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Xylem (XYL) Q2 Earnings Beat Estimates by a Penny, Up Y/Y
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Premium water solutions provider Xylem Inc. (XYL - Free Report) reported strong second-quarter 2016 results, wherein the adjusted earnings of 48 cents per share were a penny higher than the Zacks Consensus Estimate. The bottom line also improved from the year-ago tally by 23.1%.
The better-than-expected quarterly results were primarily driven by improving business across the global public utility sector. However, we note that weaknesses in the energy and industrial-end markets limited revenue growth and margin expansion.
Revenues
Xylem generated revenues of $932 million, up 1.3% year over year. The top line also surpassed the Zacks Consensus Estimate of $929 million.
Margins/Costs
Xylem’s cost of revenues, which represents 60.4% of the total revenue, dipped roughly 1.6% to $563 million in the second quarter. Gross margin was 39.6% as against 37.8% a year ago. Selling, general and administrative expenses increased 4.1% year over year to $227 million. Research and development expenses came in at $27 million compared with $25 million in the year-ago quarter.
Second-quarter adjusted operating margin stood at 11.7%, up 40 basis points (bps) year over year. Greater operational efficacy supported margin expansion.
Segmental Details
The Water Infrastructure segment generated revenues of $566 million as against $551 million a year ago. The upside was driven by sturdy business in the public utility end market and gains from major projects in emerging markets, particularly India. Adjusted operating margin expanded 60 bps year over year to 12.4% on the back of the company’s cost-saving strategies and higher sales volume.
Revenues from the Applied Water segment totaled $366 million, down roughly 1% year over year, due to weak sales in the U.S. and China. Adjusted operating margin of the segment expanded 10 bps year over year to 13.9% on benefits from cost-reduction programs.
Balance Sheet and Cash Flow
Xylem exited the second quarter with cash and cash equivalents of $586 million compared with $680 million as of Dec 31, 2015. Long-term debt declined 4.4% year over year to $1,143 million.
At the end of first six months of 2016, Xylem generated cash of $125 million from its operating activities compared with $123 million a year ago. Capital expenditure came in at $62 million as against $57 million in the year-ago quarter.
The company’s free cash flow was $59 million, down from $64 million in the year-ago quarter.
At the end of the second quarter, the company paid dividends worth $56 million, up from $51 million in the prior-year quarter.
Outlook
Xylem aims to boost its financials on the back of improving business in the public utility sector and greater operational efficacy. Full-year 2016 adjusted earnings are expected in the range of $2.00–$2.06 per share. Revenues for the full year are expected to be roughly $3.7 billion.
Xylem closed the trading session at $47.81 per share as of Aug 1, 2016. However, it remains to be seen how the stock performs after posting second-quarter results.
Xylem presently carries a Zacks Rank #3 (Hold). Some better-ranked stocks in the industry include Illinois Tool Works Inc. (ITW - Free Report) , Luxfer Holdings PLC (LXFR - Free Report) and Metso Corporation . All the three companies currently hold a Zacks Rank #2 (Buy).
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Xylem (XYL) Q2 Earnings Beat Estimates by a Penny, Up Y/Y
Premium water solutions provider Xylem Inc. (XYL - Free Report) reported strong second-quarter 2016 results, wherein the adjusted earnings of 48 cents per share were a penny higher than the Zacks Consensus Estimate. The bottom line also improved from the year-ago tally by 23.1%.
The better-than-expected quarterly results were primarily driven by improving business across the global public utility sector. However, we note that weaknesses in the energy and industrial-end markets limited revenue growth and margin expansion.
Revenues
Xylem generated revenues of $932 million, up 1.3% year over year. The top line also surpassed the Zacks Consensus Estimate of $929 million.
Margins/Costs
Xylem’s cost of revenues, which represents 60.4% of the total revenue, dipped roughly 1.6% to $563 million in the second quarter. Gross margin was 39.6% as against 37.8% a year ago. Selling, general and administrative expenses increased 4.1% year over year to $227 million. Research and development expenses came in at $27 million compared with $25 million in the year-ago quarter.
Second-quarter adjusted operating margin stood at 11.7%, up 40 basis points (bps) year over year. Greater operational efficacy supported margin expansion.
Segmental Details
The Water Infrastructure segment generated revenues of $566 million as against $551 million a year ago. The upside was driven by sturdy business in the public utility end market and gains from major projects in emerging markets, particularly India. Adjusted operating margin expanded 60 bps year over year to 12.4% on the back of the company’s cost-saving strategies and higher sales volume.
Revenues from the Applied Water segment totaled $366 million, down roughly 1% year over year, due to weak sales in the U.S. and China. Adjusted operating margin of the segment expanded 10 bps year over year to 13.9% on benefits from cost-reduction programs.
Balance Sheet and Cash Flow
Xylem exited the second quarter with cash and cash equivalents of $586 million compared with $680 million as of Dec 31, 2015. Long-term debt declined 4.4% year over year to $1,143 million.
At the end of first six months of 2016, Xylem generated cash of $125 million from its operating activities compared with $123 million a year ago. Capital expenditure came in at $62 million as against $57 million in the year-ago quarter.
The company’s free cash flow was $59 million, down from $64 million in the year-ago quarter.
At the end of the second quarter, the company paid dividends worth $56 million, up from $51 million in the prior-year quarter.
Outlook
Xylem aims to boost its financials on the back of improving business in the public utility sector and greater operational efficacy. Full-year 2016 adjusted earnings are expected in the range of $2.00–$2.06 per share. Revenues for the full year are expected to be roughly $3.7 billion.
Xylem closed the trading session at $47.81 per share as of Aug 1, 2016. However, it remains to be seen how the stock performs after posting second-quarter results.
XYLEM INC Price, Consensus and EPS Surprise
XYLEM INC Price, Consensus and EPS Surprise | XYLEM INC Quote
Other Stocks to Consider
Xylem presently carries a Zacks Rank #3 (Hold). Some better-ranked stocks in the industry include Illinois Tool Works Inc. (ITW - Free Report) , Luxfer Holdings PLC (LXFR - Free Report) and Metso Corporation . All the three companies currently hold a Zacks Rank #2 (Buy).
Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days.Click to get this free report >>