A month has gone by since the last earnings report for Xylem (XYL Quick QuoteXYL - Free Report) . Shares have added about 1.2% in that time frame, outperforming 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 drivers.

Xylem Beats on Q1 Earnings, Increases '21 Projections

Xylem has delivered impressive results for first-quarter 2021. Its earnings surpassed the Zacks Consensus Estimate by 51.4%. 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 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.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed an upward trend in estimates revision. The consensus estimate has shifted 5.38% due to these changes.

VGM Scores

Currently, Xylem has an average Growth Score of C, however its Momentum Score is doing a bit better with a B. However, the stock was allocated a grade of F on the value side, putting it in the bottom 20% quintile 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 trending upward for the stock, and the magnitude of these revisions looks promising. It comes with little surprise Xylem has a Zacks Rank #2 (Buy). We expect an above average return from the stock in the next few months.