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Xylem (XYL) Up 9.6% Since Last Earnings Report: Can It Continue?
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It has been about a month since the last earnings report for Xylem (XYL - Free Report) . Shares have added about 9.6% 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’s third-quarter 2023 adjusted earnings (excluding 36 cents from non-recurring items) of 99 cents per share surpassed the Zacks Consensus Estimate of 89 cents. The bottom line increased in double digits year over year.
Xylem’s revenues of $2,076 million outperformed the Zacks Consensus Estimate of $1,986.1 million. The top line jumped 50.4% year over year due to strong commercial and operational execution and resilient demand. Organic sales in the quarter rose 10%.
Orders in the reported quarter increased 43% year over year. Organically, orders inched up 3%.
Segmental Details
From second-quarter 2023 onward, Xylem has introduced a new segment, Integrated Solutions & Services, to include the results of Evoqua, which it acquired in May 2023. The segment reported revenues of $368 million in the third quarter.
Revenues in the Water Infrastructure segment totaled $803 million, up 40% year over year. The Zacks Consensus Estimate for Water Infrastructure segment revenues was $757 million. Organic sales in the reported quarter increased 7% year over year, buoyed by price realization and robust utilities and industrial demand in the United States and resiliency in Western Europe.
The Applied Water segment generated revenues of $465 million in the third quarter, up 2% year over year. The Zacks Consensus Estimate for segmental revenues was $463 million for the quarter. Organic sales increased 1% on a year-over-year basis. The segmental performance benefited from strong price realization, backlog execution in U.S. building solutions and resilient industrial demand in developed markets.
Quarterly revenues at the Measurement & Control Solutions segment totaled $440 million, up 26% year over year. This compares with the Zacks Consensus Estimate of $410 million. Organic sales were up 25% year over year due to backlog execution in smart metering and test and measurement.
Margin Profile
In the reported quarter, Xylem’s adjusted EBITDA was $411 million, up 63.1% from the year-ago quarter’s level. The margin in the quarter improved to 19.8% compared with 18.3% in the year-ago period.
Operating income was $128 million in the quarter under review, reflecting an increase of 23.1% from the year-ago reported figure. Operating margin deteriorated to 15.9% from 18.1% in the year-ago period.
Balance Sheet and Cash Flow
Exiting the third quarter, Xylem had cash and cash equivalents of $705 million compared with $944 million at the end of December 2022. Long-term debt was $2,253 million at the end of the third quarter of 2023 compared with $1,880 million at the end of December 2022.
At the end of the third quarter of 2023, Xylem generated net cash of $382 million from operating activities compared with $234 million at the end of December 2022. Capital expenditure was $177 million, up 19.6% from the year-ago period. Free cash flow was $238 million in the first nine months of 2023 compared with $86 million in the year-ago period.
Rewards to Shareholders
In the first nine months of 2023, Xylem paid dividends of $219 million, up 34.4% year over year. The company also bought back shares worth $10 million in the same period compared with $52 million worth of shares repurchased in the year-ago period. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks.
2023 Guidance Improved
Xylem has raised its 2023 guidance. The company now expects revenues of approximately $7.3 billion for 2023. This indicates a year-over-year increase of 32% on a reported basis and around 11% on an organic basis. Previously, the company expected the same to increase 30% on a reported basis and 9-10% on an organic basis. The Zacks Consensus Estimate for the company’s total revenues in 2023 stands at $7.2 billion.
Adjusted EBITDA margin is estimated to be approximately 19% for 2023 compared with 18% anticipated earlier. XYL expects adjusted earnings of $3.71-$3.73 per share compared with $3.50-$3.70 anticipated earlier. The Zacks Consensus Estimate for the company’s earnings in 2023 is pegged at $3.64.
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed a downward trend in fresh estimates.
VGM Scores
Currently, Xylem has an average Growth Score of C, a grade with the same score on the momentum front. Charting a somewhat similar path, 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 D. If you aren't focused on one strategy, this score is the one you should be interested in.
Outlook
Estimates have been broadly trending downward 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, Crane (CR - Free Report) , a stock from the same industry, has gained 6.5%. The company reported its results for the quarter ended September 2023 more than a month ago.
Crane reported revenues of $530.1 million in the last reported quarter, representing a year-over-year change of
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Xylem (XYL) Up 9.6% Since Last Earnings Report: Can It Continue?
