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Xylem (XYL) Down 4.2% Since Last Earnings Report: Can It Rebound?

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A month has gone by since the last earnings report for Xylem (XYL - Free Report) . Shares have lost about 4.2% in that time frame, underperforming the S&P 500.

Will the recent negative trend continue leading up to its next earnings release, or is Xylem due for a breakout? 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 Q4 Earnings & Revenues

Xylem fourth-quarter 2022 adjusted earnings (excluding 10 cents from non-recurring items) of 92 cents per share surpassed the Zacks Consensus Estimate of 80 cents. The bottom line increased 46% year over year.

Xylem’s revenues of $1,506 million also outperformed the Zacks Consensus Estimate of $1,415 million and rose 13.8% year over year. Organic sales in the quarter rose 20%.

Orders in the reported quarter decreased 9% year over year. Organically, orders decreased by 3% owing to currency differences.

Segmental Details

Revenues in the Water Infrastructure segment were $668 million, up 7% year over year. Organic sales in the reported quarter grew 15% year over year, buoyed by effective price realization, healthy activity in the utility business in the United States and Western Europe and dewatering demand in emerging markets.

The Applied Water segment generated revenues of $455 million in the fourth quarter, up 12% year over year. Organic sales increased 17% on a year-over-year basis. The segmental performance benefited from strong price realization in all end markets and regions.

Quarterly revenues at the Measurement & Control Solutions segment were $383 million, up 30% year over year. Organic sales were up 35% year over year due to strength in the water quality test and pipeline assessment applications as well as improved chip supply.

Margin Profile

In the reported quarter, Xylem’s adjusted EBITDA was $281 million, up 31.3% from the year-ago quarter’s level. The margin in the quarter improved to 18.7% compared with 16.2% in the year-ago period.

Adjusted operating income was $214 million in the quarter under review, up 46% year over year. Adjusted operating margin increased to 14.2% in the fourth quarter of 2022 from 121.1% in the year-ago quarter.

Balance Sheet and Cash Flow

Exiting the fourth quarter, Xylem had cash and cash equivalents of $944 million compared with $1,349 million at the end of December 2021. Long-term debt (net) was $1,880 million at the end of the fourth quarter of 2022 compared with $2,440 million at the end of December 2021.

In 2022, Xylem generated net cash of $596 million from operating activities compared with $538 million in the year-ago period. Capital expenditure was $208 million, flat year over year. Free cash flow was $388 million in 2022 compared with $330 million in the year-ago quarter.

Shareholder-Friendly Policies

In 2022, Xylem paid out dividends worth $217 million, reflecting an increase of 6.9% year over year. The company also bought back shares worth $52 million in the same period, down 23.5% year over year.

2023 Outlook

For 2023, Xylem expects revenues of $5.70-$5.80 billion, reflecting an increase of 3-5% on a reported basis and 4-6 % on an organic basis. The Zacks Consensus Estimate for the same stands at $5.86 billion.

Adjusted EBITDA margin is predicted to be in the range of 17.5-18%, reflecting an increase of 50-100 basis points year over year. Adjusted earnings per share are expected in the band of $3.00-$3.25, indicating a rise of 5-14% from the 2022 reported number. The mid-point of the guided range — $3.13 — lies below the Zacks Consensus Estimate of $3.19.  Free cash flow conversion to net income is estimated to be 100%.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed an upward trend in estimates review.

VGM Scores

At this time, Xylem has a great Growth Score of A, though it is lagging a bit on the Momentum Score front with a B. 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 B. If you aren't focused on one strategy, this score is the one you should be interested in.


Estimates have been broadly trending upward for the stock, and the magnitude of these revisions has been net zero. 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, Illinois Tool Works (ITW - Free Report) , a stock from the same industry, has gained 0.2%. The company reported its results for the quarter ended December 2022 more than a month ago.

Illinois Tool Works reported revenues of $3.97 billion in the last reported quarter, representing a year-over-year change of +7.9%. EPS of $2.34 for the same period compares with $1.95 a year ago.

For the current quarter, Illinois Tool Works is expected to post earnings of $2.20 per share, indicating a change of +4.3% from the year-ago quarter. The Zacks Consensus Estimate has changed +0.8% over the last 30 days.

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

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