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Xylem (XYL) to Report Q4 Earnings: What's in the Offing?

Zacks Equity Research

Xylem Inc. XYL is scheduled to release fourth-quarter 2018 results on Jan 31, 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 in three. Average earnings surprise was a positive 0.71%. Notably, the company’s earnings of 77 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 6.4% return, outperforming the industry’s increase of 2.1%.

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

Factors to Affect Q4 Results

Xylem is currently dealing with adverse impacts of rising cost of sales, aggravated by tariffs and other inflationary pressures. In addition, the company relies on third-party suppliers for raw materials and other inputs. Such reliance in the event of a failure in the supply chain can severely impact results. Further, unfavorable mix and growth investments might continue to pressure margins.

Another headwind, which impacted Xylem’s results, is unfavorable movements in foreign currencies. Further, it is predicted to continue affecting the company. For 2018, Xylem believes that forex woes will dilute earnings by 5 cents per share.

Notwithstanding these headwinds, we believe that industrial machinery companies are currently benefiting from improving industrial production in the United States, high demand for U.S.-made equipment, infrastructural development, strengthening housing markets and favorable tax policies. In addition to these positive aspects, Xylem stands to gain from order growth in emerging nations like China, India and Latin America; strengthening end-markets — especially utilities, industrial, commercial and residential; solid product portfolio; productivity initiatives and impressive pricing actions.

For the fourth quarter of 2018, Xylem anticipates organic sales to grow roughly 7-8% and adjusted earnings to be 87-89 cents per share.

For the Water Infrastructure segment, Xylem believes that solid orders (including the ones that were shifted from the third quarter), especially in the utilities and industrial markets, will be a boon. Average sale surprise for the last four quarters is 3.31%. For the fourth quarter, the Zacks Consensus Estimate for revenues is pegged at $594 million, reflecting 1.9% increase from that generated in the year-ago quarter. Likewise, fourth-quarter revenue estimates for the Applied Water segment represents 6.7% growth from sales generated 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: Xylem has an Earnings ESP of +1.26%, with the Most Accurate Estimate of 89 cents, exceeding the Zacks Consensus Estimate of 88 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 #4 (Sell). This rank, along with a positive Earnings ESP, makes earnings prediction difficult.

Note that we caution against stocks with a Zacks Rank #4 or 5 (Strong Sell) 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.

Colfax Corporation CFX has an Earnings ESP of +1.43% and a Zacks Rank #2 at present. You can see the complete list of today’s Zacks #1 Rank stocks here.

IDEX Corporation IEX has an Earnings ESP of +0.24% and a Zacks Rank #3.

Nordson Corporation NDSN has an Earnings ESP of +4.82% and a Zacks Rank #3.

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