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A.O. Smith (AOS) Up 1.4% Since Last Earnings Report: Can It Continue?
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It has been about a month since the last earnings report for A.O. Smith (AOS - Free Report) . Shares have added about 1.4% in that time frame, underperforming the S&P 500.
Will the recent positive trend continue leading up to its next earnings release, or is A.O. Smith due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important drivers.
A. O. Smith Q2 Earnings Miss Estimates, Sales Rise Y/Y
A. O. Smith’s second-quarter 2024 adjusted earnings of $1.06 per share missed the Zacks Consensus Estimate of $1.07. However, the bottom line increased 5% on a year-over-year basis.
Net sales of $1.02 billion surpassed the consensus estimate of $992 million. The top line increased 7% year over year, driven by strong demand for residential and commercial water heaters in North America.
Segmental Details
A. O. Smith’s quarterly sales in North America (comprising the United States and Canada operations) increased 9% year over year to $790.7 million. This uptick was aided by higher volumes of water heaters and commercial boilers and effective pricing actions.
Segmental earnings inched down 0.4% year over year to $198.4 million, primarily due to an increase in material costs and higher selling expenses in support of its sales growth initiatives.
Quarterly sales in the Rest of the World (including China, India and Europe) segment were relatively flat year over year at $244.8 million. Sales were primarily driven by higher sales volumes of kitchen appliance products and combi boilers in China, which were partially offset by lower sales of residential water treatment products. Sales in India increased 16% in local currency.
The segment’s earnings were $25.9 million, down 9.5% year over year, due to an unfavorable product mix and sales promotions in China.
Margin Details
A.O. Smith’s cost of sales was $628.3 million, up 9.1% year over year. Selling, general & administrative expenses were $188.5 million, up 4.5%.
Gross profit increased 2.9% year over year to $396 million. The gross margin was 38.7% compared with 40% in the year-ago period. Interest expenses were $1.8 million, down from $4.5 million from the year-ago quarter.
Liquidity & Cash Flow
As of Jun 30, 2024, AOS’ cash and cash equivalents totaled $216.1 million compared with $339.9 million at the end of December 2023.
At the end of the quarter, long-term debt was $130.4 million compared with $117.3 million at the end of December 2023.
In the first six months of 2024, cash provided by operating activities totaled $164 million compared with $260.2 million in the year-ago period.
Share Repurchases
In the first six months of 2024, A.O. Smith repurchased 1.8 million shares for $153.2 million. Exiting June 2024, 3.7 million shares were left to be repurchased under the existing share repurchase authorization. In January 2024, AOS’ board boosted the existing share buyback program by authorizing the repurchase of an additional 2 million shares. The company expects to repurchase $300 million worth of shares in 2024.
2024 Outlook
A.O. Smith has reaffirmed its sales outlook. The company expects net sales to be in the range of $3,970-$4,050 million. The figure indicates an increase from $3,853 million reported in 2023.
Management currently projects adjusted earnings per share to be in the band of $3.95-$4.10 compared with $3.90-$4.15 projected earlier. The figure indicates an increase from $3.81 reported in 2023. AOS’ adjusted earnings guidance indicates a 5.6% increase at the mid-point from a year ago.
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed a downward trend in fresh estimates.
VGM Scores
At this time, A.O. Smith has an average Growth Score of C, though it is lagging a lot on the Momentum Score front with an F. However, the stock was allocated a grade of C on the value side, putting it in the middle 20% for this investment strategy.
Overall, the stock has an aggregate VGM Score of D. If you aren't focused on one strategy, this score is the one you should be interested in.
Outlook
Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. Notably, A.O. Smith has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.
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A.O. Smith (AOS) Up 1.4% Since Last Earnings Report: Can It Continue?
It has been about a month since the last earnings report for A.O. Smith (AOS - Free Report) . Shares have added about 1.4% in that time frame, underperforming the S&P 500.
Will the recent positive trend continue leading up to its next earnings release, or is A.O. Smith due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important drivers.
A. O. Smith Q2 Earnings Miss Estimates, Sales Rise Y/Y
A. O. Smith’s second-quarter 2024 adjusted earnings of $1.06 per share missed the Zacks Consensus Estimate of $1.07. However, the bottom line increased 5% on a year-over-year basis.
Net sales of $1.02 billion surpassed the consensus estimate of $992 million. The top line increased 7% year over year, driven by strong demand for residential and commercial water heaters in North America.
Segmental Details
A. O. Smith’s quarterly sales in North America (comprising the United States and Canada operations) increased 9% year over year to $790.7 million. This uptick was aided by higher volumes of water heaters and commercial boilers and effective pricing actions.
Segmental earnings inched down 0.4% year over year to $198.4 million, primarily due to an increase in material costs and higher selling expenses in support of its sales growth initiatives.
Quarterly sales in the Rest of the World (including China, India and Europe) segment were relatively flat year over year at $244.8 million. Sales were primarily driven by higher sales volumes of kitchen appliance products and combi boilers in China, which were partially offset by lower sales of residential water treatment products. Sales in India increased 16% in local currency.
The segment’s earnings were $25.9 million, down 9.5% year over year, due to an unfavorable product mix and sales promotions in China.
Margin Details
A.O. Smith’s cost of sales was $628.3 million, up 9.1% year over year. Selling, general & administrative expenses were $188.5 million, up 4.5%.
Gross profit increased 2.9% year over year to $396 million. The gross margin was 38.7% compared with 40% in the year-ago period. Interest expenses were $1.8 million, down from $4.5 million from the year-ago quarter.
Liquidity & Cash Flow
As of Jun 30, 2024, AOS’ cash and cash equivalents totaled $216.1 million compared with $339.9 million at the end of December 2023.
At the end of the quarter, long-term debt was $130.4 million compared with $117.3 million at the end of December 2023.
In the first six months of 2024, cash provided by operating activities totaled $164 million compared with $260.2 million in the year-ago period.
Share Repurchases
In the first six months of 2024, A.O. Smith repurchased 1.8 million shares for $153.2 million. Exiting June 2024, 3.7 million shares were left to be repurchased under the existing share repurchase authorization. In January 2024, AOS’ board boosted the existing share buyback program by authorizing the repurchase of an additional 2 million shares. The company expects to repurchase $300 million worth of shares in 2024.
2024 Outlook
A.O. Smith has reaffirmed its sales outlook. The company expects net sales to be in the range of $3,970-$4,050 million. The figure indicates an increase from $3,853 million reported in 2023.
Management currently projects adjusted earnings per share to be in the band of $3.95-$4.10 compared with $3.90-$4.15 projected earlier. The figure indicates an increase from $3.81 reported in 2023. AOS’ adjusted earnings guidance indicates a 5.6% increase at the mid-point from a year ago.
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed a downward trend in fresh estimates.
VGM Scores
At this time, A.O. Smith has an average Growth Score of C, though it is lagging a lot on the Momentum Score front with an F. However, the stock was allocated a grade of C on the value side, putting it in the middle 20% for this investment strategy.
Overall, the stock has an aggregate VGM Score of D. If you aren't focused on one strategy, this score is the one you should be interested in.
Outlook
Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. Notably, A.O. Smith has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.