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Xylem (XYL) Meets Q3 Earnings Estimates, Lowers '19 View

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Xylem Inc. (XYL - Free Report) reported in-line earnings for the third quarter of 2019. This is the company’s second consecutive quarter of in-line results.

Adjusted earnings in the quarter under review were 82 cents per share, in line with the Zacks Consensus Estimate. The bottom line grew 6.5% from the year-ago figure of 77 cents. Its bottom-line results included an adverse impact of three cents per share from unfavorable movements in foreign currencies.

Organic Growth Drives Revenues

Xylem’s revenues were $1,296 million in the quarter under review, reflecting growth of 0.7% from the year-ago quarter. Organic sales in the quarter expanded 3% on strengthening utility end markets, offset by weakness in commercial and industrial end markets.

The company’s revenues lagged the Zacks Consensus Estimate of $1,329 million by 2.5%.

Orders in the quarter under review were down 1% year over year at $1,346 million. Organically, orders reflected growth of 1%.

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

Revenues in the Water Infrastructure segment were $531 million, down 1.8% year over year. Organic sales were up 1% year over year. Results gained from improved demand in the utilities end market, especially in the United States. However, weakness in the industrial market affected the segment.

The Applied Water segment generated revenues of $376 million in the third quarter, down 0.5% year over year. Organic sales improved 1% on a year-over-year basis. Business in commercial and industrial markets was soft in the quarter.

Quarterly revenues of the Measurement & Control Solutions segment were $389 million, up 5.7% year over year. Organic sales improved 8% year over year. Results benefited from the solid metrology water business.

Operating Margin Improves Y/Y

In the quarter under review, Xylem’s cost of sales rose 0.6% year over year to $787 million, while selling, general and administrative expenses dipped 2.2% to $273 million, and research and development expenses declined 4.3% to $44 million.

Adjusted operating income in the quarter under review grew 4.3% year over year to $196 million. Also, adjusted operating margin rose 50 basis points (bps) to 15.1%. Interest expenses were $16 million versus $21 million in the year-ago quarter.

Balance Sheet and Cash Flow

Exiting the third quarter, Xylem had cash and cash equivalents of $453 million, up 18.3% from $383 million at the end of the last reported quarter. Long-term debt balance was down 1% sequentially to $2,030 million.

In the first three quarters of 2019, the company generated net cash of $451 million from operating activities, reflecting growth of 16.2% from the year-ago period. Capital expenditure was $175 million, above $171 million in the year-ago period. Free cash flow in the first three quarters of 2019 was $276 million.

In the first three quarters of 2019, the company paid out dividends amounting to $131 million and repurchased shares worth $39 million.

Outlook

For 2019, Xylem anticipates revenues of $5.24-$5.27 billion, down from the previously stated $5.29-$5.38 billion. Organic sales are predicted to rise 3-4% versus the earlier mentioned 5-6% growth.

Adjusted operating margin will likely be 13.8-14%, down from 14.3-14.5% stated previously. Adjusted earnings will likely be $3.01-$3.03 per share, down from $3.12-$3.22 mentioned earlier. The revised earnings projection suggests year-over-year growth of 5%. Excluding forex woes, earnings are likely to increase 7-8% in the year.

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

With a market capitalization of roughly $15.3 billion, Xylem currently carries a Zacks Rank #4 (Sell).

Some better-ranked stocks in the industry are Brady Corporation (BRC - Free Report) , Dover Corporation (DOV - Free Report) and Graham Corporation (GHM - Free Report) . All these stocks currently 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 Brady and Dover improved for the current year, while have been unchanged for Graham. Further, positive earnings surprise for the last reported quarter was 11.48% for Brady, 4.58% for Dover and 100% for Graham.

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