Subscribe to Entrepreneur for $5
Subscribe

Xylem (XYL) Surpasses Q3 Earnings Estimates, Lowers View

Xylem's (XYL) Q3 earnings reflect the impacts of healthy demand in Water Infrastructure and Applied Water segments as well as supply-chain woes. It lowers its 2021 projections.

By
This story originally appeared on Zacks

Xylem Inc. XYL has reported mixed results for third-quarter 2021. Its earnings surpassed the Zacks Consensus Estimate by 6.78%. This is the sixth consecutive quarter of an earnings beat for the company. However, quarterly sales lagged estimates by 1.12%.

Adjusted earnings in the quarter under review were 63 cents per share, surpassing the Zacks Consensus Estimate of 59 cents. Also, the bottom line increased 1.6% from the year-ago figure of 62 cents on the back of higher sales generation, partially offset by weak margins. Supply-chain woes played spoilsport in the quarter.

Notably, movements in foreign currencies had a negative impact of 1 cent per share on earnings.

- Zacks

Revenue Details

In the quarter under review, Xylem’s revenues were $1,265 million, reflecting an increase of 3.7% from the year-ago quarter. Organic sales in the quarter increased 2% on the back of healthy demand in Water Infrastructure and Applied Water segments.

However, the company’s revenues lagged the Zacks Consensus Estimate of $1,279 million.

Orders in the reported quarter increased 22% year over year to $1,518 million. Organically, orders grew 20%.

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

Revenues for the Water Infrastructure segment were $547 million, up 4.4% year over year. Organic sales in the reported quarter grew 2% year over year. Businesses in both industrial and emerging markets flourished, while utilities were soft.

The Applied Water segment generated revenues of $400 million in the third quarter, up 9.9% year over year. Organic sales increased 8% on a year-over-year basis. Businesses in the commercial and industrial markets were healthy.

Quarterly revenues of the Measurement & Control Solutions segment were $318 million, down 4.2% year over year. Organic sales were down 5% year over year due to supply-chain issues related to chips. The smart metering business was weak in the quarter, partially offset by healthy pipeline assessment services and water quality testing applications businesses.

Margin Profile

In third-quarter 2021, Xylem’s cost of sales increased 4.5% year over year to $793 million. As a percentage of revenues, it represented 62.7% versus 62.2% in the year-ago quarter. Selling, general and administrative expenses increased 2.6% to $273 million. Meanwhile, research and development expenses grew 8.9% to $49 million.

In the reported quarter, the company’s adjusted earnings before interest, tax, depreciation and amortization were $227 million, increasing 2.3% from the year-ago quarter. Margin in the quarter decreased 30 basis points (bps) year over year to 17.9%. Cost inflation, investments and divestitures adversely impacted results. This was partially offset by productivity gains, volume leverage, favorable mix and pricing, and other tailwinds.

Adjusted operating income was $155 million in the quarter under review, down 1.9% year over year. The operating margin decreased 70 bps to 12.3%. Interest expenses in the reported quarter totaled $21 million, down from $22 million in the year-ago quarter.

Balance Sheet and Cash Flow

Exiting the third quarter of 2021, Xylem had cash and cash equivalents of $1,255 million, decreasing 31.8% from $1,840 million at the end of the last reported quarter. Long-term debt balance declined 0.2% sequentially to $2,455 million.

In the first three quarters of 2021, the company repaid debts of $600 million.

In the first nine months of 2021, it generated net cash of $318 million from operating activities, reflecting a decrease of 30% from the year-ago quarter. Capital expenditure was $127 million, down 6.6% year over year.

Shareholder-Friendly Policies

In the first nine months of 2021, the company paid out dividends of $152 million, reflecting an increase from $142 million distributed in the year-ago period. Share repurchased amounted to $68 million, up 11.5% year over year.

Outlook

Xylem expects demand to be healthy in fourth-quarter 2021, while predicts supply-chain restrictions to continue impacting its performance.

For 2021, the company decreased its organic revenue growth projection to 3-4% from the previously stated 6-8%. Total revenues are predicted to be $5.1-$5.2 billion, down from $5.3-$5.4 billion mentioned previously.

Adjusted earnings per share for the year are anticipated to be $2.40-$2.50, down from $2.55-$2.70 mentioned previously.

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

The company currently has a market capitalization of $23.3 billion and a Zacks Rank #4 (Sell).

    

Some better-ranked stocks in the Zacks Industrial Products sector are Heritage-Crystal Clean, Inc. HCCI, Applied Industrial Technologies, Inc. AIT, and Casella Waste Systems, Inc. CWST. While Heritage-Crystal currently sports a Zacks Rank #1 (Strong Buy), both Applied Industrial and Casella Waste carry a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

In the past 30 days, earnings estimates for these companies improved for the current year. Further, earnings surprise for the last reported quarter was 33.90% for Heritage-Crystal, 14.29% for Applied Industrial, and 25.93% for Casella Waste.



5 Stocks Set to Double

Each was handpicked by a Zacks expert as the #1 favorite stock to gain +100% or more in 2021. Previous recommendations have soared +143.0%, +175.9%, +498.3% and +673.0%.

Most of the stocks in this report are flying under Wall Street radar, which provides a great opportunity to get in on the ground floor.

Today, See These 5 Potential Home Runs >>

Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report

 

Applied Industrial Technologies, Inc. (AIT): Free Stock Analysis Report

 

Casella Waste Systems, Inc. (CWST): Free Stock Analysis Report

 

Xylem Inc. (XYL): Free Stock Analysis Report

 

HeritageCrystal Clean, Inc. (HCCI): Free Stock Analysis Report

 

To read this article on Zacks.com click here.