McClain Steps Down as Xylem Chief After Stock Disappoints

Gretchen McClain, the chief executive officer of water company Xylem Inc., resigned and was replaced on an interim basis by ITT Corp.’s former chairman Steven Loranger.

McClain, 50, left “to pursue other opportunities,” the White Plains, New York-based company said in a statement today. The board initiated a search for the next CEO. Xylem, whose pumps helped clear New York tunnels of Hurricane Sandy waters, was spun off from ITT in 2011.

The change was prompted in part by Xylem’s 3.4 percent decline this year through Sept. 6 compared with ITT’s 45 percent gain, according to David Rose, an analyst with Wedbush Securities Inc. in Los Angeles.

With a “lackluster performance of the shares since the spinoff and the most recent earnings disappointment, we believe there has been a significant amount of pressure to improve performance quickly,” Rose said in an interview today. “The case had not been made that a turnaround was imminent.”

The shares gained 2.3 percent to $26.78 at the close in New York, the most in more than two months. The company reported earnings of $46 million for the second quarter. Analysts had expected $70.9 million.

“Xylem has a great portfolio of products to address growing global water challenges,” Rose said. “However, with the recent operational challenges and the sudden departure of its CEO without a long-term replacement, the near-term outlook remains cloudy.”

‘Surprise’ Departure

McClain was scheduled to present at the Vertical Research Partners 2013 Industrials Conference tomorrow. Her departure was a “surprise,” Rose said.

Investors won’t be satisfied with Loranger, 61, as CEO for a “long period,” he said.

Xylem should hire someone with “good insight on water” who can engage with the industry and oversee a “very challenging realignment of European” operations while driving sales and acquisitions, he said.

Xylem in today’s statement reaffirmed its July 30 forecast for 2013 sales of about $3.7 billion and net income of $260 million to $279 million. Analysts are expecting earnings of $241 million this year on sales of $3.73 billion, the average of eight estimates compiled by Bloomberg.

A CEO must “demonstrate you can exceed estimates,” Rose said.

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