Xylem (XYL) Tops Q3 Earnings Estimates, Raises 2017 EPS View

Premium water solutions provider Xylem Inc. (NYSE:XYL) reported better-than-expected results for third-quarter 2017.

Earnings

Quarterly adjusted earnings came in at 65 cents per share, beating the Zacks Consensus Estimate by a penny. The bottom line also surpassed the year-ago tally of 54 cents per share.

Revenues

Quarterly revenues came in at $1,195 million, up 33.2% year over year. The top line also outpaced the Zacks Consensus Estimate of $1,175 million. Organic revenues improved 5% year over year.

Segment Details

Revenues of the Water Infrastructure segment came in at $520 million, up 8.8% year over year. The upside was stemmed by stronger public utility demand across all end-markets and numerous treatment project deliveries.

Applied Water segment generated revenues of $354 million in the reported quarter, up 3.2% year over year. The segment’s revenues improved on the back of sturdier commercial end market demand across the United States, China and Europe. Notably, robust residential business (majorly in China) bolstered revenues in the reported quarter.

Quarterly revenues of the Measurement & Control Solutions segment were $321 million, up from 76 million recorded in the year-ago period. The uptick stemmed from double-digit Sensus business growth across the software and energy service sectors. Moreover, improvement in the analytic business revenues also drove this segment’s top-line results.

Xylem’s Measurement & Control Solutions segment includes the combined results of Xylem’s Sensus, Visenti and Analytics businesses. The company successfully integrated all these businesses during second-quarter 2017.

Xylem Inc. Price, Consensus and EPS Surprise

Xylem Inc. Price, Consensus and EPS Surprise | Xylem Inc. Quote

Margins and Costs

Xylem’s cost of revenues for the reported quarter came in at $724 million, jumping 34.1% year over year. Gross profit margin during the quarter came in at 39.4%, contracting 40 basis points (bps) year over year.

Selling, general and administrative expenses were $270 million compared to $219 million incurred in the year-ago period. Research and development expenses were $45 million, as against $23 million reported in the prior-year quarter. Quarterly adjusted operating margin was 12.7%, up 50 bps year over year.

Balance Sheet and Cash Flow

Xylem exited third-quarter 2017 with cash and cash equivalents of $283 million compared with $308 million as of Dec 31, 2016. Long-term debt was $2,189 million, as against $2,108 million recorded at the end of 2016.

For the first nine months of 2017, Xylem generated cash of $379 million from operating activities compared with $274 million recorded in the prior-year period. Capital expenditure was $119 million, as against $90 million incurred in the year-ago quarter.

Outlook

Xylem currently anticipates to generate revenues of $4.70 billion for 2017 (estimating year-over-year upside of 24-25%). Notably, organic revenue growth for the full year is anticipated to lie in the band of 3-4%. Adjusted earnings for the current year are projected to be in the range of $2.39-$2.41 per share, higher than the previously estimated range of $2.30-$2.40 per share.

Zacks Rank & Other Stocks to Consider

Xylem currently carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks Rank #1 (Strong Buy) Rank stocks here.

Other top-ranked stocks in the same space are listed below:

Altra Industrial Motion Corp. (NASDAQ:AIMC) currently carries a Zacks Rank of 2. The company’s earnings per share (EPS) is predicted to be up 8% in the next three to five years.

Barnes Group, Inc. (NYSE:B) holds a Zacks Rank of 2. The company’s EPS is estimated to rise 10% over the next three to five years.

Graco Inc. (NYSE:GGG) also has a Zacks Rank of 2. The company’s EPS is projected to improve 10.50% during the same time frame.

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