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Water solutions provider Xylem Inc. (XYL - Analyst Report) reported first-quarter 2014 results, showing year-over-year improvement in both earnings and revenues. The company posted adjusted earnings of $63 million or 34 cents a share compared with $50 million or 27 cents in the year-ago quarter. This represented year-over-year increase of 25.9% on a per share basis. Adjusted earnings for the reported quarter also surpassed the Zacks Consensus Estimate of 32 cents by 2 cents.

On a GAAP basis, the company reported quarterly earnings of $49 million or 27 cents per share from continuing operations compared with $41 million or 22 cents in first-quarter 2013.

Revenues: Revenues for the reported quarter improved roughly 3.1% year over year to $906 million and beat the Zacks Consensus Estimate of $890 million. The increase in revenues was a result of improvement in both the business segments.

During the quarter, Xylem received total orders worth $993 million, which reflected an increase of 4% year over year on a constant currency basis. 

Margins/Costs: Gross margin in the quarter was recorded at 37.7%, down slightly compared with 38.0% in the year-ago quarter. Selling, general and administrative expenses decreased 5.5% year over year to $224 million. Adjusted operating margin in the quarter increased roughly 90 basis points (bps) year over year to 8.4%.

Segment Details: The Water Infrastructure segment generated revenues of $568 million in the quarter, up 3.1% year over year. The sales increase resulted from improvement in the emerging markets, mainly Europe, which helped offset the decline in the U.S. dewatering rental business. The segment’s adjusted operating margin increased 50 bps year over year to 8.1%.

The Applied Water segment’s revenues were recorded at $355 million compared with $345 million in the year-ago quarter. The year-over-year sales hike of 2.9% was a result of increase in the usage of industrial, residential building services and irrigation applications in the U.S. along with improvement in the industrial and residential markets in the emerging economies. The segment’s adjusted operating margin decreased 10 bps year over year to 11.5%.

Balance Sheet/Cash Flow: Exiting the first quarter of 2014, Xylem’s cash and cash equivalents were recorded at $466 million, compared with $533 million in the preceding quarter. Xylem had long-term debt of $1,199 million flat with the quarter-ended Dec 31, 2013.

In the quarter, Xylem generated cash of $22 million from its operating activities against $20 million generated a year ago, while capital expenditure was recorded at $25 million against $30 million in the first quarter of 2013.

Outlook: Given the positive results, management reaffirmed its guidance for 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. Also, restructuring and realignment costs are expected in the $40.0 to $50.0 million range for 2014.

Other Stocks to Consider

Xylem currently carries a Zacks Rank #3 (Hold). Some better-ranked stocks in the industry include Gorman-Rupp Co. (GRC - Snapshot Report), The Middleby Corporation (MIDD - Analyst Report) and Illinois Tool Works Inc. (ITW - Analyst Report). While Gorman-Rupp and Middleby sport a Zacks Rank #1 (Strong Buy), Illinois Tool Works has a Zacks Rank #2 (Buy).

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