Yahoo Finance Xylem's (NYSE:XYL) Q2 Sales Beat Estimates
Water technology company Xylem (NYSE:XYL) reported Q2 CY2024 results topping analysts' expectations , with revenue up 26% year on year to $2.17 billion. The company expects the full year's revenue to be around $8.55 billion, in line with analysts' estimates. It made a non-GAAP profit of $1.09 per share, improving from its profit of $0.98 per share in the same quarter last year.
Is now the time to buy Xylem? Find out in our full research report.
Xylem (XYL) Q2 CY2024 Highlights:
Revenue: $2.17 billion vs analyst estimates of $2.14 billion (1.2% beat)
EPS (non-GAAP): $1.09 vs analyst estimates of $1.05 (3.5% beat)
The company raised its revenue guidance for the full year to $8.55 billion at the midpoint
Gross Margin (GAAP): 37.8%, in line with the same quarter last year
Free Cash Flow of $215 million, up from $15 million in the previous quarter
Organic Revenue rose 9% year on year (14.6% in the same quarter last year)
Market Capitalization: $34.31 billion
“The team continued to build on Xylem’s momentum and outperformed expectations on all metrics in the second quarter,” said Xylem’s President and CEO, Matthew Pine.
Formed through a spinoff, Xylem (NYSE:XYL) manufactures and services engineered products across a wide variety of applications primarily in the water sector.
Water Infrastructure
Trends towards conservation and reducing groundwater depletion are putting water infrastructure and treatment products front and center. Companies that can innovate and create solutions–especially automated or connected solutions–to address these thematic trends will create incremental demand and speed up replacement cycles. On the other hand, water infrastructure and treatment companies are at the whim of economic cycles. Consumer spending and interest rates, for example, can greatly impact the industrial production that drives demand for these companies’ offerings.
Sales Growth
A company’s long-term performance can give signals about its business quality. Even a bad business can shine for one or two quarters, but a top-tier one tends to grow for years. Thankfully, Xylem's 9.8% annualized revenue growth over the last five years was solid. This shows it was successful in expanding, a good starting point for our analysis.
Long-term growth is the most important, but within industrials, a half-decade historical view may miss new industry trends or demand cycles. Xylem's annualized revenue growth of 26.8% over the last two years is above its five-year trend, suggesting its demand was strong and recently accelerated.
Xylem also reports organic revenue, which strips out one-time events like acquisitions and currency fluctuations because they don't accurately reflect its fundamentals. Over the last two years, Xylem's organic revenue averaged 12.9% year-on-year growth. Because this number is lower than its normal revenue growth, we can see that some mixture of acquisitions and foreign exchange rates boosted its headline performance.
This quarter, Xylem reported remarkable year-on-year revenue growth of 26%, and its $2.17 billion of revenue topped Wall Street estimates by 1.2%. Looking ahead, Wall Street expects sales to grow 4.6% over the next 12 months, a deceleration from this quarter.
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Operating Margin
Operating margin is one of the best measures of profitability because it tells us how much money a company takes home after procuring and manufacturing its products, marketing and selling them, and, most importantly, keeping them relevant through research and development.
Xylem has done a decent job managing its expenses over the last five years. The company has produced an average operating margin of 9.7%, higher than the broader industrials sector.
Looking at the trend in its profitability, Xylem's annual operating margin rose by 3.8 percentage points over the last five years, as its sales growth gave it operating leverage.
In Q2, Xylem generated an operating profit margin of 11.7%, up 4.8 percentage points year on year. This increase was encouraging, and since the company's operating margin rose more than its gross margin, we can infer it was recently more efficient with expenses such as sales, marketing, R&D, and administrative overhead.
EPS
We track the long-term growth in earnings per share (EPS) for the same reason as long-term revenue growth. Compared to revenue, however, EPS highlights whether a company's growth was profitable.
Xylem's EPS grew at an unimpressive 6.1% compounded annual growth rate over the last five years, lower than its 9.8% annualized revenue growth. However, its operating margin actually expanded during this timeframe, telling us non-fundamental factors affected its ultimate earnings.
Diving into the nuances of Xylem's earnings can give us a better understanding of its performance. A five-year view shows Xylem has diluted its shareholders, growing its share count by 34.4%. This dilution overshadowed its increased operating efficiency and has led to lower per share earnings. Taxes and interest expenses can also affect EPS but don't tell us as much about a company's fundamentals.
Like with revenue, we also analyze EPS over a shorter period to see if we are missing a change in the business. For Xylem, its two-year annual EPS growth of 28.5% was higher than its five-year trend. This acceleration made it one of the faster-growing industrials companies in recent history.
In Q2, Xylem reported EPS at $1.09, up from $0.98 in the same quarter last year. This print beat analysts' estimates by 3.5%. Over the next 12 months, Wall Street expects Xylem to grow its earnings. Analysts are projecting its EPS of $3.97 in the last year to climb by 11.4% to $4.42.
Key Takeaways from Xylem's Q2 Results
We were impressed by how significantly Xylem blew past analysts' revenue, organic revenue, and EPS expectations this quarter. We were also glad it raised its full-year revenue, EPS, EBITDA, and free cash flow guidance. Overall, this quarter seemed fairly positive and shareholders should feel optimistic. The stock traded up 2% to $144.30 immediately after reporting.
Xylem may have had a good quarter, but does that mean you should invest right now? When making that decision, it's important to consider its valuation, business qualities, as well as what has happened in the latest quarter. We cover that in our actionable full research report which you can read here, it's free.
