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Why Is Xylem (XYL) Down 4.5% Since Last Earnings Report?
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It has been about a month since the last earnings report for Xylem (XYL - Free Report) . Shares have lost about 4.5% in that time frame, underperforming the S&P 500.
Will the recent negative trend continue leading up to its next earnings release, or is Xylem due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important catalysts.
Xylem Q2 Earnings & Revenues Beat Estimates
Xylem’s second-quarter 2023 adjusted earnings (excluding 53 cents from non-recurring items) of 98 cents per share surpassed the Zacks Consensus Estimate of 85 cents. The bottom line increased significantly year over year.
Xylem’s revenues of $1,722 million also outperformed the Zacks Consensus Estimate of $1,672.2 million and rose 26.3% year over year. Benefits from the Evoqua acquisition and strong commercial and operational execution drove the top line. Organic sales in the quarter rose 15%. Orders in the reported quarter increased 10% year over year. Organically, orders decreased 2%.
Segmental Details
From second-quarter 2023 onward, Xylem has introduced a new segment, Integrated Solutions & Services, to include the results of Evoqua, which it acquired in May 2023. The segment reported revenues of $125 million in the second quarter.
Revenues in the Water Infrastructure segment were $704 million, up 20% year over year. The Zacks Consensus Estimate for Water Infrastructure segment revenues were $635.33 million. Organic sales in the reported quarter grew 13% year over year, buoyed by effective price realization, healthy activity in the utility business and robust industrial demand in the United States and Western Europe.
The Applied Water segment generated revenues of $478 million in the second quarter, up 11% year over year. The Zacks Consensus Estimate for segmental revenues was $460.23 million for the quarter. Organic sales increased 12% on a year-over-year basis. The segmental performance benefited from strong price realization and demand across the commercial building and industrial end markets, particularly in the United States and emerging markets.
Quarterly revenues at the Measurement & Control Solutions segment were $415 million, up 20% year over year. This compares with the Zacks Consensus Estimate of $474.20 million. Organic sales were up 21% year over year due to strong demand and backlog execution in smart metering.
Margin Profile
In the reported quarter, Xylem’s adjusted EBITDA was $329 million, up 45.6% from the year-ago quarter’s level. The margin in the quarter improved to 19.1% compared with 16.6% in the year-ago period.
Operating income was $119 million in the quarter under review, reflecting a decrease of 18.5% from the year-ago reported figure. Operating margin deteriorated to 6.9% from 10.7% in the year-ago period.
Balance Sheet and Cash Flow
Exiting the second quarter, Xylem had cash and cash equivalents of $708 million compared with $944 million at the end of December 2022. Long-term debt was $2,267 million at the end of the second quarter of 2023 compared with $1,880 million at the end of December 2022.
At the end of second-quarter 2023, Xylem generated net cash of $9 million from operating activities compared with $32 million consumed at the end of December 2022. Capital expenditure was $103 million, up 8.4% from the year-ago period. Free cash flow was negative $61 million in the first half of 2023 compared with negative $63 million in the year-ago period.
Rewards to Shareholders
In the first six months of 2023, Xylem paid dividends of $139 million, up 26.4% year over year. The company also bought back shares worth $9 million in the same period compared with $52 million worth of shares repurchased in the year-ago period.
2023 Guidance Improved
Xylem has raised its 2023 guidance to include contributions from the Evoqua acquisition. The company now expects revenues of $7.2 billion in 2023, reflecting a 30% jump on a reported basis and 9-10% on an organic basis. The Zacks Consensus Estimate for XYL’s 2023 revenues is pegged at $7.17 billion. Previously, the company anticipated total revenues to increase 8-9% on both organic and reported basis.
Xylem expects adjusted earnings of $3.50-$3.70 per share for 2023 compared with $3.15-$3.35 anticipated earlier. The company boosted its earnings guidance on strong demand and commercial and operational momentum.
For 2023, adjusted EBITDA margin is expected to be approximately 18%, better than the previous expectation of 17.5-18%.
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed an upward trend in fresh estimates.
VGM Scores
At this time, Xylem has an average Growth Score of C, however its Momentum Score is doing a lot better with an A. However, the stock was allocated a grade of D on the value side, putting it in the bottom 40% for this investment strategy.
Overall, the stock has an aggregate VGM Score of D. If you aren't focused on one strategy, this score is the one you should be interested in.
Outlook
Estimates have been trending upward for the stock, and the magnitude of these revisions looks promising. Notably, Xylem has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.
Performance of an Industry Player
Xylem is part of the Zacks Manufacturing - General Industrial industry. Over the past month, Idex (IEX - Free Report) , a stock from the same industry, has gained 2%. The company reported its results for the quarter ended June 2023 more than a month ago.
Idex reported revenues of $846.2 million in the last reported quarter, representing a year-over-year change of +6.3%. EPS of $2.18 for the same period compares with $2.02 a year ago.
For the current quarter, Idex is expected to post earnings of $1.89 per share, indicating a change of -11.7% from the year-ago quarter. The Zacks Consensus Estimate has changed -0.3% over the last 30 days.
Idex has a Zacks Rank #4 (Sell) based on the overall direction and magnitude of estimate revisions. Additionally, the stock has a VGM Score of F.
