Xylem (XYL) Q4 Earnings Estimates Meet, Dividend Rate Rises

Xylem Inc. XYL reported in-line earnings for the fourth quarter of 2019. This is the company’s third consecutive quarter of in-line results.

Adjusted earnings in the quarter under review were 89 cents per share, meeting the Zacks Consensus Estimate. Meanwhile, the bottom line inched up 1.1% from the year-ago reported figure of 88 cents. Its bottom-line results included an adverse impact of two cents per share from unfavorable movements in foreign currencies.

For 2019, the company’s earnings were $3.02, in line with the Zacks Consensus Estimate. Meanwhile, on a year-over-year basis, the bottom line increased 4.9%.

Segmental Revenues

Xylem’s revenues of $1,371 million in the quarter under review were 1.1% down from the year-ago quarter. Organic sales were flat with the prior-year quarter. The results bore the brunt of weakness in commercial and industrial end markets.

The company’s revenues lagged the Zacks Consensus Estimate of $1,380 million by 0.7%.

Orders in the reported quarter fell 7% year over year to $1,286 million. Organically, orders declined 6%.

The company reports net sales under three segments, such as Water Infrastructure, Applied Water, and Measurement & Control Solutions.

The segmental information is briefly discussed below:

Revenues in the Water Infrastructure segment were $603 million, down 1% year over year. Organic sales inched up 1% year over year. Results gained from improved demand in the utilities end market, especially in Europe and the emerging markets. However, softness in the industrial dewatering business (short-cycle) affected the segment.

The Applied Water segment generated revenues of $392 million in the fourth quarter, down 2.5% year over year. Organic sales dipped 2% on a year-over-year basis. Business in commercial and industrial markets was soft in the quarter.

Quarterly revenues of the Measurement & Control Solutions segment were $376 million, up 0.3% year over year. Organic sales improved 2% year over year. Results benefited from the solid metrology water business in international arena and growth in energy projects across the United States.

For 2019, the company’s revenues of $5.25 billion increased 0.8% from the previous year. Also, full-year revenues missed the Zacks Consensus Estimate of $5.26 billion.

Margin Profile

Adjusted operating income in the fourth quarter slipped 1.4% year over year to $206 million. Also, adjusted operating margin slid 10 basis points (bps) to 15%. Interest expenses were $15 million compared with $19 million in the year-ago quarter.

In 2019, the company’s cost of sales rose 0.7% year over year to $3,203 million. However, selling, general and administrative expenses dipped 0.3% to $1,158 million. Meanwhile, research and development expenses increased 1.1% to $191 million. Adjusted operating margin in the year was 13.9% compared with 13.7% in the preceding year.

Balance Sheet and Cash Flow

Exiting the fourth quarter, Xylem had cash and cash equivalents of $724 million, up 52.8% from $453 million at the end of the last reported quarter. Long-term debt balance inched up 0.5% sequentially to $2,040 million.

In 2019, the company generated net cash of $839 million from operating activities, reflecting growth of 43.2% from the year-ago period. Capital expenditure was $226 million, below $237 million in 2018. Free cash flow in the year was $613 million, soaring 75.1% year over year.

Shareholder-Friendly Policies

In 2019, the company paid out dividends amounting to $174 million and repurchased shares worth $40 million.

Also, the company announced that its board of directors approved an 8% hike in its quarterly dividend rate. The new rate at 26 cents will be disbursed to its shareholders of record as of Feb 27. The payment will be made on Mar 26.

Outlook

For 2020, Xylem anticipates revenues of $5.3-$5.35 billion, indicating year-over-year growth of 1-3% from the year-ago reported figure.

Adjusted operating margin will likely be 14-14.5% while adjusted earnings are projected to be $2.96-$3.16 per share. The earnings guidance suggests growth of 1-8% from the year-earlier reported number. Restructuring and realignment costs are expected to be $35-$45 million.

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 $15.6 billion and a Zacks Rank #3 (Hold).

Some better-ranked stocks in the Zacks Industrial Products sector are Graco Inc. GGG, Barnes Group, Inc. B and Tennant Company TNC. While Graco currently sports a Zacks Rank #1 (Strong Buy), Barnes and Tennant carry a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Current-year earnings estimates for these companies have moved north over the past 60 days. Further, the trailing four-quarter positive earnings surprise for Graco, Barnes and Tennant is 0.40%, 4.21% and 28.65% each, on average.

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