Premium water solutions provider Xylem Inc. (NYSE:XYL) reported solid first-quarter 2016 results with its adjusted earnings of 35 cents per share beating the Zacks Consensus Estimate by a penny.
The bottom line also increased 6.1% year over year.
Revenues
Xylem generated revenues of $847 million, up 1.2% year over year. The year-over-year improvement was driven by strong U.S. commercial building market and public utility trade as well as business growth across all niche marketplaces. The top line also surpassed the Zacks Consensus Estimate of $832 million.
Margins/Costs
Xylem’s cost of revenues, which represents 61.2% of the total revenue, dipped roughly 1% to $518 million in the first quarter. Gross margin was 38.8% compared with 37.6% a year ago. Selling, general and administrative expenses increased 6.3% year over year to $219 million. Research and development expenses were $25 million versus $23 million in the year-ago quarter.
First quarter adjusted operating margin was 10.9%, up 10 basis points (bps) year over year, driven by greater operational efficacy.
Segmental Details
The Water Infrastructure segment generated revenues of $514 million compared with the year-ago figure of $500 million. The year-over-year increase came on the back of strong U.S. public utility trade.
Adjusted operating margin rose 150 bps year over year to 12.1%.
Revenues from the Applied Water segment totaled $333 million, down 1.2% year over year due to weak U.S. sales. Adjusted operating margin of the segment decreased 130 bps year over year to 12.6%.
Balance Sheet and Cash Flow
Xylem exited the first quarter with cash and cash equivalents of $1,193 million, up from $680 million as of Dec 31, 2015. Long-term debt was $1,153 million, down 3.6% year over year.
Xylem generated cash of $41 million from its operating activities in the quarter compared with $39 million a year ago. Capital expenditure remained flat year over year at $37 million. The company’s free cash flow was $4 million, up from $2 million in the year-ago quarter.
At the end of the first quarter, the company paid dividends worth $28 million, up from $26 million in the prior-year quarter.
Outlook
Xylem is accelerating its business performance via strong project execution. The company aims to invest more in new strategic growth projects to augment shareholders’ value in the near future. Full-year 2016 adjusted earnings are expected in the range of $1.98–$2.08 per share. Full-year revenues are expected to be roughly $3.7 billion.
Other Stocks to Consider
Xylem presently carries a Zacks Rank #2 (Buy). Some of the other favorably ranked stocks in the industry include Gorman-Rupp Co. (NYSE:GRC) , Luxfer Holdings PLC (NYSE:LXFR) and Altra Industrial Motion Corp. (NASDAQ:AIMC) . Gorman-Rupp Co. and Luxfer Holdings PLC sport a Zacks Rank #1 (Strong Buy), while Altra Industrial Motion Corp. holds the same Zacks Rank as Xylem.
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