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Premium water solutions provider, Xylem Inc. (XYL - Free Report) reported mixed third-quarter 2016 results. The company claimed that strong public utility sectors’ business during the quarter had partially offset the impact of weak conditions prevailing in the broader industrial sector.
Quarterly adjusted earnings of 54 cents per share, exceeded the Zacks Consensus Estimate by a penny. The bottom line also improved from the year-ago tally by 10.2%.
Revenues
Xylem generated revenues of $897 million, down 0.6% year over year. The top line also missed the Zacks Consensus Estimate of $913 million.
Margins/Costs
Xylem’s cost of revenues, which represents 60.2% of the total revenue, were down roughly 2% to $540 million in the third quarter. Gross margin was 39.8% as against 38.9% a year ago. Selling, general and administrative expenses increased 5.8% year over year to $219 million. Research and development expenses were $23 million, flat year over year.
Third-quarter adjusted operating margin was 14.6%, up 90 basis points (bps) year over year. Greater operational efficacy supported margin expansion.
Segmental Details
The Water Infrastructure segment generated revenues of $554 million as against $551 million a year ago. The upside was driven by sturdy business in the public utility end market. Adjusted operating margin expanded 50 bps year over year to 15.9% on the back of the company’s cost-saving strategies and higher sales volume.
Revenues from the Applied Water segment totaled $343 million, down around 2.3% year over year, due to weak sales in the U.S. and China. Adjusted operating margin of the segment expanded 180 bps year over year to 15.5% on benefits from cost-reduction programs.
Balance Sheet and Cash Flow
Xylem exited the third quarter with cash and cash equivalents of $659 million compared with $680 million as of Dec 31, 2015. Long-term debt declined 4% year over year to $1,148 million.
At the end of first nine months of 2016, Xylem generated cash of $274 million from its operating activities compared with $260 million a year ago. Capital expenditure came in at $90 million as against $78 million in the year-ago quarter.
The company’s free cash flow was $121 million, up from $116 million in the year-ago quarter.
At the end of the third quarter, the company paid dividends worth $84 million, up from $77 million in the prior-year quarter.
Outlook
Xyelm aims to boost its financials on the back of improving business in the public utility sector and greater operational efficacy. The company lately completed the acquisition of Sensus and the move would likely help it tap the growing demand of the public utility market more efficiently. In addition to this, the company claimed that it has accomplished the Visenti buyout, which is also expected to bolster its revenues in the quarters ahead.
Based on the existing conditions, the company has raised its full-year 2016 revenue guidance to $3.8 billion from $3.7 billion previously stated. It has narrowed down the 2016 adjusted earnings per share (EPS) guidance range to $2.02-$2.04 per share from $2.00-$2.06 per share projected earlier.
Some better-ranked stocks within the industry that warrant a look include:
ACCO Brands Corp. (ACCO - Free Report) currently carries a Zacks Rank #1 and has an average positive earnings surprise of 23.93% over the four trailing quarters.
Applied Industrial Technologies, Inc. (AIT - Free Report) currently carries a Zacks Rank #2 (Buy) and has an average positive earnings surprise of 4.93% over the last four quarters.
AO Smith Corp. (AOS - Free Report) currently carries a Zacks Rank #2 and has an average positive earnings surprise of 6.45% over the trailing four quarters.
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Xylem (XYL) Beats Q3 Earnings, Trims 2016 EPS Guidance
Premium water solutions provider, Xylem Inc. (XYL - Free Report) reported mixed third-quarter 2016 results. The company claimed that strong public utility sectors’ business during the quarter had partially offset the impact of weak conditions prevailing in the broader industrial sector.
Quarterly adjusted earnings of 54 cents per share, exceeded the Zacks Consensus Estimate by a penny. The bottom line also improved from the year-ago tally by 10.2%.
Revenues
Xylem generated revenues of $897 million, down 0.6% year over year. The top line also missed the Zacks Consensus Estimate of $913 million.
Margins/Costs
Xylem’s cost of revenues, which represents 60.2% of the total revenue, were down roughly 2% to $540 million in the third quarter. Gross margin was 39.8% as against 38.9% a year ago. Selling, general and administrative expenses increased 5.8% year over year to $219 million. Research and development expenses were $23 million, flat year over year.
Third-quarter adjusted operating margin was 14.6%, up 90 basis points (bps) year over year. Greater operational efficacy supported margin expansion.
Segmental Details
The Water Infrastructure segment generated revenues of $554 million as against $551 million a year ago. The upside was driven by sturdy business in the public utility end market. Adjusted operating margin expanded 50 bps year over year to 15.9% on the back of the company’s cost-saving strategies and higher sales volume.
Revenues from the Applied Water segment totaled $343 million, down around 2.3% year over year, due to weak sales in the U.S. and China. Adjusted operating margin of the segment expanded 180 bps year over year to 15.5% on benefits from cost-reduction programs.
Balance Sheet and Cash Flow
Xylem exited the third quarter with cash and cash equivalents of $659 million compared with $680 million as of Dec 31, 2015. Long-term debt declined 4% year over year to $1,148 million.
At the end of first nine months of 2016, Xylem generated cash of $274 million from its operating activities compared with $260 million a year ago. Capital expenditure came in at $90 million as against $78 million in the year-ago quarter.
The company’s free cash flow was $121 million, up from $116 million in the year-ago quarter.
At the end of the third quarter, the company paid dividends worth $84 million, up from $77 million in the prior-year quarter.
Outlook
Xyelm aims to boost its financials on the back of improving business in the public utility sector and greater operational efficacy. The company lately completed the acquisition of Sensus and the move would likely help it tap the growing demand of the public utility market more efficiently. In addition to this, the company claimed that it has accomplished the Visenti buyout, which is also expected to bolster its revenues in the quarters ahead.
Based on the existing conditions, the company has raised its full-year 2016 revenue guidance to $3.8 billion from $3.7 billion previously stated. It has narrowed down the 2016 adjusted earnings per share (EPS) guidance range to $2.02-$2.04 per share from $2.00-$2.06 per share projected earlier.
XYLEM INC Price, Consensus and EPS Surprise
XYLEM INC Price, Consensus and EPS Surprise | XYLEM INC Quote
Zacks Rank and Stocks to Consider
Xylem currently carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Some better-ranked stocks within the industry that warrant a look include:
ACCO Brands Corp. (ACCO - Free Report) currently carries a Zacks Rank #1 and has an average positive earnings surprise of 23.93% over the four trailing quarters.
Applied Industrial Technologies, Inc. (AIT - Free Report) currently carries a Zacks Rank #2 (Buy) and has an average positive earnings surprise of 4.93% over the last four quarters.
AO Smith Corp. (AOS - Free Report) currently carries a Zacks Rank #2 and has an average positive earnings surprise of 6.45% over the trailing four quarters.
Confidential from Zacks
Beyond this Analyst Blog, would you like to see Zacks' best recommendations that are not available to the public? Our Executive VP, Steve Reitmeister, knows when key trades are about to be triggered and which of our experts has the hottest hand. Click to see them now>>