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Why Is Xylem (XYL) Down 4.5% Since Last Earnings Report?
It has been about a month since the last earnings report for Xylem (XYL - Free Report) . Shares have lost about 4.5% in that time frame, underperforming the S&P 500.
Will the recent negative trend continue leading up to its next earnings release, or is Xylem due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important catalysts.
Xylem Q2 Earnings & Revenues Beat Estimates
Xylem’s second-quarter 2023 adjusted earnings (excluding 53 cents from non-recurring items) of 98 cents per share surpassed the Zacks Consensus Estimate of 85 cents. The bottom line increased significantly year over year.
Xylem’s revenues of $1,722 million also outperformed the Zacks Consensus Estimate of $1,672.2 million and rose 26.3% year over year. Benefits from the Evoqua acquisition and strong commercial and operational execution drove the top line. Organic sales in the quarter rose 15%.
Orders in the reported quarter increased 10% year over year. Organically, orders decreased 2%.
Segmental Details
From second-quarter 2023 onward, Xylem has introduced a new segment, Integrated Solutions & Services, to include the results of Evoqua, which it acquired in May 2023. The segment reported revenues of $125 million in the second quarter.
Revenues in the Water Infrastructure segment were $704 million, up 20% year over year. The Zacks Consensus Estimate for Water Infrastructure segment revenues were $635.33 million. Organic sales in the reported quarter grew 13% year over year, buoyed by effective price realization, healthy activity in the utility business and robust industrial demand in the United States and Western Europe.
The Applied Water segment generated revenues of $478 million in the second quarter, up 11% year over year. The Zacks Consensus Estimate for segmental revenues was $460.23 million for the quarter. Organic sales increased 12% on a year-over-year basis. The segmental performance benefited from strong price realization and demand across the commercial building and industrial end markets, particularly in the United States and emerging markets.
Quarterly revenues at the Measurement & Control Solutions segment were $415 million, up 20% year over year. This compares with the Zacks Consensus Estimate of $474.20 million. Organic sales were up 21% year over year due to strong demand and backlog execution in smart metering.
Margin Profile
In the reported quarter, Xylem’s adjusted EBITDA was $329 million, up 45.6% from the year-ago quarter’s level. The margin in the quarter improved to 19.1% compared with 16.6% in the year-ago period.
Operating income was $119 million in the quarter under review, reflecting a decrease of 18.5% from the year-ago reported figure. Operating margin deteriorated to 6.9% from 10.7% in the year-ago period.
Balance Sheet and Cash Flow
Exiting the second quarter, Xylem had cash and cash equivalents of $708 million compared with $944 million at the end of December 2022. Long-term debt was $2,267 million at the end of the second quarter of 2023 compared with $1,880 million at the end of December 2022.
At the end of second-quarter 2023, Xylem generated net cash of $9 million from operating activities compared with $32 million consumed at the end of December 2022. Capital expenditure was $103 million, up 8.4% from the year-ago period. Free cash flow was negative $61 million in the first half of 2023 compared with negative $63 million in the year-ago period.
Rewards to Shareholders
In the first six months of 2023, Xylem paid dividends of $139 million, up 26.4% year over year. The company also bought back shares worth $9 million in the same period compared with $52 million worth of shares repurchased in the year-ago period.
2023 Guidance Improved
Xylem has raised its 2023 guidance to include contributions from the Evoqua acquisition. The company now expects revenues of $7.2 billion in 2023, reflecting a 30% jump on a reported basis and 9-10% on an organic basis. The Zacks Consensus Estimate for XYL’s 2023 revenues is pegged at $7.17 billion. Previously, the company anticipated total revenues to increase 8-9% on both organic and reported basis.
Xylem expects adjusted earnings of $3.50-$3.70 per share for 2023 compared with $3.15-$3.35 anticipated earlier. The company boosted its earnings guidance on strong demand and commercial and operational momentum.
For 2023, adjusted EBITDA margin is expected to be approximately 18%, better than the previous expectation of 17.5-18%.
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed an upward trend in fresh estimates.
VGM Scores
At this time, Xylem has an average Growth Score of C, however its Momentum Score is doing a lot better with an A. However, the stock was allocated a grade of D on the value side, putting it in the bottom 40% for this investment strategy.
Overall, the stock has an aggregate VGM Score of D. If you aren't focused on one strategy, this score is the one you should be interested in.
Outlook
Estimates have been trending upward for the stock, and the magnitude of these revisions looks promising. Notably, Xylem has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.
Performance of an Industry Player
Xylem is part of the Zacks Manufacturing - General Industrial industry. Over the past month, Idex (IEX - Free Report) , a stock from the same industry, has gained 2%. The company reported its results for the quarter ended June 2023 more than a month ago.
Idex reported revenues of $846.2 million in the last reported quarter, representing a year-over-year change of +6.3%. EPS of $2.18 for the same period compares with $2.02 a year ago.
For the current quarter, Idex is expected to post earnings of $1.89 per share, indicating a change of -11.7% from the year-ago quarter. The Zacks Consensus Estimate has changed -0.3% over the last 30 days.
Idex has a Zacks Rank #4 (Sell) based on the overall direction and magnitude of estimate revisions. Additionally, the stock has a VGM Score of F.