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Xylem's (XYL) Q3 Earnings Meet, Revenues Miss Estimates

Xylem Inc. XYL reported mixed results for third-quarter 2018, wherein adjusted earnings came in line with estimates but revenues missed.

Earnings/Revenues

The company’s quarterly adjusted earnings of 77 cents per share came in line with the Zacks Consensus Estimate. The bottom line jumped 18.5% from the prior-year quarter.

Xylem Inc. Price, Consensus and EPS Surprise

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

Quarterly revenues came in at $1,287 million, missing the Zacks Consensus Estimate of $1,296 million. However, the top line improved 7.7% year over year.

Segment Details

Revenues in the Water Infrastructure segment came in at $541 million, up 4% year over year. This upside stemmed from improved utilities as well as industrial end-market demand.

Applied Water segment generated revenues of $378 million in the third quarter, up 6.8% year over year. This upswing stemmed from robust commercial end-market business as well as strong industrial end-market business in the United States.

Quarterly revenues of the Measurement & Control Solutions segment came in at $368 million, up 14.6% year over year. This improvement stemmed from robust Sensus as well as growth in water sector business in North America.

Margins/Costs

Xylem’s cost of revenues in the third quarter was $782 million, up 8% year over year. Gross profit margin was 39.2%, down 20 basis points (bps).

Selling, general and administrative expenses totaled $279 million, up from $270 million incurred a year ago. R&D expenses were $46 million compared with $45 million incurred in the year-ago quarter. Adjusted operating margin in the quarter under review was 14.6%, up 50.

Balance Sheet and Cash Flow

Xylem exited the third quarter with cash and cash equivalents of $404 million compared with $414 million as of Dec 31, 2017. Long-term debt was $2,189 million compared with $2,200 million at the end of 2017.

In the first nine months of 2018, Xylem generated $388 million cash from operating activities, higher than $379 million in the comparable period last year. Capital expenditure was $171 million compared with $119 million incurred in the year-earlier period.

Outlook

Xylem stated that its pricing actions and stronger productivity will help mute the impact of prevailing headwinds owing to material cost inflation.

The company currently expects generating revenues of roughly $5.2 billion in 2018, estimating organic revenue growth of 7-8%. In addition, the adjusted earnings for the current year has been revised to $2.87-$2.89 per share from the earlier guidance of $2.85-$2.95.

Zacks Rank & Stocks to Consider

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

Some better-ranked stocks in the same space are Altra Industrial Motion Corp. AIMC, Cintas Corp. CTAS and DXP Enterprises, Inc. DXPE. While Altra Industrial Motion sports a Zacks Rank #1 (Strong Buy), Cintas and DXP Enterprises carry a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Altra Industrial Motion surpassed estimates thrice in the trailing four quarters with an average beat of 5.04%.

Cintas exceeded estimates in each of the trailing four quarters with an average beat of 7.22%.

DXP Enterprises surpassed estimates twice in the trailing four quarters with an average beat of 101.32%.

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