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A.O. Smith (AOS) Beats on Q4 Earnings; Revenues Up Y/Y
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A.O. Smith Corp.(AOS - Free Report) maintained its earnings streak in fourth-quarter 2016, with earnings per share of 47 cents, surpassing the Zacks Consensus Estimate by a penny. Probably, the results did not live up to investors’ expectations as the stock was down 2.6% at the end of regular trading session on Thursday.
The earnings figure also improved 4.4% from the year-ago tally of 45 cents. The bottom-line improvement mainly came on the back of robust sales growth.
For full-year 2016, the company’s earnings per share came in at $1.85, up an impressive 17.1% on a year-over-year basis. The figure also steered past the projected range of $1.81–$1.83 cents.
Inside the Headlines
Net sales in the quarter were up 9.2% year over year to $698.1 million. However, net sales fell short of the Zacks Consensus Estimate of $707 million.
Stellar demand of water heating and water treatment products in China and increased volumes of residential and commercial water heaters in the U.S. supported the impressive top-line growth during the reported quarter.
For full-year 2016, the company’s net sales came in at $2.7 billion and were up 6.0% from the year-ago tally.
Talking about segments, A.O. Smith’s sales in the North America segment (comprises U.S. and Canadian water heaters and boilers) grew 5.3 % year over year to $435.6 million. Higher volumes of residential and commercial water heaters in the U.S. proved conducive to the sales performance of the region. In addition, the previously completed acquisition of residential water treatment company – Aquasana – contributed $12.2 million to revenues, thus supplementing the segment’s growth.
However, Segmental operating earnings fell 3% year over year to $89.4 million. Higher material costs and higher–than-expected incremental ERP implementation expenses more than offset the benefits of price increase and strong profitability of Lochinvar branded products, resulting in the decline of operating earnings. Operating margin expanded 210 bps to 22.3% on a year-over-year basis.
Quarterly sales at the Rest of the World segment (China, India & Europe) rose 15.7% year over year to $268.1 million. This improvement came largely on the back of consistent solid customer demand for A.O. Smith’s premium water heating and water treatment products, particularly in China (up 24%, excluding impacts of U.S. dollar).
Operating earnings at the segment surged 34% year over year to $38.2 million in the quarter. Excellent sales in China more than offset multiple headwinds, including higher selling and advertising costs and currency headwinds. Operating margin advanced 190 bps to 14.2% on a year-over-year basis.
Smith (A.O.) Corporation Price, Consensus and EPS Surprise
During fourth-quarter 2016, A.O. Smith repurchased around 726,000 common shares for $35 million. At the end of 2016, the company’s repurchases totaled approximately 3.3 million shares at a cost of $135.2 million.
During the quarter, A.O. Smith completed a two-for-one stock split. Additionally, the company increased the authorized shares available for repurchase by 3.0 million shares. Exiting the year, it has approximately 4.9 million shares remained on the existing discretionary repurchase authority.
Reviewing its sound financial health, A.O. Smith approved a 17% hike in its quarterly cash dividend to $.14 per share. The dividend is payable on Feb 15, 2017 to shareholders of record as of Jan 31. This comes across as a good move to reward shareholders by increasing their wealth.
Liquidity & Cash Flow
Exiting the quarter on Dec 31, 2016, A.O. Smith’s cash and cash equivalents were $330.4 million compared with $323.6 million at the end of Dec 31, 2015.
At the end of the quarter, long-term debt was $316.4 million, compared with $236.1 million at the end of Dec 31, 2015.
Guidance
Concurrent with its fourth-quarter results, A.O. Smith offered its full-year 2017 guidance. The company projects its earnings per share to lie in the range of $1.98–$2.08. The midpoint of the 2017 earnings guidance represents a 10% rise over 2016.
The company is optimistic that China will act as its strongest top-line driver, led by stellar demand of water treatment and air purification products. Sales in China are likely to grow about 15% in local currency for the year 2017. Also, impressive sales of residential water heater sales and boilers & water treatment products in the U.S. are expected to accelerate the company’s growth.
