A month has gone by since the last earnings report for Xylem (XYL Quick QuoteXYL - Free Report) . Shares have added about 7.8% in that time frame, underperforming the S&P 500.

Will the recent positive trend continue leading up to its next earnings release, or is Xylem due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important catalysts.

Xylem Beats on Q3 Earnings, Improves 2022 Guidance

Xylem third-quarter 2022 adjusted earnings (excluding 72 cents from non-recurring items) of 79 cents per share, surpassed the Zacks Consensus Estimate of 66 cents. The bottom line increased 25.4% year over year.

Xylem’s revenues of $1,380 million also outperformed the Zacks Consensus Estimate of $1,330 million and inched up approximately 9.1% year over year. Organic sales in the quarter rose 16%.

Orders in the reported quarter decreased 7% year over year to $1,419 million. Organically, orders decreased by 1% owing to currency differences.

Segmental Details

Revenues in the Water Infrastructure segment were $574 million, up 5% year over year. Organic sales in the reported quarter grew 13% year over year, buoyed by effective price realization, healthy activity in the utility business in the U.S. and Western Europe and dewatering demand in the US and Emerging Markets.

The Applied Water segment generated revenues of $458 million in the third quarter, up 15% year over year. Organic sales increased 20% on a year-over-year basis. The segmental performance benefited from strong price realization and backlog execution in all end markets.

Quarterly revenues at the Measurement & Control Solutions segment were $348 million, up 9% year over year. Organic sales were up 15% year over year due to strength in the water quality test applications.

Margin Profile

In the reported quarter, Xylem’s adjusted EBITDA was $252 million, up 11.5% from the year-ago quarter’s level. The margin in the quarter improved 170 basis points (bps) year over year to 18.3%.

Operating income was $168 million in the quarter under review, up 10.5% year over year. The operating margin increased to 12.2% in the third quarter of 2022 from 12% in the year-ago quarter. Interest expenses in the reported quarter totaled $12 million, down from $21 million in the year-ago quarter.

In the third quarter, Xylem’s cost of sales increased 7.9% year over year to $856 million. Selling, general and administrative expenses increased 7.7% to $294 million. Research and development expenses decreased 4.1% year over year to $47 million.

Balance Sheet and Cash Flow

Exiting the third quarter, Xylem had cash and cash equivalents of $1,186 million compared with $1,349 million at the end of December 2021. Long-term debt was $1,880 million at the end of the third quarter of 2022 compared with $2,440 million at the end of December 2021.

In the first nine months of 2022, Xylem generated net cash of $234 million compared with $318 million in the year-ago period. Capital expenditure was $148 million, up 16.5% year over year. Free cash flow was $86 million in the first nine months of 2022 compared with $86 million in the year-ago quarter.

Shareholder-Friendly Policies

In the first nine months of 2022, Xylem paid out dividends worth $163 million, reflecting an increase of 7.2% year over year. The company also bought back shares worth $52 million in the same period, down 23.5% year over year.

Outlook

Owing to strong demand, price realization and gradual easing of supply-chain constraints, Xylem raised its adjusted earnings per share guidance for the full year. The company now expects the metric to be in the range of $2.65 to $2.75 compared with $2.50 to $2.70 anticipated earlier. The mid-point of the guided range — $2.70 — lies above the Zacks Consensus Estimate of $2.58.

Xylem now anticipates full-year revenues to increase 4% on a reported basis and 9-10% on an organic basis compared with organic revenue growth and reported revenue increase of 8-10% and 3-5% estimated earlier.

For 2022, the adjusted EBITDA margin is now expected to be approximately 17% compared with 16.5-17% anticipated earlier. However, the company expects its full-year performance to be hurt by cost inflation and foreign currency headwinds.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed a downward trend in fresh estimates.

VGM Scores

At this time, Xylem has a subpar Growth Score of D, however its Momentum Score is doing a lot better with an A. However, the stock was allocated a grade of D on the value side, putting it in the bottom 40% for this investment strategy.

Overall, the stock has an aggregate VGM Score of D. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been broadly trending downward for the stock, and the magnitude of these revisions looks promising. Notably, Xylem has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.

Performance of an Industry Player

Xylem is part of the Zacks Manufacturing - General Industrial industry. Over the past month, Idex (IEX Quick QuoteIEX - Free Report) , a stock from the same industry, has gained 8.7%. The company reported its results for the quarter ended September 2022 more than a month ago.

Idex reported revenues of $824 million in the last reported quarter, representing a year-over-year change of +15.7%. EPS of $2.14 for the same period compares with $1.63 a year ago.

Idex is expected to post earnings of $1.97 per share for the current quarter, representing a year-over-year change of +27.1%. Over the last 30 days, the Zacks Consensus Estimate has changed +0.7%.

Idex has a Zacks Rank #2 (Buy) based on the overall direction and magnitude of estimate revisions. Additionally, the stock has a VGM Score of C.