I wouldn’t exactly call it super enthusiastic guidance, but this quarter, when so few companies have anything good to say about their business for the fourth quarter, even Xylem
) tepid enthusiasm stands out.
On Oct. 29, Xylem reported earnings of 39 cents a share for the third quarter. That was (barely) above last year’s 38 cents a share for the quarter, and 3 cents a share above the Wall Street consensus. Taking out so-called one-time charges (for restructuring and the like,) Xylem reported earnings of 49 cents a share. Revenue climbed 4% year to year to $965 million. Wall Street had projected revenue of $919 million.
And then came that tepid but positive guidance. Market conditions are "modestly" improving with higher sales in northern and central Europe offsetting lower spending on water infrastructure in southern Europe.
Emerging markets such as China are helping drive revenue growth, said CEO Steve Loranger. (That’s the kindest thing I’ve heard about China this earnings season. The Chinese government has announced a big program to improve water quality that will result in more spending on the water treatment and water transportation gear that Xylem sells.) The company also sees continued cost cutting adding to earnings.
For the full year, Loranger told Wall Street, the company now expects earnings of $1.60 to $1.65 a share on revenue of $3.8 billion. That’s a significant jump from prior earnings guidance of $1.40 to $1.50 a share and a less but still positive move from earlier revenue guidance for $3.7 billion. The Wall Street consensus before the company’s third quarter report was for $1.42 for the year on revenue of $3.73 billion.
Xylem, a member of my Jubak’s Picks portfolio
, closed up 12.4% for the day. On the positive trends in Xylem’s guidance, I’m raising my target price to $43 a share from a prior $31 a share for September 2014.
At the time of this writing, Jim Jubak didn't own shares of any companies mentioned in this post in personal portfolios. When in 2010 he started the mutual fund he manages, Jubak Global Equity Fund (JUBAX), he liquidated all his individual stock holdings and put the money into the fund. The fund may or may not own positions in any stock mentioned. The fund did own shares of Xylem as of the end of June. For a full list of the stocks in the fund as of the end of the most recent quarter, see the fund's portfolio here. More on Top Stocks