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Xylem Q3 Earnings, Revenue Top Estimates, Lag Y/Y

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Premium water solutions provider Xylem Inc.XYL reported better-than-expected results for third-quarter 2015. Adjusted earnings came in at 49 cents per share, a penny higher than the Zacks Consensus Estimate. However, the bottom line was 7.5% lower than the year-ago tally.

Revenues

Xylem generated revenues of $902 million, down 6.3% year over year. However, the top-line exceeded the Zacks Consensus Estimate of $897 million. At the end of the first nine months of 2015, Xylem received total orders worth $2798 million, reflecting an 8.3% fall from $3051 million recorded a year ago.

Margins/Costs

Xylem's cost of revenues for third-quarter 2015 was down 6.1% to $551 million, representing 61.1% of total revenue compared with 61% recorded in third-quarter 2014. Gross margin was at 38.9% compared with 39% reported a year ago. Selling, general and administrative expenses fell 6.8% year over year to $207 million, accounting for 22.9% of total revenue. Research and development expenses represented 2.5% of total revenue.

Adjusted operating margin for third-quarter 2015 was at 13.7%, down 20 basis points (bps) from the year-ago quarter.

Segment Details

The Water Infrastructure segment generated revenues of $551 million, down from the year-ago tally of $602 million. Adjusted operating margin fell 90 bps year over year to 15.4%.

Revenues from the Applied Water segment totaled $351 million, down 2.8% year over year. Adjusted operating margin of the segment decreased 70 bps year over year to 13.7%.

Balance Sheet and Cash Flow

Exiting third-quarter 2015, Xylem had cash and cash equivalents of $611 million compared with $663 million as on Dec 31, 2014. Long-term debt was $1,196 million, up a marginal 1% from that of at 2014-end.

Xylem generated cash of $260 million from operating activities in the quarter compared with $253 million a year ago. Capital expenditure was $78 million, up from $77 million spent in the prior-year quarter. The company's free cash flow was $116 million, down 7.9% from the year-ago quarter.

At the end of the first nine months of 2015, the company paid dividends worth $77 million, up 8.5% from the year-ago comparable period.

Outlook

Supported by steadily growing business in the U.S. and emerging markets, Xylem aims to enhance its revenues and earnings in the future. The company intends to improve its business on increased backlogs, greater cost discipline and strategic initiatives aimed at operational enhancement. However, a fall in dewatering activities of the oil & gas market, strong U.S. dollar and input price inflation have negatively affected the company's third-quarter 2015 results.

Xylem perceives that improvement in the public utility end market would support revenue and earnings growth in the upcoming quarters. However, the company realizes that unfavorable foreign currency translations would continue to affect its financial fundamentals in the near future.

Considering the existing market conditions, Xylem expects to generate revenue of approximately $3.7 billion in 2015-end, while full year adjusted earnings are expected to lie within the range of $1.82-$1.87 per share.

Xylem currently carries a Zacks Rank #3 (Hold).

Stocks to Consider

Some better-ranked stocks in the industry include Middleby Corp. MIDD , Graham Corp. GHM and Cintas Corp. CTAS . All the three companies currently hold a Zacks Rank #2 (Buy).

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XYLEM INC (XYL): Free Stock Analysis Report

CINTAS CORP (CTAS): Free Stock Analysis Report

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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