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Xylem (XYL) Beats Q4 Earnings by Penny, Gives '17 Outlook (Revised)

Premium water solutions provider Xylem Inc.XYL reported mixed fourth-quarter 2016 results.

Over the last three months, shares of this Zacks Rank #4 (Sell) stock recorded a return of 4.04% - underperforming 16.00% return provided by the Zacks categorized Machinery-General Industrial industry.

We believe that certain headwinds such as dismal pricing environment in the energy market, poor industrial end market business, unfavorable input price fluctuations or sudden market share loss due to extensive industry rivalry might hurt the company's results in the quarters ahead.

Revenues and Earnings

Quarterly adjusted earnings of 66 cents per share, surpassed the Zacks Consensus Estimate by a penny. The bottom line also improved from the year-ago tally by 10%.

For full-year 2016, adjusted earnings was $2.03 per share versus the year-ago tally of $1.85 per share.

Quarterly revenues were $1,095 million, up 10.2% year over year. However, the top line missed the Zacks Consensus Estimate of $1,152 million.

Revenues for full-year 2016 were $3,771 million compared to $3,653 million reported in the year-ago period.

Margins/Costs

Fourth-quarter adjusted operating margin was 15.3%, up 60 basis points (bps) year over year.

Xylem's cost of revenues for 2016 came in at $2,310 million, up 2.7% year over year. Gross profit margin for the whole year was 38.7%, up 30 bps year over year. Full-year selling, general and administrative expenses climbed 7.1% year over year to $915 million. Research and development expenses were $110 million, up 15.8% year over year.

Segmental Details

On Oct 31, 2016, Xylem completed the acquisition of Sensus and has already started reporting results in terms of three segments from fourth-quarter 2016.

The Water Infrastructure segment generated revenues of $612 million as against $629 million a year ago. The downside was witnessed due to ongoing weakness in the industrial end as well as oil & gas markets.

Revenues from the Applied Water segment totaled $351 million, down 3.8% year over year on account of poor business accrued from U.S. industrial market.

The company's newly formed Sensus business segment generated revenues worth $132 million in fourth-quarter 2016.

Balance Sheet and Cash Flow

Xylem exited fourth-quarter 2016 with cash and cash equivalents of $308 million compared with $680 million as of Dec 31, 2015. Long-term debt was $1,998 million, as against $1,196 million recorded at the end of 2015.

At the end of 2016, Xylem generated cash of $497 million from its operating activities compared with $464 million a year ago. Capital expenditure came in at $124 million as against $117 million in the year-ago quarter.

The company's free cash flow was $386 million, up 11% from 2015 end.

Xylem's board of directors approved the payment of a quarterly cash dividend of 18 cents per share. The dividend will be paid on Mar 15, 2017 to shareholders of record on Feb 16.

Outlook

Xylem believes that new investments made in 2016, growing public utility sector business and greater operational efficacy would boost its revenue and profitability in 2017. For full-year 2017, the company anticipates to generate revenues within the range of $4.5-$4.6 billion. Management projects organic revenue growth within 1-3% for the whole year. The company expects to accrue earnings within the range of $2.20-$2.35 per share for full-year 2017.

Xylem Inc. Price, Consensus and EPS Surprise

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

Stocks to Consider

Some better-ranked stocks within the industry are listed below:

ABB Ltd ABB has an average earnings surprise of 23.50% for the last four quarters and presently sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today's Zacks #1 Rank stocks here .

Altra Industrial Motion Corp. AIMC currently boasts a Zacks Rank #1 and has an average earnings surprise of 8.06% for the trailing four quarters.

Applied Industrial Technologies, Inc. AIT presently holds a Zacks Rank #2 (Buy) and has an average earnings surprise of 6.18% for the past four quarters.

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(We are reissuing this article to correct a mistake. The original article, issued earlier today, should no longer be relied upon.)

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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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