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A. O. Smith (AOS) to Benefit From Business Strength Amid Risks
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A. O. Smith Corporation (AOS - Free Report) has been benefiting from strong demand for water heater products and higher shipments in North America. The company expects sales from both the North America boiler and water treatment businesses to grow approximately 8-10% in 2024. Also, healthy demand for tankless water heaters and kitchen appliance products in China has been boosting performance of the Rest of the World business. For 2024, A. O. Smith expects overall sales to increase approximately 3-5% from the year-ago levels.
The company remains focused on acquiring businesses to gain access to new customers, regions and product lines. In the first quarter of 2024, AOS acquired a California-based water treatment company, Impact Water Products. The buyout is expected to expand its water treatment business in the West Coast region. Also, the acquisition of Atlantic Filter in June 2022, enhanced its position in the water treatment industry, and strengthened its customer base in Florida and the adjacent regions. The company spent $21.1 million on acquisitions in the first three months of 2024.
Management is committed to rewarding shareholders through dividend payouts and share repurchases. In the first three months of 2024, it paid dividends worth $47.3 million and repurchased shares worth $74.5 million. In October 2023, it hiked its dividend by 7% to 32 cents per share.
Also, AOS’ sound liquidity position adds to its strength. Exiting the first quarter of 2024, it had cash and cash equivalents of $251.6 million, higher than the total debt of $119.7 million.
Image Source: Zacks Investment Research
Over the past year, the Zacks Rank #3 (Hold) company has gained 18.2% compared with the industry’s 33.8% growth.
However, weakened consumer confidence and a challenged real estate market in China may prove detrimental for A. O. Smith in the quarters ahead. The company lowered its 2024 third-party sales growth outlook for China. It currently expects the metric to be flat to up 3% in local currency.
The escalating cost of sales poses a threat to A. O. Smith’s bottom line. In the first quarter of 2024, the company’s selling, general and administrative expenses increased 8.4% year over year. The metric, as a percentage of sales, increased 80 basis points in the quarter. In the second quarter, commodity cost, specifically of steel, is expected to increase 20% sequentially, which might affect its margins and profitability.
Key Picks
Some better-ranked stocks from the same space are presented below.
POWL delivered a trailing four-quarter average earnings surprise of 66.9%. In the past 60 days, the Zacks Consensus Estimate for Powell Industries’ 2024 earnings has increased 19.9%.
Zurn Elkay Water Solutions Corporation (ZWS - Free Report) presently carries a Zacks Rank of 2 (Buy). ZWS delivered a trailing four-quarter average earnings surprise of 10.3%. In the past 60 days, the Zacks Consensus Estimate for its 2024 earnings has risen 2.6%.
AZZ Inc. (AZZ - Free Report) carries a Zacks Rank #2 at present. AZZ delivered a trailing four-quarter average earnings surprise of 36%. In the past 60 days, the Zacks Consensus Estimate for its 2024 earnings has jumped 3%.
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A. O. Smith (AOS) to Benefit From Business Strength Amid Risks
A. O. Smith Corporation (AOS - Free Report) has been benefiting from strong demand for water heater products and higher shipments in North America. The company expects sales from both the North America boiler and water treatment businesses to grow approximately 8-10% in 2024. Also, healthy demand for tankless water heaters and kitchen appliance products in China has been boosting performance of the Rest of the World business. For 2024, A. O. Smith expects overall sales to increase approximately 3-5% from the year-ago levels.
The company remains focused on acquiring businesses to gain access to new customers, regions and product lines. In the first quarter of 2024, AOS acquired a California-based water treatment company, Impact Water Products. The buyout is expected to expand its water treatment business in the West Coast region. Also, the acquisition of Atlantic Filter in June 2022, enhanced its position in the water treatment industry, and strengthened its customer base in Florida and the adjacent regions. The company spent $21.1 million on acquisitions in the first three months of 2024.
Management is committed to rewarding shareholders through dividend payouts and share repurchases. In the first three months of 2024, it paid dividends worth $47.3 million and repurchased shares worth $74.5 million. In October 2023, it hiked its dividend by 7% to 32 cents per share.
Also, AOS’ sound liquidity position adds to its strength. Exiting the first quarter of 2024, it had cash and cash equivalents of $251.6 million, higher than the total debt of $119.7 million.
Image Source: Zacks Investment Research
Over the past year, the Zacks Rank #3 (Hold) company has gained 18.2% compared with the industry’s 33.8% growth.
However, weakened consumer confidence and a challenged real estate market in China may prove detrimental for A. O. Smith in the quarters ahead. The company lowered its 2024 third-party sales growth outlook for China. It currently expects the metric to be flat to up 3% in local currency.
The escalating cost of sales poses a threat to A. O. Smith’s bottom line. In the first quarter of 2024, the company’s selling, general and administrative expenses increased 8.4% year over year. The metric, as a percentage of sales, increased 80 basis points in the quarter. In the second quarter, commodity cost, specifically of steel, is expected to increase 20% sequentially, which might affect its margins and profitability.
Key Picks
Some better-ranked stocks from the same space are presented below.
Powell Industries, Inc. (POWL - Free Report) presently flaunts a Zacks Rank of 1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
POWL delivered a trailing four-quarter average earnings surprise of 66.9%. In the past 60 days, the Zacks Consensus Estimate for Powell Industries’ 2024 earnings has increased 19.9%.
Zurn Elkay Water Solutions Corporation (ZWS - Free Report) presently carries a Zacks Rank of 2 (Buy). ZWS delivered a trailing four-quarter average earnings surprise of 10.3%. In the past 60 days, the Zacks Consensus Estimate for its 2024 earnings has risen 2.6%.
AZZ Inc. (AZZ - Free Report) carries a Zacks Rank #2 at present. AZZ delivered a trailing four-quarter average earnings surprise of 36%. In the past 60 days, the Zacks Consensus Estimate for its 2024 earnings has jumped 3%.