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Xylem (XYL) to Report Q1 Earnings: What's in the Cards?

Zacks Equity Research

Xylem Inc. XYL is scheduled to release first-quarter 2019 results on May 2, before the market opens.

This water solutions provider delivered better-than-expected results in one of the last four quarters while recording in-line results thrice. Average earnings surprise was a positive 0.71%. Notably, the company’s earnings of 88 cents were in line with the Zacks Consensus Estimate in the last reported quarter.

In the past three months, the company’s shares have yielded 17.6% return, outperforming the industry’s increase of 15.5%.

Let us see how things are shaping up for Xylem this quarter.

Factors to Affect Q1 Results

We believe that makers of industrial machinery are currently reaping benefits from the use of sophisticated technologies in manufacturing process and growing use of e-retailing. Also, new construction and remodeling activities, infrastructure investments, and favorable policy changes in the United States are proving beneficial.

In addition, increasing industrial production represents favorable operating environment for industrial machinery makers. But a decelerating rate of growth recorded in the past few months is concerning. To add, global uncertainties and trade tension between the United States and China dimmed growth prospects of the global economy.

Apart from these broader factors, we believe that Xylem’s results in the first quarter can be influenced by a number of company-specific matters. Of all, strengthening business in end markets served — especially municipal — remains a boon for organic performance. Also, growing business in emerging markets, favorable pricing actions, productivity initiatives, product innovations and shareholder-friendly policy might be advantageous.
However, escalation in costs caused by tariffs and other inflationary pressures as well as unfavorable movements in foreign currencies, component constraints and growth investments might adversely impact results.

For the first quarter of 2019, Xylem anticipates organic sales to grow roughly 5-6%, including sales increase of 5-7% for the Water Infrastructure segment, 3-5% for Applied Water and 4-6% for Measurement & Control Solutions. Adjusted operating margin is predicted to be 11.3-11.6%.

For the Water Infrastructure segment, average sale surprise for the last four quarters is 3.68%. For the first quarter, the Zacks Consensus Estimate for revenues is pegged at $488 million, reflecting 1.7% increase from that generated in the year-ago quarter.

Likewise, first-quarter revenue estimates for the Applied Water segment is pegged at $368 million, suggesting 0.5% growth from sales generated in the year-ago quarter. Average sale surprise for the last four quarters was 1.63%. For the Measurement & Control Solutions segment revenue estimates are pegged at $387 million, up 4.3% from $371 million recorded in the year-ago quarter.

Earnings Whispers

Our proven model provides some idea on stocks that are about to release their earnings results. Per the model, a stock needs a combination of a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) for a likely earnings beat. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

The case with Xylem has been provided below.

Earnings ESP: The company has an Earnings ESP of -4.63%, with the Most Accurate Estimate of 55 cents below the Zacks Consensus Estimate of 58 cents.

Xylem Inc. Price, Consensus and EPS Surprise


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

Zacks Rank: Xylem currently carries a Zacks Rank #3. This rank along with a negative Earnings ESP makes earnings prediction difficult.

Note that we caution against stocks with a Zacks Rank #4 or 5 (Sell-rated) going into the earnings announcement, especially when the company is seeing a negative estimate revisions momentum.

Stocks to Consider

Here are some companies in the industry that you may want to consider as they have the right combination of elements to post an earnings beat this quarter, according to our model.

DXP Enterprises, Inc. DXPE has an Earnings ESP of +2.50% and a Zacks Rank #1 at present. You can see the complete list of today’s Zacks #1 Rank stocks here.

Dover Corporation DOV currently has an Earnings ESP of +0.37% and a Zacks Rank #2.

Colfax Corporation CFX presently has an Earnings ESP of +2.27% and a Zacks Rank #3.

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