Our Take
A.O. Smith has been proving its mettle despite formidable macro woes. With a string of earnings beats over the past 21 quarters, the company’s surprise history is nothing short of spectacular. The company’s robust position in the defensive replacement market sets it apart from its peers. The company accounts for approximately 85% of North American water heater and boiler volumes, which are on the uptrend, improving its strength.
Moreover, the company’s enhancing foothold in China is a major positive. A.O. Smith’s business in China has grown significantly over the decade (28% CAGR sales from 2003–2014) with over 7,500 outlets in the nation. We believe that the company’s sound financial strength and strategic acquisitions will continue to support the Zacks Rank #3 (Hold) company’s growth momentum.
Key Picks
Better-ranked stocks in the broader sector that are worth a look now, include II-VI Inc. , ABB Ltd. and Applied Industrial Technologies Inc. (AIT - Free Report) . While II-VI and ABB boast a Zacks Rank #1 (Strong Buy), Applied Industrial Technologies carries a Zacks Rank #2 (Buy).
II-VI Incorporated has registered a remarkable positive average surprise of 59.2% for the four trailing quarters, driven by strong, consecutive earnings beats throughout. You can see the complete list of today’s Zacks #1 Rank stocks here.
ABB has generated a positive average earnings surprise of 23.5% in the trailing four quarters.
Applied Industrial Technologies managed to beat estimates thrice over the trailing four quarters and has a positive earnings surprise of 6.2%.
The Best Place to Start Your Stock Search
Today, you are invited to download the full list of 220 Zacks Rank #1 "Strong Buy" stocks – absolutely free of charge. Since 1988, Zacks Rank #1 stocks have nearly tripled the market, with average gains of +26% per year. Plus, you can access the list of portfolio-killing Zacks Rank #5 "Strong Sells" and other private research. See these stocks free >>
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A.O. Smith (AOS) Beats on Q4 Earnings; Revenues Up Y/Y
A.O. Smith Corp.(AOS - Free Report) maintained its earnings streak in fourth-quarter 2016, with earnings per share of 47 cents, surpassing the Zacks Consensus Estimate by a penny. Probably, the results did not live up to investors’ expectations as the stock was down 2.6% at the end of regular trading session on Thursday.
The earnings figure also improved 4.4% from the year-ago tally of 45 cents. The bottom-line improvement mainly came on the back of robust sales growth.
For full-year 2016, the company’s earnings per share came in at $1.85, up an impressive 17.1% on a year-over-year basis. The figure also steered past the projected range of $1.81–$1.83 cents.
Inside the Headlines
Net sales in the quarter were up 9.2% year over year to $698.1 million. However, net sales fell short of the Zacks Consensus Estimate of $707 million.
Stellar demand of water heating and water treatment products in China and increased volumes of residential and commercial water heaters in the U.S. supported the impressive top-line growth during the reported quarter.
For full-year 2016, the company’s net sales came in at $2.7 billion and were up 6.0% from the year-ago tally.
Talking about segments, A.O. Smith’s sales in the North America segment (comprises U.S. and Canadian water heaters and boilers) grew 5.3 % year over year to $435.6 million. Higher volumes of residential and commercial water heaters in the U.S. proved conducive to the sales performance of the region. In addition, the previously completed acquisition of residential water treatment company – Aquasana – contributed $12.2 million to revenues, thus supplementing the segment’s growth.
However, Segmental operating earnings fell 3% year over year to $89.4 million. Higher material costs and higher–than-expected incremental ERP implementation expenses more than offset the benefits of price increase and strong profitability of Lochinvar branded products, resulting in the decline of operating earnings. Operating margin expanded 210 bps to 22.3% on a year-over-year basis.
Quarterly sales at the Rest of the World segment (China, India & Europe) rose 15.7% year over year to $268.1 million. This improvement came largely on the back of consistent solid customer demand for A.O. Smith’s premium water heating and water treatment products, particularly in China (up 24%, excluding impacts of U.S. dollar).
