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Xylem Q4 Earnings in Line, Revenues Miss, Both Down Y/Y

Premium water solutions provider Xylem Inc.XYL reported weaker-than-expected results for fourth-quarter 2015. Adjusted earnings were 60 cents per share, in line with the Zacks Consensus Estimate. However, the bottom line fell 3.2% year over year.

For full-year 2015, adjusted earnings were $1.85 per share compared with $1.97 recorded in the preceding year.

Revenues

Xylem generated revenues of $994 million, down 4.6% year over year. The top line also missed the Zacks Consensus Estimate of $997 million.

For full-year 2015, revenues came in at $3653 million compared with $3916 million generated at 2014-end. At the end of 2015, Xylem received total orders worth $3711 million, down 7.7% year over year.

Margins/Costs

Xylem's cost of revenues for fourth-quarter 2015 was down 4.9% to $604 million, representing 60.8% of total revenue. Gross margin stood at 39.2% versus 39.1% reported a year ago. Selling, general and administrative expenses fell 3.9% year over year to $223 million. Research and development expenses represented 2.4% of total revenue.

Adjusted operating margin for fourth-quarter 2015 stood at 14.7%, flat year over year.

Gross profit margin for full-year 2015 was 38.4%, slightly lower than 38.6% recorded a year ago. For full-year 2015, adjusted operating margin was 12.9%, in line with the value recorded at 2014-end.

Segment Details

The Water Infrastructure segment generated revenues of $629 million, down from the year-ago tally of $672 million. Adjusted operating margin rose 70 bps year over year to 17.5%.

Revenues from the Applied Water segment totaled $365 million, down 1.4% year over year. Adjusted operating margin of the segment decreased 10 bps year over year to 13.4%.

Balance Sheet and Cash Flow

Exiting fourth-quarter 2015, Xylem had cash and cash equivalents of $680 million as against $663 million as on Dec 31, 2014. Long-term debt stood at $1,196 million, up a marginal 0.1% year over year.

Xylem generated cash of $464 million from its operating activities in the quarter compared with $416 million accrued a year ago. Capital expenditure was $117 million, down from $119 million expended in the prior-year quarter. The company's free cash flow was $165 million, up from $121 million recorded in the year-ago quarter.

At the end of 2015, the company had paid dividends worth $102 million, up 8.5% year over year.

Outlook

Xylem perceives that increasing demand for wastewater infrastructure and water services in certain emerging markets and the U.S. would fortify its business in the public utility sector. The company also aims to improve its business with greater cost discipline and strategic initiatives for operational enhancement.

However, Xylem believes that its commercial success in the mining and energy sector is witnessing weakness in recent times. Management expects its revenue and margin improvement in 2016 to be led by strategic growth programs, tactical innovations and efficient business simplification initiatives. Xylem anticipates revenues worth $3.7 billion for full-year 2016, while full-year adjusted earnings are expected within $1.95-$2.05 per share.

Stocks to Consider

Xylem presently carries a Zacks Rank #3 (Hold). Better-ranked stocks in the industry include Kaman Corp. KAMN , Albany International Corp. AIN and Astec Industries, Inc. ASTE . All three stocks carry a Zacks Rank #2 (Buy).

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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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