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Xylem (XYL) Beats on Q1 Earnings, Increases '21 Projections

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Xylem Inc. (XYL - Free Report) has delivered impressive results for first-quarter 2021. Its earnings surpassed the Zacks Consensus Estimate by 51.4%. This is the fourth consecutive quarter of earnings beat for the company. Also, quarterly sales exceeded estimates by 7.1%.

Adjusted earnings in the quarter under review were 56 cents per share, surpassing the Zacks Consensus Estimate of 69 cents. Also, the bottom line increased 143.5% from the year-ago figure of 23 cents on the back of higher sales generation and margin improvement.

It is worth noting that movements in foreign currencies had a positive impact of 4 cents per share on earnings.

Revenue Details

In the quarter under review, Xylem’s revenues were $1,256 million, reflecting an 11.8% increase from the year-ago quarter. Organic sales in the quarter increased 8% on the back of healthy demand in the three segments.

Also, the company’s revenues surpassed the Zacks Consensus Estimate of $1,173 million.

Orders in the reported quarter increased 22% year over year to $1,538 million. Organically, orders grew 19% or expanded 18% on a constant-currency basis.

The company reports net sales under three segments, which are Water Infrastructure, Applied Water, and Measurement & Control Solutions. The segmental information is briefly discussed below:

Revenues in the Water Infrastructure segment were $509 million, up 16.2% year over year. Organic sales in the quarter grew 11% year over year. Businesses in both industrial and utilities end markets flourished in the quarter.

The Applied Water segment generated revenues of $393 million in the first quarter, up 16.3% year over year. Organic sales increased 13% on a year-over-year basis. Businesses in commercial, industrial and residential markets were healthy.

Quarterly revenues of the Measurement & Control Solutions segment were $354 million, up 2% year over year. Organic sales were flat year over year or down 1% on a constant-currency basis. Benefits from water application demand in the test business were offset by weakness caused by setbacks in deployments of smart metrology.

Margin Profile

In first-quarter 2021, Xylem’s cost of sales increased 7.3% year over year to $766 million. As a percentage of revenues, it represented 61% versus 63.6% in the year-ago quarter. Selling, general and administrative expenses increased 19.8% to $490 million. Meanwhile, research and development expenses grew 1.3% to $301 million.

In the reported quarter, the company’s adjusted earnings before interest, tax, depreciation and amortization (EBITDA) were $215 million, increasing 55.8% from the year-ago quarter. Margin in the quarter grew 480 basis points (bps) year over year to 17.1%. Productivity gains, healthy demand and costs actions aided the results.

Adjusted operating income was $143 million in the quarter under review, up 104.3% year over year. Operating margin grew 520 bps to 11.4%. Interest expenses in the reported quarter totaled $21 million, up from $16 million in the year-ago quarter.

Balance Sheet and Cash Flow

Exiting the first quarter of 2021, Xylem had cash and cash equivalents of $1,688 million, decreasing 10% from $1,875 million at the end of the last reported quarter. Long-term debt balance decreased 1% sequentially to $2,460 million.

In the reported quarter, the company used cash of $26 million for operating activities as compared with $2 million cash utilized in the year-ago quarter. Capital expenditure was $39 million, down 23.5% from the year-ago figure of $51 million.

Shareholder-Friendly Policies

In first-quarter 2021, the company paid out dividends of $51 million, reflecting an increase of 6.3% from the year-ago quarter. Share repurchased amounted to $67 million, up 11.7% year over year.

Outlook

For 2021, Xylem increased its organic revenue growth projection to 5-7% from the previously stated 3-5%. Total revenues are predicted to increase 8-10% as compared with 6-8% mentioned previously.

Adjusted earnings per share in the year are anticipated to be $2.50-$2.710, higher than $2.35-$2.60 mentioned previously. The improvement mirrors improvement in demand and commercial activities.

Xylem Inc. Price, Consensus and EPS Surprise

 

Xylem Inc. Price, Consensus and EPS Surprise

Xylem Inc. price-consensus-eps-surprise-chart | Xylem Inc. Quote

Zacks Rank & Stocks to Consider

The company currently has a market capitalization of $20.3 billion and a Zacks Rank #3 (Hold).

Some better-ranked stocks in the industry are Applied Industrial Technologies, Inc. (AIT - Free Report) , Dover Corporation (DOV - Free Report) and Graco Inc. (GGG - Free Report) . All the companies presently carry a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

In the past 60 days, earnings estimates for these companies improved for the current year. Further, earnings surprise for the last reported quarter was 35.64% for Applied Industrial, 23.13% for Dover and 16.00% for Graco.

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