It has been about a month since the last earnings report for Xylem (XYL - Free Report) . Shares have added about 9.6% 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 Q3 Earnings & Revenues Beat, '23 View Upbeat
Xylem’s third-quarter 2023 adjusted earnings (excluding 36 cents from non-recurring items) of 99 cents per share surpassed the Zacks Consensus Estimate of 89 cents. The bottom line increased in double digits year over year.
Xylem’s revenues of $2,076 million outperformed the Zacks Consensus Estimate of $1,986.1 million. The top line jumped 50.4% year over year due to strong commercial and operational execution and resilient demand. Organic sales in the quarter rose 10%.
Orders in the reported quarter increased 43% year over year. Organically, orders inched up 3%.
Segmental Details
From second-quarter 2023 onward, Xylem has introduced a new segment, Integrated Solutions & Services, to include the results of Evoqua, which it acquired in May 2023. The segment reported revenues of $368 million in the third quarter.
Revenues in the Water Infrastructure segment totaled $803 million, up 40% year over year. The Zacks Consensus Estimate for Water Infrastructure segment revenues was $757 million. Organic sales in the reported quarter increased 7% year over year, buoyed by price realization and robust utilities and industrial demand in the United States and resiliency in Western Europe.
The Applied Water segment generated revenues of $465 million in the third quarter, up 2% year over year. The Zacks Consensus Estimate for segmental revenues was $463 million for the quarter. Organic sales increased 1% on a year-over-year basis. The segmental performance benefited from strong price realization, backlog execution in U.S. building solutions and resilient industrial demand in developed markets.
Quarterly revenues at the Measurement & Control Solutions segment totaled $440 million, up 26% year over year. This compares with the Zacks Consensus Estimate of $410 million. Organic sales were up 25% year over year due to backlog execution in smart metering and test and measurement.
Margin Profile
In the reported quarter, Xylem’s adjusted EBITDA was $411 million, up 63.1% from the year-ago quarter’s level. The margin in the quarter improved to 19.8% compared with 18.3% in the year-ago period.
Operating income was $128 million in the quarter under review, reflecting an increase of 23.1% from the year-ago reported figure. Operating margin deteriorated to 15.9% from 18.1% in the year-ago period.
Balance Sheet and Cash Flow
Exiting the third quarter, Xylem had cash and cash equivalents of $705 million compared with $944 million at the end of December 2022. Long-term debt was $2,253 million at the end of the third quarter of 2023 compared with $1,880 million at the end of December 2022.
At the end of the third quarter of 2023, Xylem generated net cash of $382 million from operating activities compared with $234 million at the end of December 2022. Capital expenditure was $177 million, up 19.6% from the year-ago period. Free cash flow was $238 million in the first nine months of 2023 compared with $86 million in the year-ago period.
Rewards to Shareholders
In the first nine months of 2023, Xylem paid dividends of $219 million, up 34.4% year over year. The company also bought back shares worth $10 million in the same period compared with $52 million worth of shares repurchased in the year-ago period. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks.
2023 Guidance Improved
Xylem has raised its 2023 guidance. The company now expects revenues of approximately $7.3 billion for 2023. This indicates a year-over-year increase of 32% on a reported basis and around 11% on an organic basis. Previously, the company expected the same to increase 30% on a reported basis and 9-10% on an organic basis. The Zacks Consensus Estimate for the company’s total revenues in 2023 stands at $7.2 billion.
Adjusted EBITDA margin is estimated to be approximately 19% for 2023 compared with 18% anticipated earlier. XYL expects adjusted earnings of $3.71-$3.73 per share compared with $3.50-$3.70 anticipated earlier. The Zacks Consensus Estimate for the company’s earnings in 2023 is pegged at $3.64.
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed a downward trend in fresh estimates.
VGM Scores
Currently, Xylem has an average Growth Score of C, a grade with the same score on the momentum front. Charting a somewhat similar path, 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 D. If you aren't focused on one strategy, this score is the one you should be interested in.
Outlook
Estimates have been broadly trending downward 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, Crane (CR - Free Report) , a stock from the same industry, has gained 6.5%. The company reported its results for the quarter ended September 2023 more than a month ago.
Crane reported revenues of $530.1 million in the last reported quarter, representing a year-over-year change of