, management approved a dividend hike of 10% to 12.8 cents per share. The dividend will be paid on Mar 19, 2014, to shareholders of record on Feb 19, 2014.

Outlook: Management expects the growth momentum which started in the second half of 2013 to continue even in 2014. Xylem expects revenues in 2014 to be roughly $4.0 billion, up 2% to 4% year over year. Adjusted net income is estimated in the range of $345 to $370 million, with earnings per share in the range of $1.85 to $2.00.

Other Stocks to Consider

Xylem currently carries a Zacks Rank #3 (Hold). Some better-ranked stocks in the industry include Altra Industrial Motion Corp. (AIMC - Snapshot Report), Barnes Group Inc. (B - Snapshot Report) and The Middleby Corporation (MIDD - Analyst Report). All these stocks carry a Zacks Rank #2 (Buy).

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