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

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Xylem Inc. XYL is scheduled to release fourth-quarter 2020 results on Feb 4, before market open.

The company delivered better-than-expected results in two of the trailing four quarters, while recording in-line results in one and lagging estimates once. Earnings surprise was a negative 4.01%, on average. In the last reported quarter, the company’s earnings of 62 cents surpassed the Zacks Consensus Estimate of 52 cents.

In the past six months, shares of this water solutions provider gained 31.9% compared with the industry’s growth of 15.9%.




Let us delve deeper.

Key Factors & Estimates for Q4

Xylem’s results in the past two quarters have been adversely impacted by the pandemic-related woes. This trend is expected to have continued in the fourth quarter and get reflected on the results. Notably, the company’s organic sales were down 12% year over year in the second quarter and 7% in the third quarter.

For the fourth quarter of 2020, Xylem expects a year-over-year organic sales decline of 6-8%. That for the Water Infrastructure segment will likely decline in low-single digits, while that for the Applied Water segment will likely decrease in mid-single digits. For the Measurement & Control Solutions segment, organic sales for the quarter are expected to decline in the mid-teens.

In addition to the pandemic-led woes, the company’s performance is expected to have been hurt by the adverse impacts of cost inflation and strategic investments. Notably, cost inflation reduced third-quarter operating margin by 280 basis points (bps), while strategic investments lowered the same by 60 bps. However, the company’s cost-control actions are likely to have aided its performance in the quarter under review. The company expects operating margin of 13-13.5% for the fourth quarter.

Also, a diversified business structure, solid product offerings, product innovation and solid contract wins are tailwinds, which are expected to have benefitted the fourth-quarter performance.

The Zacks Consensus Estimate for fourth-quarter revenues of $1,295 million suggests a 5.5% dip from the year-ago reported figure and a 6.1% increase from the previous quarter’s reported number. Earnings estimates are pegged at 69 cents per share, suggesting a decline of 22.5% from the year-ago quarter’s reported figure and 11.3% growth from that reported in the third quarter of 2020.

For the Water Infrastructure segment, the Zacks Consensus Estimate for revenues is pegged at $591 million, implying a 2% slip from the figure reported a year ago and a 12.8% increase sequentially. Revenue estimates for Applied Water are pegged at $372 million, suggesting a decline of 5.1% from the year-ago quarter’s reported figure and growth of 2.2% from the previous quarter’s reported number.

Also, Measurement & Control Solutions’ revenues are expected to be $325 million, suggesting a 13.6% decline from the year-ago reported figure and a fall of 2.1% from the previous quarter’s reported number.

Earnings Whispers

Our proven model does not conclusively suggest an earnings beat for Xylem this time around. The combination of a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) increases the chances of beating estimates. That is not the case with Xylem as shown below. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Earnings ESP: Xylem has an Earnings ESP of -2.38% as the Most Accurate Estimate of 68 cents is below the Zacks Consensus Estimate of 69 cents.

Xylem Inc. Price, Consensus and EPS Surprise

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: Xylem currently carries a Zacks Rank #3.

Stocks to Consider

Here are some companies that you may want to consider as according to our model, these have the right combination of elements to beat on earnings this reporting cycle:

AGCO Corporation AGCO currently has an Earnings ESP of +3.34% and is a Zacks #1 Ranked player. You can see the complete list of today’s Zacks #1 Rank stocks here.

iRobot Corporation IRBT presently has an Earnings ESP of +63.41% and a Zacks Rank of 3.

Illinois Tool Works Inc. ITW currently has an Earnings ESP of +0.71% and a Zacks Rank #3.

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