Operating earnings at the segment surged 34% year over year to $38.2 million in the quarter. Excellent sales in China more than offset multiple headwinds, including higher selling and advertising costs and currency headwinds. Operating margin advanced 190 bps to 14.2% on a year-over-year basis.
Smith (A.O.) Corporation Price, Consensus and EPS Surprise
Smith (A.O.) Corporation Price, Consensus and EPS Surprise | Smith (A.O.) Corporation Quote
Share Repurchases
During fourth-quarter 2016, A.O. Smith repurchased around 726,000 common shares for $35 million. At the end of 2016, the company’s repurchases totaled approximately 3.3 million shares at a cost of $135.2 million.
During the quarter, A.O. Smith completed a two-for-one stock split. Additionally, the company increased the authorized shares available for repurchase by 3.0 million shares. Exiting the year, it has approximately 4.9 million shares remained on the existing discretionary repurchase authority.
Reviewing its sound financial health, A.O. Smith approved a 17% hike in its quarterly cash dividend to $.14 per share. The dividend is payable on Feb 15, 2017 to shareholders of record as of Jan 31. This comes across as a good move to reward shareholders by increasing their wealth.
Liquidity & Cash Flow
Exiting the quarter on Dec 31, 2016, A.O. Smith’s cash and cash equivalents were $330.4 million compared with $323.6 million at the end of Dec 31, 2015.
At the end of the quarter, long-term debt was $316.4 million, compared with $236.1 million at the end of Dec 31, 2015.
Guidance
Concurrent with its fourth-quarter results, A.O. Smith offered its full-year 2017 guidance. The company projects its earnings per share to lie in the range of $1.98–$2.08. The midpoint of the 2017 earnings guidance represents a 10% rise over 2016.
The company is optimistic that China will act as its strongest top-line driver, led by stellar demand of water treatment and air purification products. Sales in China are likely to grow about 15% in local currency for the year 2017. Also, impressive sales of residential water heater sales and boilers & water treatment products in the U.S. are expected to accelerate the company’s growth.
Our Take
A.O. Smith has been proving its mettle despite formidable macro woes. With a string of earnings beats over the past 21 quarters, the company’s surprise history is nothing short of spectacular. The company’s robust position in the defensive replacement market sets it apart from its peers. The company accounts for approximately 85% of North American water heater and boiler volumes, which are on the uptrend, improving its strength.
Moreover, the company’s enhancing foothold in China is a major positive. A.O. Smith’s business in China has grown significantly over the decade (28% CAGR sales from 2003–2014) with over 7,500 outlets in the nation. We believe that the company’s sound financial strength and strategic acquisitions will continue to support the Zacks Rank #3 (Hold) company’s growth momentum.
Key Picks
Better-ranked stocks in the broader sector that are worth a look now, include II-VI Inc. , ABB Ltd. and Applied Industrial Technologies Inc. (AIT - Free Report) . While II-VI and ABB boast a Zacks Rank #1 (Strong Buy), Applied Industrial Technologies carries a Zacks Rank #2 (Buy).
II-VI Incorporated has registered a remarkable positive average surprise of 59.2% for the four trailing quarters, driven by strong, consecutive earnings beats throughout. You can see the complete list of today’s Zacks #1 Rank stocks here.
ABB has generated a positive average earnings surprise of 23.5% in the trailing four quarters.
Applied Industrial Technologies managed to beat estimates thrice over the trailing four quarters and has a positive earnings surprise of 6.2%.
The Best Place to Start Your Stock Search
Today, you are invited to download the full list of 220 Zacks Rank #1 "Strong Buy" stocks – absolutely free of charge. Since 1988, Zacks Rank #1 stocks have nearly tripled the market, with average gains of +26% per year. Plus, you can access the list of portfolio-killing Zacks Rank #5 "Strong Sells" and other private research. See these stocks free >>