A. O. Smith (AOS) Q3 Earnings Meet, Decline Y/Y on Lower Sales

A. O. Smith Corporation’s AOS third-quarter 2022 adjusted earnings (excluding 2 cents from non-recurring items) of 69 cents per share were in line with the Zacks Consensus Estimate. The bottom line declined in double digits year over year.

Net sales of $874.2 million marginally outperformed the Zacks Consensus Estimate of $874.1 million. The top line dipped 4.4% year over year due to residential water heater de-stocking activity.

Segmental Details

A. O. Smith’s quarterly sales in North America (comprising the United States and Canada water heaters and boilers) were flat year over year at $652.9 million. Weak residential water heater demand hurt performance. Strong demand for commercial gas water heater and boiler products aided performance. The Giant Factories acquisition added $25 million to North American sales in the quarter.

A. O. Smith Corporation Price, Consensus and EPS Surprise

A. O. Smith Corporation Price, Consensus and EPS Surprise

A. O. Smith Corporation price-consensus-eps-surprise-chart | A. O. Smith Corporation Quote

Adjusted segment earnings decreased 11% year over year to $132.9 million. The downside was due to lower residential water heater volumes and high raw material costs.

Quarterly sales in the Rest of the World (including China, India and Europe) decreased 13% year over year to $230.2 million. The decline in sales was primarily due to lower consumer demand in China, thanks to COVID-19-related lockdowns. However, strong demand for water heaters and water treatment products in India boosted sales by 16%.

The segment’s earnings were $21.8 million, down 19% year over year. The downside was due to lower volumes in China as a result of lockdowns.

Margin Details

In the reported quarter, A.O. Smith’s cost of sales was $569.2 million, down approximately 1% year over year. Selling, general & administrative expenses were $155.5 million, down 12.4%.

Gross profit decreased 10.4% year over year to $305 million with a margin of 34.9%, down 2.3 percentage points. Interest expenses surged more than 100% to $2.4 million.

Liquidity & Cash Flow

As of Sep 30, 2022, A.O. Smith’s cash and cash equivalents totaled $358.8 million compared with $443.3 million at the end of December 2021.

At the end of the reported quarter, long-term debt was $281 million compared with $189.9 million at December 2021-end.

In the first nine months of 2022, cash provided by operating activities totaled $214.7 million compared with $376.8 million in the year-ago period.

Share Repurchases

In the first nine months of 2022, A.O. Smith repurchased shares worth $282 million, up 33% year over year. In 2022, the company expects to repurchase shares worth $400 million. In the first nine months of 2022, AOS paid dividends worth $131.1 million, up 4.5% year over year.

2022 Outlook Reiterated

A.O. Smith maintained its recently revised earnings and sales forecast for 2022. The company continues to expect sales in the band of $3,715-$3,785 million for 2022. The mid-point of the guided range — $3,750 million — is in line with the Zacks Consensus Estimate.

The company expects earnings of $1.29-$1.39 for 2022. Adjusted earnings are estimated to be $3.05-$3.15 for 2022. The mid-point of the guided range — $3.10 — lies above the Zacks Consensus Estimate of $3.08.

Zacks Rank & Key Picks

A.O. Smith currently carries a Zacks Rank #4 (Sell).

Some better-ranked stocks within the broader Industrial Products sector are as follows:

Enerpac Tool Group Corp. EPAC presently sports a Zacks Rank #1 (Strong Buy). The company delivered a four-quarter earnings surprise of 3.4%, on average. You can see the complete list of today’s Zacks #1 Rank stocks.

Enerpac Tool has an estimated earnings growth rate of 44.6% for the current fiscal year. The company’s shares gained 25.5% in the past six months.

iRobot Corporation IRBT presently has a Zacks Rank of 2 (Buy). IRBT’s earnings surprise in the last four quarters was 59.1%, on average.

iRobot has an estimated earnings growth rate of 36.6% for the current year. The stock has rallied 11.4% in the past six months.

Titan International, Inc. TWI presently carries a Zacks Rank of 2. Its earnings surprise in the last four quarters was 47%, on average.

Titan International has an estimated earnings growth rate of 157.7% for the current year. The stock has jumped 2.6% in the past six months.

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